Under Maltese law, collective investment schemes (“CISs”) may be set up as Professional Investor Funds (“PIFs”) and be regulated under a significantly more flexible regime than retail funds. Funds that may benefit from being set up as a PIF in Malta would typically include hedge funds, funds of funds, private equity funds, renewable energy funds and property funds etc;
The Investment Services Rules for PIFs, issued by the Malta Financial Services Authority (“MFSA”), set up a regulatory framework allowing managers and promoters to develop new products to meet the needs of the market. PIFs are subject to less stringent rules than retail funds, and the level of regulation within PIFs varies, depending on the type of investors i.e PIFs promoted to Experienced Investors, PIFs promoted to Qualifying Investors and PIFs promoted to Extraordinary Investors.

The Main Advantages of Malta as a Fund Domicile

Over the past years, Malta has seen a strong and rapid increase in the number of PIFs licensed in Malta by the MFSA. The main reason for this success, may be summarised, concisely as follows-

1. The level of costs involved (registration and licensing fees as well as professional and service fees) is significantly lower than other fund jurisdictions e.g. Luxembourg and Ireland;
2. PIFs may be self‐managed without the need to appoint a third party manager. The management of the fund would be undertaken by an investment committee. Self-managed funds are subject to ad hoc rules regarding composition of board members and investment committee, as well as share capital requirements;
3. Contrary to other fund jurisdictions, such as Luxembourg and Ireland, PIFs do not need to appoint a manager, custodian, administrator or any other service provider who is licensed in or who has otherwise exercised passport rights into Malta (where all underlying investments will be held abroad and the respective services will be provided from outside Malta).  The MFSA shall accept any service provider licensed in a recognised jurisdiction for this purpose (including EU/EEA States and jurisdictions with which the local regulator has entered into bilateral or multilateral Memoranda of Understanding.This allows clients significant flexibility, enabling them to continue using the services of any external service provider licensed in any such jurisdiction with whom they might already have a professional history, and facilitates the re-domiciliation of offshore funds.A slight exception to this rule is afforded with regard to PIFs targeting extraordinary investors, where a custodian (for safe-keeping arrangements and compliance with the investment objectives of the fund) is rendered necessary. Nevertheless, should clients wish to make use of local service providers, Malta does have the necessary human resources to adequately cater for and provide such fund‐specific services with a number of reputable and licensed service providers;
4. Low qualification entry levels for professional investors (€ 10,000 for extraordinary investors);
5. With the exception of self-managed funds (where a share capital of € 125,000 is required) low capitalisation rules;
6. Favourable tax regimes;
7. The fund may invest in the underlying assets itself, or through special purpose vehicles (SPVs), local or foreign, which act as the lunga manus for the fund. The use of SPVs may be particularly useful for tax planning, enabling the fund to reap full benefit of the extensive network of double tax treaties (Malta has signed double tax treaties with over fifty jurisdictions). By investing in underlying assets through SPVs, incorporated in companies which have a favourable double tax treaty, the fund may benefit from double tax relief in respect of asset acquisition and holding structures;
8. PIFs compatible with Islamic funding structures and financing vehicles, e.g. Ijarah and Murabahah funds;
9. Licensing applications are processed quickly and efficiently. Provided all due diligence documents are submitted to the MFSA, the authority shall issue an “in principal” approval to the proposed promoters of the fund within seven (7) working days.

Licensing requirements

All CISs, including PIFs, require a collective investment scheme licence in terms of the Investment Services Act (Chapter 370 of the Laws of Malta) to issue or create any units or carry on any activity in or from within Malta.
A PIF may take up several forms e.g. an investment company with variable share capital (SICAV), an investment company with fixed share capital (INVCO), limited partnership, unit trust or common contractual fund. Nevertheless, drawing heavily on corporate rules based mainly on UK Company Law and of its innate flexibility, the corporate form (SICAV) is the one which is usually preferred by promoters. By virtue of the Companies Act (SICAV Incorporated Cell companies) Regulations it is also possible for a SICAV to be formed or constituted as an incorporated cell company and establish incorporated cells.
In its simplest form, a CIS may be established with just one sub-fund. However, it is also possible to structure the CIS as a multi‐fund (umbrella) scheme, with a number of sub‐funds thereunder, constituted by one or more different classes of shares. The advantage of an umbrella scheme, is that it would be possible to have different sub-funds pursuing different investment objectives, policies and restrictions, also denominated in different currencies. Sub-funds do not have separate legal personality from the scheme, however the assets and liabilities of each sub-fund constitutes a separate patrimony from the assets and liabilities of other sub-funds. This segregation of assets and liabilities, acts as a safety-valve to the viability of the scheme, and the negative performance of one sub-fund shall have no bearing on any other sub-funds established by the CIS.
Applications for a licence to operate a PIF must be made to the MFSA, and shall only be accepted if such application is drawn up in proper form, compliant with the relevant legislation, regulations and rules, and the directors and officers are fit and proper persons to carry out the functions required of them in connection with the scheme.
Following the in-principal approval of the directors and officers of the scheme, the applicant must submit the following documents, in draft form, to the scrutiny of the MFSA-

