Re-domiciliation of Offshore Funds into Malta
Malta has swiftly established itself as an alternative domicile for funds and financial services in general, a position which may be further incremented purusant to the implementation of the EU proposed Directive on Alternative Investment Fund Management (“AIFMD”). Although it is speculative to comment on the full extent of the AIFMD prior to its full transposition, it is apt to envisage that the benefits Malta has to offer in terms of costs, expertise and fiscal benefits shall help mitigate the ever-severe scrutiny under which major fund exporting countries in offshore jurisdictions are currently undergoing and which shall lead to a migration of fund managers and other fund service providers to regulated yet investor-friendly jurisdictions, like Malta.
One of the major catalysts behind Malta’s growing clout in financial services has been the progressive enactment of legislative instruments, particularly the Continuation of Companies Regulations (L.N 344 of 2002 – hereinafter the “Regulations”). The Regulations set forth a legal framework for the continuation of corporate entities in Malta and out of Malta (inward and outward re-domiciliation) under the Companies Act (Chapter 386 of the Laws of Malta).
The Regulations are also applicable in relation to regulated entities such as overseas collective investment schemes. The re-domiciliation of such schemes is governed by Article 31 of the Investment Services Act (Chapter 370 of the Laws of Malta) (“ISA”), the ISA being the main legislation governing regulatory aspects of investment services and collective investment business in Malta, complemented by the guidelines issued by the Malta Financial Services Authority (“MFSA”).
The ISA and the MFSA Guidelines currently contemplate only the re-domiciliation of offshore funds which are set up as body corporates. The MFSA is however minded of the desirability of extending such regime to funds assuming other structural forms such as unit trusts and common contractual funds and is currently contemplating measures to this effect. It should also be noted that the current legal framework may be utilised for all types of corporate funds, such as UCITS, or other retail (but non-UCITS) funds or Professional Investor Funds.
From a purely corporate perspective, provided the offshore fund is set in a corporate form, the re-domiciliation process is no different than that of any ordinary corporate entity and shall be permissible provided that:-
The body corporate to be re-domiciled into Malta must be registered or incorporated in an “approved country or jurisdiction” (which includes all EU Member States, EEA and FATF countries) and set up in a structure similar to those recognised by the Maltese Companies Act;
The re-domiciliation must be permitted by the law of the foreign jurisdiction and the constitutive documents of the corporate entity;
The effects of re-domiciliation may be summarised as follows:-
A corporate fund may retain its already existing status as a body corporate, in the new jurisdiction where it is continued. No new legal entity is created and this arrangement is intended to ensure that nothing prejudices or affects the continuity or continued operation of the fund. The corporate fund thus retains all its assets and liabilities and remains bound by all obligations incurred as from the date of its incorporation in the first jurisdiction;
Continuation of a company in Malta does not affect any legal or other proceedings instituted or to be instituted by or against the company. In addition, continuation does not operate to release or impair any conviction, judgment, ruling, order, liability or obligation due or to become due or any cause existing against the company or against any member, director, officer, or persons vested with the administration or representation of the company
This continuity of corporate existence is then supplemented, in the case of offshore funds, by a continuity at an operational and infrastructural level. The pofessional investor fund regime in Malta, unlike its equivalent in other renowned onshore fund domiciles which also permit redomiciliation of funds, is not protective in terms of the domicile of service providers to the fund. Therefore, it is adaptive enough to enable an offshore fund to be re-domiciled into Malta and retain its operational arrangements and business relationship with its foreign manager, administrator, custodian and other service providers, without the need to appoint new ones established in Malta (provided such foreign service providers are regulated or adequately supervised in a recognised jurisdiction or are otherwise approved by the MFSA). This flexibility translates itself to tangible operational benefits constituting considerable savings on costs which would otherwise be necessarily incurred in terminating and negotiating new services and infrastructural agreements.
The re-domiciliation procedure entails a two-pronged process:
the corporate continuation application; and
the regulatory licence application
For expediency, both applications are co-ordinated and processed concurrently to avoid unnecessary and duplication of documentation. To this end, the Registry of Companies and the MFSA (which are housed in the same premises) liaise and work in close collaboration throughout the whole re-domiciliation process.
Corporate Continuation Application
For the corporate continuation application, the constitutive documents of the foreign company, supported by the necessary resolutions and declarations must be presented to the Registrar of Companies. In addition to these documents, in the case of offshore funds (as well as other corporate bodies performing activities which are subject to licensing in Malta, such as, for example, credit and financial institutions, insurance companies and investment firms), these will be required to apply for and obtain the applicable licence from the MFSA in accordance with Maltese law.
The offshore fund must submit an Application for a Collective Investment Scheme (“CIS”) Licence (on MFSA standard form), supported by recent copies of the audited financial statements and other supporting resolutions and documentation. Where the migrating scheme is licensed or authorised in the foreign jurisdiction, evidence of licensing in such home country is necessary.
