UCITS situated in Malta
Barring statutory exemptions e.g. employee participation schemes, all collective investment schemes (CIS) that issue or create units or carry on any activity “in or from within Malta”, require a collective investment scheme licence issued by the Malta Financial Services Authority (“MFSA”).
One form of CIS are retail CIS qualifying as Undertakings for Collective Investment in Transferable Securities (“UCITS”) situated in Malta, which are subject to the rules set out in Council Directive 85/611/EEC of 20 December 1985 (UCITS III). The transposition and implementation of Directive 2009/65/EC (UCITS IV) shall be enacted as of 1 July 2011.
Characteristics of a UCITS
The CIS and any of its sub-funds must have the following characteristics, all of which must be satisfied cumulatively:
- have as its sole object the collective investment in transferable securities and/or in other liquid financial assets, or capital raised from the public, and operate on the principle of risk-spreading;
- have units which, at the request of holders, may be repurchased or redeemed, directly or indirectly, out of its assets;
- have investment and borrowing policies in conformity with those specified by the MFSA; and
- be open-ended;
Similarly to Professional Investor Funds a UCITS Scheme may be set up as:
- an investment company with variable share capital (SICAV); or
- a limited partnership; or
- a unit trust; or
- a common contractual fund
Likewise, UCITS may be organised as umbrella schemes with one or more sub-funds, with each sub-fund having a patrimony separate from the assets and liabilities of each other sub-fund, or as a fund of funds.
A UCITS may be either self-managed or externally managed.
Self-managed UCITS operating in and from Malta, as subject to a minimum share capital requirements of €300,000, which must be maintained at all times. The management of the assets of a self-managed UCITS is entrusted, in the case of corporate structures, to the board of directors, which must comprise at least one resident director.
The Board must establish an in-house Investment Committee made up of at least three members, who must meet at least on a quarterly basis and the majority of the meetings must be held in Malta. Nevertheless, the Investment Committee may delegate the day-to-day investment management of the UCITS’s assets either to Portfolio Managers or to a third party manager acceptable to the MFSA.
Alternatively, a UCITS can appoint a Maltese UCITS management company as its external investment manager. For safe-keeping purposes and in exercise of a monitoring function, the assets of the UCITS must be entrusted to a custodian, which must have an established place of business in Malta and be a credit institution licensed under the laws of Malta, or such other body corporate, unincorporated body or association acceptable to the MFSA.
The UCITS need also appoint an auditor and a fund administrator recognised by the MFSA. The UCITS may appoint a third party investment adviser, who may also be approved by the MFSA, but need not be established and regulated in Malta. Such party investment advisor may not enjoy any discretion with respect to the investment and re-investment of the assets of the UCITS.
The MFSA will only issue a licence to a UCITS if it is satisfied that its directors and officers are “fit and proper” persons. In reaching its conclusions, the MFSA will evaluate the experience and track record of the proposed candidates and ensure that parties are of good character.
Thereinafter, the licensing process can be summarised as follows:
It is strongly advisable that the promoters arrange a preliminary meeting with representatives of the MFSA to explain their proposal.
A draft application form together with supporting documentation is submitted to MFSA, which application shall only be accepted if such application is drawn up in proper form. The draft application form and the supporting documentation will be reviewed by the MFSA. Feedback is generally provided within three to four weeks from submission of the application documents. The MFSA will also carry out the “fit and proper” checks at this stage. The MFSA will consider the nature of the proposed CIS and a decision will be made regarding which “Standard Licence Conditions” (SLCs) should apply.
Pursuant to the review of the draft application and supporting documents, the MFSA will issue its “in principle” approval for the issue of the Licence.
The supporting documents shall include a marketing plan and the service agreements to be entered into with the management company, custodians and the aforesaid service providers. Furthermore, a Maltese UCITS is required to draw up a full prospectus and a simplified prospectus.
Once the applicant finalises any outstanding matters, the Licence will be issued.