• Draft version of the constitutive document of the scheme (in the case of a SICAV – the memorandum and articles of association);
• Draft copy of the Offering Memorandum;
• Draft copy of the Offering Supplement;
• Draft board resolution confirming:
  • The directors’ intention to apply for a licence in favour of the PIF;
  • Identifying the person(s) responsible for signing the application documents;
  • Identifying the person(s) responsible for acting as a point of liaison with the MFSA;
  • Identifying the persons responsible on behalf of the board for the compliance and anti-money laundering regulations;
  • Approving and assuming responsibility for the contents of the Offering Memorandum and for the Marketing Document (the Offering Supplement)

The applicant may be asked to provide additional information, or to amend the documents accordingly, in order to comply with the Standard Licence Conditions (“SLCs”) established by the MFSA. When the final tweaks, if any, have been undertaken, in conformity with such SLCs, the applicant shall be asked to submit the original documents.
PIFs may, appoint any service provider (e.g. investment manager, adviser, administrator, custodian or prime broker) it deems necessary. Any external service providers appointed by a PIF do not have to be established in Malta. However, where all service providers are based outside Malta and the PIF has not appointed a local resident director, the MFSA shall require a local representative, as a liaising and reporting officer.

Re-domiciliation of Oversea Funds

Oversea funds established as a corporate form in jurisdictions permitting re-domiciliation, may apply to be registered as being continued in Malta under the Companies Act, without the need to wind up the company and to create a new entity.
Kindly contact us for more detailed information regarding the re-domiciliation of offshore funds.

Ongoing requirements

PIFs are required to appoint a Compliance Officer, a Money Laundering Reporting Officer and an auditor approved by the MFSA. They are subject to certain minimum disclosure, record keeping and reporting requirements.

Leverage Restrictions

Qualifying Investor Funds and Extraordinary Investor Funds are not subject to any investment or borrowing restrictions. However, Experienced Investor Funds are, for direct borrowing for investment purposes and leverage via the use of derivatives, restricted to 100% of the Fund’s Net Asset Value.
Furthermore, where the main objective of a PIF is investing in immovable property, certain restrictions on leverage may apply in respect of Experienced Investor Funds and open‐ended Qualifying Investor Funds.
 

	Experienced Investor Funds	Qualifying Investor Funds	Extraordinary Investor Funds
Type of investors	Experienced Investor:  persons with min 1 year work experience in the financial sector; persons with reasonable experience in acquisition / disposal of similar funds / risk profile /property; persons who has carried out investment transactions in significant size at a certain frequency; or persons who can otherwise justify that he has the relevant expertise/ experience/ knowledge.	Qualifying Investor:  entities with net assets exceeding EUR750,000; individuals with or entities whose management has reasonable experience in acquisition / disposal of similar funds / risk profile / property; individuals with net worth exceeding EUR750,000; senior employee / director of service provider to the PIF; -relation/ close friend of the promoter (max.10); entity with min. EUR3.75mio under discretionary management, investing on own account; Qualifying or Extraordinary Investor Fund; investment vehicle owned by persons / entities  satisfying any of the above.	Extraordinary Investor: entities with net assets exceeding EUR7.5mio; individuals with net worth exceeding EUR7.5mio; senior employee / director of service provider to the PIF; Extraordinary Investor Funds; investment vehicle owned by persons / entities satisfying any of the above.
Declaration Forms	Experienced Investor Declaration Form + Manager/ sales agent to ensure that client has sufficient knowledge and understanding of risks involved	Qualifying Investor Declaration Form	Extraordinary Investor Declaration Form
Minimum investment threshold	EUR15,000; It is now also possible to have a threshold of EUR 10,000 / USD 10,000	EUR75,000 / USD 10,000	EUR750,000 / USD 750,000
Investment / borrowing restrictions	Borrowing for investment purposes or leverage via derivatives restricted to 100%of NAVCertain restrictions apply to property funds. MFSA has recently introduced some investment restrictions (mostly single‐issuer and exposure restrictions) with the aim of enhancing protection for the ‘quasi‐retail’ investors to whom Experienced Investor Funds are targeted, as well as to enhance flexibility and certainty in terms of the eligibility test for investors.	None (except for certain restrictions that may apply to open‐ended property funds)	None
Offering Document	Offering Document	Offering Document	Offering Document or Marketing Document
Reporting requirements	Compliance Report (min. every 6 months); Annual reports and half‐yearly (if any) reports;	Compliance Report (min. every 6 months); Annual reports and half‐yearly (if any) reports;	Compliance Report (min. every 6 months); Annual reports and half‐yearly (if any) reports;
Service providers	Custodian compulsory; other service providers (manager, administrator, investment adviser) optional	Optional	Optional