It is also possible for an offshore fund, pursuant to such re-domiciliation process to convert or upgrade its licensing / authorisation status. This is typically the case for offshore hedge funds or other alternative investment funds wishing to re-domicile into Malta as UCITS (to the extent that they comply with, or will upon re-domiciliation comply with, the eligible assets for UCITS and the investment, exposure, borrowing and lending restrictions prescribed by the UCITS Directive), and thereafter avail themselves of the UCITS passporting benefit, using Malta as a gateway for the European market and investors.
The Licensing Application
The MFSA shall process the licence application, vet all documents submitted and carry out the necessary due diligence enquiries as appropriate, following which, upon satisfaction that these are in order, it will issue an in-principle approval which would list the pre-licensing outstanding issues to be actioned by the applicant before issuance of the licence. Following satisfaction of any outstanding issues by the applicant, the MFSA will issue the licence on the same date as the Provisional Certificate of Continuation issued by the Registrar of Companies mentioned hereunder, which will enable the fund to start operating in Malta.
A Provisional Certificate of Continuation will be issued by the Registrar of Companies once the application and supporting documents have been received and vetted. Within six (6) months of the date of issue of the Provisional Certificate, the company should provide proof to the Maltese Registrar of Companies that the company has ceased to be registered in the original home country. Upon receipt of acceptable proof to this effect the Registrar will issue a Final Certificate of Registration.
Companies re-domiciled to Malta will be subject to the same accounting, audit and tax filing requirements as those applicable to newly established companies in Malta. In the case of funds, these will be subject to the ongoing requirements prescribed by MFSA for licensed collective investment schemes of the respective type (retail or otherwise).
Advantages of re-domiciling to Malta
Malta is a relatively low-cost jurisdiction compared to other renowned onshore jurisdictions such as Luxembourg and the Republic of Ireland, with costs (salary and office costs, professional fees etc.) being about 30-40% cheaper of those prevailing in the aforesaid centres.
Malta has a skilled professional labour force and choice of services providers at a competitive operating cost.
The MFSA, is a reputable yet flexible regulator adopting an approachable, sensitive insight to industry needs, open to discuss and accommodate innovative financial products and industry players, whilst ensuring a timely and efficient service.
Malta has an important number of Memoranda of Understandings with various non-EU jurisdictions such as the Democratic Republic of China, which facilitate distribution of Malta domiciled funds into the respective jurisdictions and financial business developments between the respective parties.
Malta offers passporting opportunities within the EU (in the case of UCITS).
An onshore jurisdiction and EU member state, Malta is a safe and yet friendly tax jurisdiction for commercial and investment activities. Its attractiveness lies in the combination of an extensive network of double tax treaties (with more than 50 countries) as well as in a number of generous of tax benefits available under Maltese domestic tax laws, which provide excellent tax planning opportunities for funds as well as for managers, administrators, custodians and other service providers.
Funds having more than 15% of their assets invested outside Malta enjoying a tax neutrality (through a tax exemption) on their income and capital gains generated from their investments. Funds which satisfy the aforesaid threshold also enjoy a blanket stamp duty exemption on their transactions. There are no Wealth nor Net Asset Value Taxes in Malta. At investor level, Foreign investors are not subject to Maltese tax on capital gains or income when they dispose of their investment (through redemption by the Fund or sale or exchanges to a third party) or when they receive a dividend or other income from the Fund.
In the case of funds which have less than 15% of their assets invested outside Malta, investors are subject to a withholding tax on local investment income of 15% for bank interest and 10% for other investment income.
Funds may also invest in underlying assets through special purpose vehicles (“SPVs”), which act as the lunga manus of the Fund. SPVs can act as efficient tools in tax planning for the funds, particularly to enhance the possibility for funds to claim double tax treaty benefits which might otherwise not be available nor sufficiently advantageous. SPVs set up by the fund in Malta would themselves benefit from the domestic tax benefits available to holding and trading entities in general, which benefits have also increasingly attracted fund managers and other investment service providers to migrate from other jurisdictions and continue their operations in Malta to increase tax efficiencies. These tax benefits essentially consist of a net tax leakage of just 5% on income and gains deriving from trading activities (or as low as 0% when grossed up with foreign income tax), as set forth in the table below:
|Maltese Company||No Foreign Tax||With Foreign Tax|
|Net Foreign Income||2000||2000|
|Grossing up with Foreign Tax||0||105|
|Tax at 35%||700||737|
|Credit- Double Tax Relief||0||105|
|Malta Tax Payable
(tax at 35% less tax credit)
|Shareholder of Maltese Company|
|Refund on distribution
(6/7 of Malta Tax Payable)
|Effective Tax Paid in Malta||100||0|
|Effective Tax leakage in Malta on Net Income||5%||0%|
*632 (6/7ths of 737)
Contact one of our officers to initiate the process for the re-domiciliation of offshore funds and start reaping full benefits of a reputable, low-tax EU jurisdiction. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500