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Funds & Investment Services


FUNDS & INVESTMENT SERVICES

It is a fact that financial services has been the fastest growing GDP contributor of the Maltese economy for the last couple of decades, a reality which has been driven and supported at political, legislative and industry level. Among the principal factors which have contributed to the growth of Malta’s financial services industry were the shift in status from an offshore jurisdiction to an onshore jurisdiction, and Malta’s entry into the European Union in 2004. The local regulator, the Malta Financial Services Authority (the “MFSA”), has played a vital role in developing a robust yet flexible legal and regulatory framework, not only by aligning it with the EU acquis communautaire, but also in designing domestic rules and policies applicable to the funds and various other financial services sectors. Whilst Malta has managed to earn itself the reputation of the preferred domicile for the establishment of alternative investment funds, particularly through its Professional Investor Fund (PIF) regime, it has, over the past years, also seen significant growth in other areas, in particular in the fund servicing industry. Furthermore, an increasing number of operators inside and outside the EEA, are setting up, for example, UCITS and other fund management companies, investment firms, payment institutions and even banks in Malta, and are effectively using Malta as a base for their operations to service clients throughout the EEA, by exercising their passport rights under harmonized EU law on financial services.

There are a number of other pertinent factors which have contributed to Malta’s continued success in the financial services field, even in times of international financial crisis , which mainly consist of:

  • the relatively low cost for setting-up and conducting business in or from Malta;

 

  • a highly beneficial tax regime applicable both for funds and their service providers, investment firms, financial institutions and other interested parties;

 

  • an extensive double tax treaty network with almost 70 countries;

 

  • a skilled and knowledgeable workforce;

 

  • an approachable regulator open to new business proposals; and

 

  • the sound balance struck by Malta between flexibility of structuring and operations and robust regulation which satisfies investors’ and customers’ increasing demands for enhanced transparency and oversight.

Malta has continued to grow and develop steadily in the funds industry and also in the area of investment services and asset management, in face of the major regulatory changes undertaken at EU level (including, without limitation, the Directive on Alternative Investment Fund Managers (“AIFMD”) and the changes to the Markets in Financial Instruments Directive (“MIFID II”)), and also beyond the EU, in third countries such as the US and Switzerland. These changes are constantly causing a transformation in the way the financial services industry currently operates. Malta is treating these challenges as opportunities to further assert its place as a financial services hub.

The partners at Saliba Stafrace Legal have extensive experience in assisting clients with the structuring and setting up of, ongoing regulatory compliance and ongoing transactional advice with respect to, collective investment funds (both retail and non-retail) investing in various asset classes, as well fund managers, administrators, prime brokers and custodians and other fund service providers, and also a variety of investment firms, insurance companies, payment service providers and other financial institutions in the different licence categories. The firm can also offer comprehensive and integrated services to clients, leading to bespoke and one-stop shop service proposals, through the extensive network of contacts, correspondents and service providers (including freelance directors, compliance officers and money laundering reporting officers). The services offered by the firm in these practice areas include:

  • Structuring and assistance in obtaining license for a variety of open and closed-ended collective investment schemes, mostly in the form of UCITS and non-retail Professional Investor Funds and Alternative Investment Funds under AIFMD, single-fund structures as well as multi-fund/umbrella structures and platforms, investing in various asset classes;\

 

  • Drafting of constitutional and offering documents, negotiation with and drafting / review of agreements with service providers;

 

  • Structuring and licensing of fund managers, administrators, custodians and other fund service providers as well as other investment firms (advisory, portfolio management, forex dealers etc.) and relevant legal due diligence work;

 

  • Liaison with and acting as a point of contact with the regulator, MFSA;

 

  • Assistance with sourcing of office space, accommodation, employees, officers etc.;

 

  • Advice to funds, fund managers, custodian banks, prime brokers and other fund service providers on their compliance and regulatory requirements (including AIFMD), contracts with clients and suppliers of goods and services, policies and procedures, including regulatory and compliance training;

 

  • On-going corporate and transactional advice to local and foreign clients operating in the field of financial services (including funds and investment firms), including corporate restructurings, creation or closure of classes of shares or units or sub-funds, side pocketing, side letters, suspension of dealings and valuation, prime brokerage transactions, review and update of documentation required by changes in law and regulation, employment issues and dispute resolution;