The applicant may be required to satisfy a number of post-licensing matters prior to formal commencement of business. Furthermore, the UCITS must comply with the SLCs on an ongoing basis, which delineate, amongst others:
- the risk management process;
- permissible investments;
- diversification rules and investment restrictions;
- leverage restrictions
- allocation and distribution of income; and
- financial and statistical reporting requirements.
Any Maltese UCITS wishing to market its units in another EU or EEA Member State, must notify the MFSA and inform the competent authority of the host Member State, in accordance with the passporting procedure prescribed by the UCITS Directive.
The exercise of the right of establishment and the provision of services by a Maltese management company is also subject to a notification procedure, whereby it is required to notify the MFSA. The Authority shall issue a consent notice or send a copy of the notification, as the case may be, to the competent authority of the host Member State.
Likewise, a Maltese management company is also subject to the notification procedure in cases where it entrusts a third party with the marketing of the units in a host Member State.
The fee structure payable to the MFSA is as follows:
|Application Fee||Annual Supervisory Fee*|
|Up to 15 sub-funds
|16 sub-funds and over
Foreign funds and their service providers established as companies in jurisdictions permitting re-domiciliation, may apply to be registered as being continued in Malta without the need to wind-up the company and to create a new entity. Re-domiciliation of funds established in a non-corporate form e.g. common contractual fund or as a unit trust may not be re-domiciled.
The process of redomiciliation will be conducted concurrently with the application procedure for the relevant licence, where required. A foreign fund may apply for a licence to operate as a Maltese UCITS, provided that it satisfies the relevant requirements.
Malta offers a favourable tax regime for CISs. For the purposes of taxation, a distinction must be drawn between prescribed and non‐prescribed funds. A fund in a locally based scheme that has assets situated in Malta constituting at least 85% of its total asset value is classified as a Prescribed Fund. Other licensed funds, including funds in an overseas‐based scheme, are called Non‐prescribed Funds.
In the case of Prescribed Funds, the CIS qualifies for exemption from tax on income “other than income from immovable property situated in Malta and investment income” earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income.
There is no withholding tax on investment income received by Non‐prescribed Funds (including overseas based CISs), which are exempt from tax on income and capital gains realised on their investments and also enjoy a blanket stamp duty exemption on their transactions. Furthermore, kindly note that there are no Wealth nor Net Asset Value Taxes in Malta.
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. These would also be entitled to benefit from the stamp duty exemption obtained for the Fund in connection with the acquisition or disposal of their units in the Fund.
Furthermore, foreign Fund Managers find Malta to be an extremely tax efficient location in respect of fee and participation income or gains (including carried interest through participation shares or otherwise in the Fund) which they receive from the Fund. This favourable fiscal treatment applies when they establish their own operations in Malta but also when they remain established in, and provide the management services from, their own jurisdiction.
One of the main incentives for foreign fund managers set up as Maltese management companies is a 6/7 refund of tax granted to non-resident shareholders of Maltese companies who would have paid tax in Malta on income generated or otherwise taxable in Malta (e.g. investment management activities) at the standard rate of tax at 35% (leaving a tax leakage of a maximum 5% in Malta which in some cases can be further reduced) as set forth in the illustration 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)
Focus Business Services prides itself in providing a seamless one-stop shop to clients and are firmly committed to ensuring the highest level of integrity and competence to accommodate our clients’ needs, at competitive pricing.
Our specialised Financial Services Unit, can assist you with the following services:
- advice on financial services legislation;
- liaising with the Malta Financial Services Authority and relevant government departments;
- assistance with the applications for licences for a UCITS or other investment services licences;
- assistance with the setting up and re-domiciliation of funds and investment firms and applications for licences; drafting of the offering memorandum, offering supplement, board resolutions and constitutive and corporate documents as well as agreements with service providers;
- registration of CIS with registry of companies (in the case of a corporate entity);
- taking up corporate offices for investment companies and special purpose vehicles established in Malta.
Contact one of our officers to initiate the licensing process for a Maltese UCITS. Simply fill in the contact box below or contact us by email on email@example.com or by calling at +356 2338 1500