Fees payable to MFSA

 

	Scheme	Sub-funds
Application for preliminary indication of acceptability of a PIF	€600	-
Application for a PIF licence	€1500	€1000 (per sub-fund)
Annual Suipervisory Fee	€1500	€500 (per sub-fund)

Note: the fees due to the MFSA set out above are given for information purposes only and are the current fees chargeable by MFSA at the time of writing and are subject to change from time to time.
The registration fees payable to the Registrar of Companies for investment companies are set at €1,750.
 

 

Taxation

A distinction must be drawn between prescribed and non-prescribed funds. 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, are called Non-prescribed Funds.
In the case of Prescribed Funds, the CIS qualifies for exemption from tax on income other than income from immovable property situated in Malta and investment income earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income.
There is no withholding tax on investment income received by Non-prescribed Funds (including overseas based CISs), which are exempt from tax on income and capital gains realised on their investments and also enjoy a blanket stamp duty exemption on their transactions. Furthermore, kindly note that there are no Wealth nor Net Asset Value Taxes 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 sale or exchanges 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.
Furthermore, foreign Fund Managers find Malta to be an extremely tax efficient location in respect of fee and participation income or gains (including carried interest through participation shares or otherwise in the Fund) which they receive from the Fund. This favourable fiscal treatment applies when they establish their own operations in Malta but also when they remain established in, and provide the management services from, their own jurisdiction.

Throughout the past years Malta has become a highly attractive jurisdiction in the field of financial services. The Investment Services Act, 1994 (the “ISA”) presented several types of collective investment schemes or funds that may be registered with the Malta Financial Services Authority (MFSA), and may be directed at both domestic and international markets.

The development of Malta as the jurisdiction of choice for several types of collective investment schemes has been extraordinarily assisted by the local financial services authority, the MFSA.

The Investment Services Act (ISA)

Collective Investment Schemes (CISs) are defined as arrangements having as their object (or as one of their objects) the collective investment of capital obtained by means of an offer of units for subscription, sale or exchange, and have the following features:

• They function in accordance with the principle of risk spreading, and
• The contributions by the participants, and the income payments made to them, are grouped; or units are re-purchased or redeemed continuously or at short intervals, out of the assets of the Scheme at the request of the unit holders; or units are issued continuously or at short intervals.

A Scheme which does not spread its risk may still be allowed to function if its units are offered only to license holders and/ or persons who deal in similar investment instruments or property as part of their ordinary business, or who are themselves exempt from an investment services license.

Legal Structures of CISs

The law provides that a scheme may be established as either:

• A Maltese CIS can be formed using diverse legal structures, specifically:
• SICAV: a collective investment company with variable share capital
• INVCO: a collective investment company with fixed share capital
• Unit trust 
• Mutual fund: set up by means of contractual agreement
• Limited partnership

Types of Schemes

Professional Investor Funds (PIFs)

PIFs target investors who are either qualified or experienced, in accordance with their minimum investment threshold. These types of funds are classified as non-retail type funds and are therefore not subject to any restrictions on their investment or borrowing powers.

Such funds may be sold only to investors who satisfy the minimum investment threshold: ‘experienced investors’ are subject to a minimum threshold of US$ 20,000; ‘qualifying investors’ are subject to a minimum investment threshold of US$ 100,000; whilst ‘extraordinary investors’ are subject to a minimum investment threshold of EUR 1,000,000.

Private Schemes

Private Collective Investment Scheme is the scheme which limits the total number of participants to 15 persons. Hence, the Regulator has to ensure that the participants are close friends or relatives of the promoters, that the scheme is private in nature and purpose, and that it does not qualify as a PIF.

These private Schemes do not require a license under the Investment Services Act, however one finds the requirement that the promoters apply to the MFSA for recognition. One would also need to pay special recognition and annual fees. The special income tax regulations applicable to other types of Schemes do not apply, as such Schemes are not considered as being licensed.

Specialist Schemes

Such Schemes target special sectors as venture capital or development funds; money market funds; property funds; and futures and options funds.

Retail Funds

These Schemes collect funds from the public and therefore, these are the most highly regulated funds from all those listed above.