 

  • Advice and assistance with new issues and listing of funds and other entities;

 

  • Advice and assistance with respect to redomiciliation or merger of funds;

 

  • Legal Opinions on licensing, advertisements and promotional activity and other regulatory and compliance issues as well as on validity and enforceability of agreements related to financial services;

 

  • Ongoing assistance to foreign entities and local license holders and/or investment firms in exercising their EU passport rights;

 

  • Advice on and participation in surveys regarding local law and regulation related to financial services;

 

  • Registration of Special Purpose Vehicles and other holding vehicles for funds and investment firms in Malta; and

 

  • Company secretary and registered office services for funds and companies (including special purpose vehicles) established in Malta.

 

 

 

FUNDS

Collective investment schemes in Malta are regulated by the Investment Services Act (Chapter 370 of the Laws of Malta), which in turn also regulates the whole range of investment services (principally those covered by MiFID and others).The term ‘Collective Investment Scheme’ is defined widely under local law to cover the whole range of funds in Malta. It is defined as:

“any scheme or arrangement which has as its object or as one of its objects the collective investment of capital acquired by means of an offer of units for subscription, sale or exchange and which has the following characteristics:

(a) the scheme or arrangement operates according to the principle of risk spreading; and either

(b) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled; or

(c) at the request of the holders, units are or are to be repurchased or redeemed out of the assets of the scheme or arrangement, continuously or in blocks at short intervals; or

(d) units are, or have been, or will be issued continuously or in blocks at short intervals:

Provided that an alternative investment fund that is not promoted to retail investors and that does not have the characteristic listed in paragraph (a) hereof shall only be deemed to be a collective investment scheme if the scheme, in specific circumstances as established by regulations under this Act, is exempt from such requirement and satisfies any conditions that may be prescribed.”

This would cover the widest spectrum of collective investment vehicles, whatever the asset classes in which they invest, and the partners of the firm have indeed been involved in the structuring and licensing of funds investing in various asset classes and strategies including:

  • hedge funds;
  • private equity funds;
  • special situations funds;
  • real estate funds
  • infrastructural funds;
  • venture capital funds;
  • loan and credit funds;
  • distressed securities funds;
  • commodities funds;
  • renewable energy funds;
  • forex funds;
  • funds of funds and master-feeder funds;
  • other funds investing in exotic asset classes, such as art, vintage watches, wine etc.

The funds’ sector is a regulated environment in Malta – all schemes require a licence (with the exception of private schemes, which are subject to a lighter form of authorization, namely recognition).

For regulatory purposes, funds in Malta are generally classified into retail and non-retail funds, with the following further sub-divisions:

 


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RETAIL FUNDS

Retail funds are subject to the highest level of regulation in Malta, commensurate with the investor protection needed by retail investors.

Both UCITS and non-UCITS retail funds are subject to several investment and borrowing restrictions (including per asset and combined single-issuer exposures). In case of UCITS these are prescribed by the UCITS Directive regime. The restrictions for non-UCITS retail funds have been developed locally by MFSA and are to some extent more flexible, but in some respects more restrictive, than those applicable to UCITS.

Both UCITS and non-UCITS need a custodian licensed in Malta (Category 4 Investment Services licence) with an established place of business in Malta (including through a branch of a non-Maltese custodian, whether in the EU or not).

UCITS:

  • Undertakings for Collective Investments in Transferrable Securities (UCITS) as regulated by the UCITS Directive (2009/65/EC) (UCITS IV).
  • Can be freely distributed and marketed in Malta and other EU jurisdictions on the basis of the marketing passport.
  • Self-managed or externally managed by a Maltese UCITS Manager or UCITS Manager authorised in the EU (under the management passport).
  • Necessarily open-ended with a right of redemption to investors at least every two weeks.
  • As the name implies, these can only invest (in accordance with and subject to the conditions and restrictions imposed by the Directive) in:
  • TRANSFERABLE SECURITIES (e.g. shares, bonds, structured financial instruments) (listed and, under certain conditions, even non-listed), which satisfy the liquidity and other characteristics prescribed by the Directive;
  • OTHER LIQUID FINANCIAL ASSETS, namely:
  • Money Market Instruments (listed and, under certain conditions, even non-listed), which satisfy the liquidity and other characteristics prescribed by the Directive;
  • Units in UCITS / other CISs;
  • Deposits with banks;
  • Financial Derivative Instruments;
  • ANCILLARY HOLDINGS, being essentially ancillary liquid cash and immovable property essential for pursuit of business (only for corporate UCITS).

