Despite that it is competing with huge, well-established jurisdictions, Malta has firmly embedded itself as a European Financial Services hub and is now a fully-fledged fund jurisdiction, offering a repertoire of EU fund structures as well as EU law-compliant funds. In 2013 and 2014, Malta was affirmed ‘the most favoured domicile in Europe’ by Hedge Funds Review in its Service Provider Rankings and has also ranked among the top twenty financial services jurisdictions worldwide by the World Economic Forum.
Malta’s accession to the EU acted as a springboard to its success as a funds jurisdiction since EU membership conferred Passporting rights to its funds modelled on EU structures, and thus allows fund managers to gain instant access to the EU internal market. Moreover, Malta’s status as an EU member state confers added reputability to its fund structures which are fully compliant with EU law. Additionally, this sterling reputation is safeguarded by the local regulator, the Malta Financial Services Authority (MFSA), which calls for high standards of compliance while keeping an open mind which allows it to cater for and create flexible, innovative structures. The MFSA aims to innovate through regulation, thus ensuring a robust legislative framework which promotes efficiency and incentivises compliance.
Malta saw a substantial increase in interest from start-up managers during the 2008 financial crisis. Several start-up managers opted to invest in Malta as an alternative and cost-effective fund jurisdiction. Malta’s reputation as a fund jurisdiction continues to thrive, with over 1,330 funds licensed in Malta in 2016, and a net asset value of funds administered in Malta of €9.9 billion at the end December 2016. Owing to this success, Malta invests heavily in its human resources and now vaunts a highly skilled workforce, with a wide depth of expertise.
Why is Malta such an attractive fund jurisdiction to fund managers and promoters?
Malta has become a popular fund jurisdiction due to the fact that it allows investors to operate with peace of mind in a stable, buoyant economy with a sterling reputation; however, this is not the only reason why so many fund managers and promoters have opted to market Maltese funds.
Besides vaunting cost-effective set-up and operational costs, Malta has an advantageous tax regime which allows companies to benefit from the full imputation system, as well as a tax refund system when a company’s shareholders are not resident in Malta. Under the Tax Refund System, companies can benefit from up to a 6/7ths refund of the tax paid on distributed profits, effectively reducing the tax paid to 5% from the standard corporate tax rate of 35%. Moreover, Maltese funds are generally not taxable unless they are investing more than a certain percentage of assets in Malta and are exempt from capital gains on shares and withholding taxes.
Flexibility of Malta fund structures
Undoubtedly, Malta’s variety in fund structures has been instrumental in attracting start-up managers as well as fully-fledged Alternative Investment Fund Managers (AIFMs). Despite the introduction of the AIFM Directive which has wholly redesigned the hedge fund industry, Malta has still retained its popular Professional Investor Funds (PIFs) regime, which now serves as a niche market for funds which do not exceed EUR100m. The PIF is considered as the ‘start-up’ fund, aimed at three different types of investors of differing wealth and experience. Whist still fully compliant with EU law, the PIF is an alternate hedge fund that is very similar to an AIF but which does not fall within the scope of the AIFMD when it is structured as a self-managed fund which satisfies the de-minimis thresholds.
Nonetheless, the Alternative Investment Fund (AIF) Regime is still a popular option for AIFM’s seeking to market their products to investors from all over the European Union in virtue of the AIFM Directive which provides for EU Passporting. Self-managed AIFs which manage over EUR100 million, or unleveraged AIFs managing over EUR500 million will be subject to more onerous regulatory requirements.
Since 2016, AIFMs can also benefit from the Notified Alternative Investment Fund (NAIF) regime which provides a cost-effective and quick route to the market regulating the fund manager rather than the fund itself.
Malta also offers retail investment funds, including UCITS which may be passported to any EU member state, as well as non-UCITS and private funds. Private funds only require a recognition by the MFSA, but are subject to a number of restrictions.
The Recognised Incorporated Cell Company is another innovative fund structure. The RICC platform provides for the standardisation of fund documents. This platform is highly versatile since it is used by larger funds, as well as start-ups or smaller funds since it offers an ‘incubation’ style set off. The RICC platform can be an ideal alternative since it allows funds to co-exist under one service-providing platform, thus circumventing the increased cost and resources which were brought about by the AIMFD and other EU-wide regulatory reforms.
