Taxation of Collective Investment Funds
The Malta tax treatment of the income of investment funds hinges on the differentiation made by Maltese law between ‘Prescribed’ and ‘Non-Prescribed’ funds. In this paper the term ‘Funds’ refers to entities or arrangements which have been established to perform the function of a ‘Collective Investment Schemes’ (hereafter referred to as ‘CISs’).
Default CIF Taxation
By way of summary, a ‘Malta Fund’ which is ‘Prescribed’ (defined hereunder) is subject to tax in Malta on its profits. On the other hand, a Malta fund which is ‘Non-Prescribed’ (referred to hereafter as ‘non-prescribed funds’ ) is not subject to tax its profits. However, non-prescribed funds are subject to tax on gains they have made from immovable property/real estate situated in Malta.
Prescribed v. non-Prescribed funds
A ‘Prescribed Fund’ is considered to have been established under a Malta based scheme, and:-
1. holds at least 85% of the value of its total declared assets in Malta; and
2. is subsequently classified as a prescribed fund by the Commissioner for Revenue by a notice in writing;
A Malta fund which does not satisfy one or more of the above 2 characteristics, or a fund which is established outside Malta is classified considered to be a non-prescribed fund.
Taxation of Investment Income of Prescribed Funds
The tax rate at which a prescribed fund which is a company is taxable is, by default, at the rate of 35%. However other rates of tax apply depending on the fund’s income streams.
4.1. Withholding tax rates
Moreover, tax should be withheld on Investment Income to which a CIS is entitled by the ‘Payor’ of the income. A payor should withhold as tax 15% on investment income which classifies as ‘Bank Interest Income’. Otherwise a withholding tax of 10% applies to every other form of investment income. Income which is derived from other CISs, whether prescribed or non-prescribed, or received by a non-prescribed fund is not considered to be investment income.
To an extent the smooth operation of the system relies on a fund notifying all parties from whom investment income is due of their status. In this regard a CIS should do so in terms of Maltese law.
4.2. Income of prescribed funds not charged to tax
1. Investment Income which is derived from a source not linked to Malta;
2. Investment Income received from other CISs;
3. Capital gains derived from the disposal of securities or units in a prescribed fund or a non-prescribed (foreign) fund (and not paid through the services of an AFI ) are not subject to tax;
Tax Treatment of Non-Prescribed Funds
The income which is derived by a non-prescribed fund is exempt from Malta tax. This general rule is without prejudice to income derived from immovable property situated in Malta which is subject to tax at 35%.