RETAIL NON-UCITS:

  • Funds marketed and sold to retail investors, but not complying and not authorised in accordance with the UCITS Directive.
  • The marketing passport under UCITS Directive does not apply to it and can only be marketed and distributed in any jurisdiction other than Malta (including EU Member States) by complying with the rules and licensing requirements applicable in those jurisdictions.
  • Mostly intended for local distribution to the local retail community, and in practice used by local banks for their proprietary funds.
  • Self-managed or externally managed by a Maltese Manager or a non-Maltese Manager approved by MFSA.
  • Open-ended or closed-ended.

 

NON-RETAIL FUNDS

PIFs:

Malta’s successful reputation in the fund industry was, until a few years ago at least, mainly credited to its flexible PIF regime, which has now generated and acquired a brand of its own, the ‘Maltese PIF’. This is particularly due to the following factors:

  • intended for non-retail investors of 3 different categories, namely Experienced Investors, Qualifying Investors and Extraordinary Investors (as per eligibility criteria prescribed by MFSA Rules), each varying in the respective level of sophistication, and accordingly with varying degrees of regulation for each category of PIF;
  • very flexible regulation depending on the category of PIF;
  • the structure is available and has proved very suitable for use as a vehicle for funds of all categories of alternative investment and investment strategies (including hedge funds, private equity funds or other specific asset classes or specific strategy funds);
  • no need to appoint service providers based in Malta (a feature that is not found in some other European jurisdictions) and in some cases no need to appoint service providers (e.g. manager / custodian, although the appointment of a custodian with safekeeping and monitoring functions is mandatory in case of Experienced Investor PIFs);
  • no investment restrictions and restrictions on leverage apply (except for the ‘semi-retail’ PIF targeting Experienced Investors).

No marketing passport applies for PIFs and these can accordingly be marketed in the EU and elsewhere only on the basis of (and to the extent allowed) by the national private placement rules of the relevant jurisdictions.

When the Alternative Investment Fund Managers Directive (2011/61/EU) came into effect and was transposed into Maltese law in July 2013, this being mainly a service regulation Directive which regulates the Manager of alternative investment funds of any the (including Malta PIFs), some PIFs in Malta are now captured by the provisions of the Directive, depending on the jurisdiction of the respective Manager and the aggregate assets under management of alternative investment funds managed by such Managers. The PIF regime is therefore currently mostly relevant for:

  • PIFs which are managed by a non-EU/EEA Manager, unless and until the EU Commission (on the advice of ESMA) extends the EU passport under AIFMD to these, in which case such Manager would need to become fully compliant with and authorised under AIFMD in a Member State of Reference);

 

  • PIFs which are managed by a ‘de minimis’ Manager (whether such Manager is established in the EU or not), whose aggregate assets under management of alternative investment funds managed by it anywhere do not exceed the thresholds prescribed by the Directive, or self-managed PIFs the assets under management of which do not exceed such thresholds.

 

AIFs:

 

With the advent of the AIFMD, which was transposed into Maltese law before the deadline of 22 July 2013, some important advantages offered by the PIF regime have been or will, at the relevant time prescribed by the AIFMD, come to an end (including possibility of appointing foreign non-EU authorized manager and non-Maltese custodian) and the enhanced requirements (including disclosure and transparency requirements) will need to be taken on board by Malta PIFs. However:

 

  • the requirements of AIFMD, in so far as they relate to non-EU managers (or non-EU Funds) will come into effect and start to apply at different times and in piecemeal, giving non-EU managers more time to comply therewith;

 

  • in the meantime, two parallel regimes have started running along each other, i.e. the current PIF regime and a new AIF regime for managers and funds already fully captured by the Directive’s scope of application;

 

