Our Financial Services practice group at Chetcuti Cauchi delves into more detail on the setting up of funds in Malta, in collaboration with Finance Malta in which we gave an overview of the Funds Industry in Malta. In the past decade, we have offered our expertise and counsel to international clients on the various licence processes and ongoing structuring of investment funds (UCITS, PIFs, AIFs) being real estate funds, alternative asset funds, (renewable energy, vintage watches, forestry funds etc..), as well as investment services licencing holders including AIFMs, UCITS Management companies.
How to set up Funds in Malta
The video outlines three main decisions which promoters will have to take when setting up their funds, namely, deciding on the most appropriate domicile, fund vehicle and also the most agreeable investor base as this might have implications on the regulatory regime the investor might choose.
Domicile
Domicile should be one of the primary considerations taken by promoters. The video highlights how making a good decision with regards to domicile is crucial, mainly because it relates to tax jurisdictions and the costs and credibility of the jurisdiction. Typically, the choice is focused on tax-efficient jurisdictions, however, one can notice a move towards more regulative jurisdictions due to their strength and reputation. This shows that the investors’ perspective is changing and they are becoming more cautious on reputation risk.
Moreover, regulators are increasingly frowning upon what is referred to as a tax haven. Thus, investors are looking towards Europe and subsequently Malta which has established itself as a prime jurisdiction for funds due to the fact that it ticks all the boxes when it comes to reputability as an onshore solution whilst offering a cost-effective solution which makes Malta a highly attractive fund jurisdiction which competes with others such as Luxemburg and Dublin which offer a much more expensive solution.
Fund vehicles
Malta offers a variety of fund vehicles which can be used for any kind of underlying asset, investment strategy or investor types. The Investment Company with a variable share capital, known as SICAV, remains the most popular fund vehicle, but others include the INVCO (Investment Company with a fixed share capital), contractual arrangements, unit trusts and partnerships.
The video points out that a fund can have an external manager who is a third party, or alternatively, it can be structured as a self-managed fund where management of the fund is undertaken by a group of appointed approved individuals which form an Investment Committee.
Investor Base – Regulatory Regime
Investor base and the regulatory regime which becomes applicable is another important consideration when it comes to choosing a fund jurisdiction. Malta offers a variety of regimes targeting mainly retail and non-retail investors.
- Non-retail Investors
Professional Investors Funds (PIFs) offered by Malta remain the most popular collective investment scheme. PIFs are mainly split into three categories, depending on the type of investor:
- Experienced Investor Fund (quasi-retail solution) – promoted to experienced investors with a minimum investment entry of EUR 10,000.
- Qualifying Investor Fund – promoted to qualifying investors with a minimum investment entry of EUR 75,000.
- Extraordinary Investor Fund – promoted to extraordinary investors with a minimum investment entry of EUR 750,000.
Qualifying and Extraordinary Investor Funds do not carry with them any leverage restrictions, thus no custodian will need to be appointed in that respect.
- Retail Investors
Malta offers the UCITS Scheme whereby UCITS fund set up can be promoted and distributed to European investors through Europe without the need of an additional licence.
Promoters can also benefit from Alternative Investment Fund Managers Directive (AIFMD) whereby an Alternative Investment Fund can be set up. Alternatively, they can choose to opt out of the directive if they qualify.
There has been a shift towards having a regulated product, as can be seen from the increasing popularity of the Alternative UCITS schemes whereby the fund manager will pre-package a hedge fund into a UCIT scheme. This shows the popularity of having a well-branded fund.
Unlike other jurisdictions, Malta offers a degree of flexibility as it does not require that the service providers of the fund are located onshore for funds set up in Malta. However, fund managers still opt to set up locally since Malta offers a cost-effective base, striking the right balance between a tax efficient jurisdiction which is not considered as a tax haven which as of late carries negative connotations.
