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.