  • the Maltese regulator has made use of practically all derogations and maximum flexibility allowed by the Directive (including the derogation from the requirement for a Maltese PIF to appoint a Maltese custodian, allowing it instead to appoint a credit institution in the EU as custodian until July 2017);

 

  • despite its enhanced regulatory features and effect, the AIFMD introduces a pan-European marketing and management passport, which is generating more opportunities for Malta and for non-EU managers targeting ‘professional investors’ in the EU. The marketing passport applies to marketing of AIFs in the EU/EEA to ‘professional investors’ as defined by AIFMD, namely those investors which qualify by definition as, or which opt to be treated as, ‘professional clients’, in terms of the Markets in Financial Instruments Directive (2004/39/EC) (“MiFID”).

 

PRIVATE CISs:

 

These are a special type of collective investment schemes which can only accept up to 15 investors, being all family relatives or close friends of the promoters, and which are eligible to a recognition (a lighter form of authorisation) by MFSA, rather than to a licence for collective investment schemes. Accordingly the tax neutrality created by the Income Tax Act for licensed collective investment schemes does not apply to them and they are treated for tax purposes like commercial companies.

 

Following AIFMD, these can be captured by the provisions of the Directive unless they or their manager fall under the ‘de minimis’ exception or unless they fall within the family office exemption (which however relates to a family related pre=existing group and does not extend to friends) or some other relevant exemption under AIFMD.

 

LEGAL FORM

Maltese funds may be established in various legal forms (subject to certain regulatory restrictions applicable to UCITS), in particular:

  • an investment company with variable share capital (“SICAV”) in terms of the Companies Act (Chapter 386 of the Laws of Malta), which may be either a public or a private limited liability company – this is the vehicle most commonly in Malta;

 

  • an investment company with fixed share capital (“INVCO”) in terms of the Companies Act, which per definition is a public limited liability company;

 

  • a limited partnership (or partnership en commandite) (“LP”) in terms of the Companies Act,

 

all the above having separate legal personality, or

 

  • a unit trust in terms of the Trust and Trustees Act (Chapter 331 of the Laws of Malta);

 

  • a common contractual fund in terms of the Investment Services Act (Contractual Funds) Regulations (Legal Notice 3 of 2011).

 

 

STRUCTURAL OPTIONS

 

A SICAV (as well as other legal fund structures, such as the LP and the contractual fund) may be set up as:

 

  • a single-class (single fund) structure; or

 

  • amulti-class (single fund) structure, where in terms of its constitutive document, its share capital (or capital) is, or is capable of being, divided into different classes of shares (or units) not constituting any distinct sub-fund); or

 

  • a multi-fund (umbrella) structure, where in terms of its constitutive document, its share capital (or capital) is, or is capable of being divided into different classes of shares (or units) where one class or a group of classes of shares (or units) constitute a distinct sub-fund of the company; provided that the initial share capital may or may not be organized in one or more sub-funds.

 

A multi-fund structure may in its constitutive document elect to have the assets and liabilities of each sub-fund comprised in that structure treated for all intents and purposes of law as a separate patrimony distinct and statutorily ring-fenced from the assets and liabilities of each other sub-fund of such structure. Each of the sub-funds would not have separate legal personality (and there is only one legal entity at the top, i.e. the SICAV or other relevant structure) but would nonetheless enjoy statutory ring-fencing as if it were a separate legal person, a status which is respected even at the point of dissolution and winding up of the sub-fund (or of the SICAV or other relevant structure in general).

 

To further enhance certainty of ring-fencing, Maltese law now provides also for the creation of incorporated cell structures as follows:

 

  • a SICAV may be formed or constituted as an incorporated cell company (“ICC”) in terms of the Companies Act (SICAV Incorporated Cell Company) Regulations (Legal Notice 559 of 2010), which may establish one or more incorporated cells (which would also be CISs) in the form of a limited liability company with separate legal personality (the incorporated cell may be a SICAV or INVCO);

 

  • an incorporated cell of a recognised incorporated cell company (“RICC”) in terms of the Companies Act (recognised Incorporated Cell Companies) Regulations (Legal Notice 119 of 2012), which cell may take the form of a SICAV or INVCO.

Apart from endowing each cell with separate legal personality (thus creating more certainty of ring-fencing being recognised by courts in and outside Malta), the incorporated cell structure also allows for a smooth transformation of a cell into a self-standing fund, with the possibility of keeping its corporate existence and track record, and the incorporated cell structure is therefore ideal for structuring incubatory cells where the different funds would plug into it only for the start-up period until they reach volumes of assets which enable them to detach themselves from the platform and grow by themselves.

Maltese law and MFSA regulation are also open to other structural flexibility needs, including the possibility to create:

  • open or closed ended funds, or hybrid funds (e.g. open ended funds with gates or lock-in periods);
  • side pockets;
  • Shariah-compliant (Islamic) funds.

 

REDOMICILIATION OF FUNDS

Foreign funds established as a company in jurisdictions permitting redomiciliation, may apply to be registered as being continued in Malta under the Companies Act (Chapter 386 of the Laws of Malta), without the need to wind-up the company and to create a new entity – go to link ‘Redomiciliation’.

 

LISTINGOF FUNDS

A collective investment scheme established in Malta or in a recognised jurisdiction outside Malta may apply for admissibility to listing with the Listing Authority (the MFSA). The application for admissibility to listing may be made concurrently with the application for the collective investment scheme licence (in case of Maltese licensed funds). At present, Malta has one recognised exchange on which units or shares of collective investment schemes may be listed: the Malta Stock Exchange. In case of open-ended schemes, only a technical listing (not trading) is possible.

TAXATION OF FUNDS

 

Malta offers a favourable tax regime for collective investment funds (of whatever class) and has a comprehensive Double Tax Treaty network.

 

For tax purposes, a distinction is made between prescribed and non-prescribed funds. Essentially, 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 (whatever the percentage of their assets which may be situated in Malta), are Non-prescribed Funds.

 

In the case of Prescribed Funds, the CIS qualifies for an exemption from tax on income other than income from immovable property situated in Malta and “investment income” (as defined in the Income Tax Act) earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income; income derived by the Prescribed Fund from immovable property situated in Malta is taxed at a flat rate of 35%.

 

There is no withholding tax on investment income received by Non-prescribed Funds (including overseas based CISs), which enjoy an exemption from tax on income (other than income from immovable property situated in Malta, which is taxed at 35%).

 

Funds are also exempt from Malta tax on capital gains realised on their investments and also enjoy a blanket stamp duty exemption on their transactions. Please also note that there is no Wealth or Net Asset Value Tax 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 disposal 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.

Apart from the tax treatment of funds and investors therein described above, Maltese law provides for a series of other tax incentives designed to support the fund industry in general, including:

 

  • The Maltese system of corporate taxation applicable to holding and trading companies generally (including the participation exemption and the tax refund system) applies also to holding companies and special purpose vehicles set up or used by funds to structure their investment holding activities, to fund managers (both in respect of their actual operations and also in respect of structuring their participation income / carried interest), administrators, custodians, advisors and other service providers to funds (and also to private collective investment schemes, which are only recognised and not licensed by MFSA and are accordingly not eligible to the tax neutral regime afforded to funds). This system of taxation, coupled with Malta’s extensive portfolio of double taxation agreements, affords excellent efficient tax planning and structuring opportunities for funds’ investment operations as well as for the various service providers in the fund industry. Please see link ‘Taxation of Maltese Companies’;

 

  • Acquisitions or disposals of securities by (i.e. securities held by), or of securities issued by (i.e. securities held by shareholders or investors of) collective investment schemes licensed under the Investment Services Act, fund managers, administrators, investment advisors and custodians of collective investment schemes which hold an investment services licence to provide such services issued under the Investment Services Act and companies owned and controlled as to more than 50% by non-Maltese residents and having the majority of their business interests outside Malta, are exempt from stamp duty;

 

  • No Malta VAT is charged by the fund to investors on subscription to units in the fund;

 

  • The supply of services consisting of the management of a Maltese licensed collective investment scheme, are exempt without credit, irrespective of the place from where these supplies originate, provided that these services are limited to those activities that are specific to and essential for the core activity of the scheme. This exemption (without credit) is interpreted quite flexibly, to the extent allowed by its terms, to include various fund administration services and services related to investment selection and market research;

 

  • Directors, MLRO and Compliance Officer (even acting as freelancers) are deemed to be employees for VAT purposes and their fees are not subject to VAT;

 

  • Special tax rates (15% flat rate) on employment income of at least €75,000 (adjusted in accordance with the Retail Price Index since 2011) of certain non-Malta domiciled or ordinarily resident ‘Highly Qualified Persons’ holding specified senior employment posts with Malta financial services licensed companies and certain other entities. This is designed to attract more foreign investment and specialised skills to Malta in the relevant industries; and

 

  • A tax exemption for 10 years on a number of specific items of expenditure incurred by a Maltese licensed investment services or insurance company in favour of an investment services expatriate or insurance expatriate employed by it.

 

 

 

INVESTMENT SERVICES

Apart from collective investment schemes, the Investment Services Act (Chapter 370 of the Laws of Malta), regulates the whole range of investment services in Malta, principally the services covered by the Markets in Financial Instruments Directive (2004/39/EC) (“MiFID”) and also other services treated as licensable investment services locally, for example custody of assets and investment services in relation to foreign exchange acquired for investment purposes.

INVESTMENT SERVICES – DEFINITION

The term “investment services” covers the services listed in the First Schedule to the Act (as reproduced below), when provided in relation to instruments as listed in the Second Schedule to the Act:

  • reception and transmission of orders in relation to one or more instruments;
  • execution of orders on behalf of other persons;
  • dealing on own account;
  • management of instruments or acting as manager to collective investment schemes (whether or not the scheme invests in instruments;
  • trustee, custodian or nominee services;
  • investment advice;
  • underwriting of instruments and, or placing of instruments on a firm commitment basis;
  • placing of instruments without a firm commitment basis;
  • operation of a Multilateral Trading Facility.

 

INSTRUMENTS – DEFINITION

The instruments listed in the Second Schedule essentially reproduce the “financial instruments” listed in Section C of Annex 1 of MiFID, with some additional instruments (such as foreign exchange) and includes such instruments, whether or not issued in Malta. These include:

  • Transferable securities, namely shares, bonds and other securities giving the right to acquire such shares or bonds, which are negotiable on the capital market;

 

  • Money market instruments;

 

  • Units in collective investment schemes;

 

  • A whole list of financial derivative instruments (options, futures, swaps, forward rate agreements and any other derivative contracts) having specified characteristics or underlying;

 

  • Rights under a contract for differences or under any other contract the purpose or intended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the value or price for property of any description or in an index or other factor designated for that purpose in the contract;

 

  • Certificates or other instruments which confer property rights in respect of any instrument falling within the Second Schedule;

 

  • Foreign exchange acquired or held for investment purposes.

 

LICENSING REQUIREMENT

The Act provides that the provision of investment services in or from within Malta is subject to an investment services licence. Entities formed in accordance with or existing under the laws of Malta that provide or hold themselves out as providing an investment service in or from within a country, territory or other place outside Malta also require a valid investment services licence.

Maltese law however provides a number of exemptions from the licensing requirement, including for investment firms authorised in terms of MiFID in another EU/EEA Member State (if such firms wish to establish a branch in Malta or provide cross-border services into Malta, they do not need further authorisation from the MFSA, provided they follow the relevant passporting notification procedure). Most of the other exemptions essentially reproduce the exemptions set out under MiFID itself.

Maltese law also provides for a recognition status and procedure (a lighter form of authorisation, not amounting to licensing) for persons who, in or from Malta, provide administrative services to licence holders in Malta, or to equivalent authorised persons and schemes overseas.

 

LICENCE CATEGORIES

An investment services licence may be one of four categories:

  • Category 1a: Licence Holders authorised to receive and transmit orders in relation to one or more instruments and, or provide investment advice and, or place instruments without a firm commitment basis but not to hold or control Clients’ Money or Customers’ Assets. (This Category does not include managers of Collective Investment Schemes).

 

  • Category 1b: Licence Holders authorised to receive and transmit orders, and, or provide investment advice in relation to one or more instrument and, or place instruments without a firm commitment basis solely for professional clients and, or eligible counterparties but not to hold or control Clients’ Money or Customers’ Assets. (This Category does not include managers of Collective Investment Schemes).

 

  • Category 2: Licence Holders authorised to provide any Investment Service (as specified and/or restricted in the Licence) and to hold or control Clients’ Money or Customers’ assets, but not to operate a multilateral trading facility or deal for their own account or underwrite or place instruments on a firm commitment basis. The various fund management licences which are issued in Malta are issued under this category, but special rules apply to various fund management licences, depending on whether the licence relates to UCITS managers, AIFMs, ‘de minimis’ managers or other fund managers;

 

  • Category 3: Licence Holders authorised to provide any investment service and to hold and control Clients’ Money or Customers’ Assets.

 

  • Category 4a: Licence Holders authorised to act as trustees or custodians of all types of Collective Investment Schemes.

 

  • Category 4b: ‘Depo Lite’: Licence Holders authorised to act:(a) as custodians of AIFs which have no redemption rights exercisable during the five year period from the date of initial investment and which generally do not invest in assets that must be held in custody in terms of the Investment Services Rules; and (b) as custodians to non-EU AIFs managed by a Maltese or EU AIFM and marketed in the EU/EEA.

The various categories determine not only the nature and activities which may be carried out by the holder, but also the financial resources and own funds requirements applicable to the holder. Each category also carries different application and supervisory fees payable by the licence holder to the MFSA.

ONGOING REQUIREMENTS

The ongoing requirements to which recognized and licensed persons are subject are laid down in the Act and subsidiary legislation and in the MFSA’s Investment Services Rules for Investment Services Providers and for Recognised Persons.

In respect of licence holders authorised to carry out MiFID investment services, these Rules and subsidiary legislation naturally reflect and transpose the MIFID conduct of business rules and other requirements under the MiFID regime. These licence holders may passport their services throughout the EU, through the establishment of a branch or through cross-border provision of services, by following the required notification procedure in terms of MiFID.

The above does not apply to fund management activities and to custody services, which are not covered by MiFID.

European investment firms that use their passport to provide services in Malta without having a local place of business need to appoint a fiscal representative.

TAXATION OF INVESTMENT FIRMS

Fund managers, administrators, custodians, investment advisors and other investment firms may benefit from various tax incentives under Maltese law designed to support the financial services industry, including:

 

  • The Maltese system of corporate taxation applicable to holding and trading companies generally (including the participation exemption and the tax refund system) applies also to these fund service providers and investment firms. This system of taxation, coupled with Malta’s extensive portfolio of double taxation agreements, affords excellent efficient tax planning and structuring opportunities for these firms. Please see link ‘Taxation of Maltese Companies’;

 

  • Acquisitions or disposals of securities by (i.e. securities held by), or of securities issued by (i.e. securities held by shareholders or investors of) fund managers, administrators, investment advisors and custodians of collective investment schemes which hold an investment services licence to provide such services issued under the Investment Services Act and companies owned and controlled as to more than 50% by non-Maltese residents and having the majority of their business interests outside Malta, are exempt from stamp duty;

 

  • The supply of services consisting of the management of a Maltese licensed collective investment scheme, are exempt without credit, irrespective of the place from where these supplies originate, provided that these services are limited to those activities that are specific to and essential for the core activity of the scheme. This exemption (without credit) is interpreted quite flexibly, to the extent allowed by its terms, to include various fund administration services and services related to investment selection and market research;

 

  • Special tax rates (15% flat rate) on employment income of at least €75,000 (adjusted in accordance with the Retail Price Index since 2011) of certain non-Malta domiciled or ordinarily resident ‘Highly Qualified Persons’ holding specified senior employment posts with Malta financial services licensed companies and certain other entities. This is designed to attract more foreign investment and specialised skills to Malta in the relevant industries; and

 

  • A tax exemption for 10 years on a number of specific items of expenditure (e.g. removal costs in respect of relocation to or from Malta, accommodation expenses, travel costs in respect of visits to or from Malta, provision of a car for personal use, a subvention of up to €600 per calendar month, medical expenses and medical insurance, school fees in respect of children) incurred by a Maltese licensed investment services or insurance company in favour of an investment services expatriate or insurance expatriate employed by it (who is not ordinarily resident and not domiciled in Malta and was not resident in Malta for a minimum period of 3 years immediately preceding such employment and provided during the said 3 years he was engaged on a full time basis in a similar position outside Malta.

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