In recent years, Malta has witnessed substantive growth across the entire investment funds arena, experiencing a boost of confidence as an approachable yet highly reputable fund jurisdiction.

A number of factors contribute to adding value to Malta as an attractive jurisdiction for the setting up or relocation of funds and their service providers, amongst which, its Mediterranean climate and adaptable culture, as well as, its English-speaking and highly qualified, skilled and professional labour force. Moreover, coupled with a well-developed financial services infrastructure that is backed by a ‘can-do’ mindset, the role played by the Maltese financial services regulator, the Malta Financial Services Authority (MFSA), is of the essence to promoting Malta as a European domicile of choice.

Indeed, the MFSA boasts of a pro-business approach and pragmatism in its prompt responsiveness to industry needs, accessibility and flexibility as a regulator, as well as, efficiency in dealing with applications for the licensing of funds. In this regard, it is apt to highlight the MFSA’s commitment to process a licensing application and register a fund within an average of six-to-eight weeks from submission thereto in full of all the necessary documentation. Naturally, the speed of the licensing process depends on the accuracy of the documentation submitted and the efficiency of the applicant. Furthermore, Malta is also less bureaucratic when compared to other jurisdictions and acts as a unique cost competitive jurisdiction in terms of both fund set up fees and fund ongoing fees, compliance costs, as well as, operating costs pertinent to the functionaries of the fund and related services.

Moreover, Malta’s reputation as an international fund centre is also inspired by its endorsement of a comprehensive legal and regulatory framework for the entire financial services industry, thereby seeking to prompt the island as ‘the’ financial services hub of the Mediterranean.

The Investment Services Act, 1994, provides for the establishment, licensing and marketing of collective investment schemes (CIS’s) and for the authorisation and supervision of investment services providers. Indeed, in terms of this Act, a CIS and an investment service provider set up under Maltese law or which are otherwise overseas-based but operating in or from Malta, must be in possession of an investment services licence under the Act. Furthermore, a CIS seeking primary or secondary listing on a regulated market must have first been duly licensed before it can be listed. Every licence issued by the MFSA is subject to standard licence conditions which may be adapted in certain circumstances provided that the essence of the standards is not compromised.

In this context, one must bear in mind that whilst backed by the Investment Services Act as the legal basis for regulating CIS’s and investment-related items, explicit regulatory structures are in place for the regulation of private CIS’s on the one hand and retail CIS’s on the other, professional investment funds (PIF’s), retirement funds and fund administrators.


Vehicles for CIS’s

A CIS may be set up as one of a number of different vehicles, namely: a CIS with variable share capital, a CIS with fixed share capital, a unit trust, a mutual fund or a limited partnership. The most common structure used for both retail and non-retail CIS’s is the SICAV which is an investment company having variable share capital, meaning that it allows for the possibility of new subscriptions from investors without the need to wait for an existing investor to liquidate or redeem his current holding. Furthermore, the SICAV can be listed on the Malta Stock Exchange or another regulated market, thereby serving better the retail nature and purpose pertinent to retail funds, in particular UCITS funds. Moreover, a SICAV allows for sub-funds to be established within the same structure such that each sub-fund pursues a specialised and segregated asset portfolio strategy.

Types of CIS’s

Amongst Malta’s success factors as a promising and competitive financial centre is its robust yet flexible regulatory framework for CIS’s, allowing for the setting up of retail funds in one of two forms, namely the UCITS III funds or the non-UCITS funds, as well as, the setting up of professional investor funds under one of three possible heads.

UCITS III Retail CIS’s

The advent of EU legislation through EU membership helped to position Malta at the forefront of the fund arena, allowing Malta to compete at par with other European fund domiciles. Indeed, the European UCITS regime that is peculiar to the EU’s acquis has contributed to the development of an expanding and dynamic retail Malta-based fund industry, particularly in view of the fact that UCITS certified funds carry with them the benefits of passporting. This means that UCITS funds can be freely marketed and distributed in other European host jurisdictions without the need to obtain any further licence from the authorities but merely necessitating adherence to the requisite notification procedure prescribed by the UCITS rules.

However, it is important to understand that in so far as retail CIS’s invest funds collected from the general public, these funds are subject to rigorous regulation, particularly in terms of investment restrictions, leverage restrictions and borrowing restrictions. Having said this, it is only those funds that are fully compliant with the terms underpinning the UCITS rules that will be licensed bearing the label of a UCITS fund, and can thereby benefit from the EU’s single passport to market the fund across the EU without needing to overcome any further licensing obstacles.

A UCITS fund that has been duly licensed can apply for a Primary Listing on the Malta Stock Exchange, or, in the event that it has already been listed on a regulated market abroad, it can still apply for a Secondary Listing in Malta.

The Maltese regulator allows for UCITS funds to opt for the self-managed route as an alternative to external third party management. Where there is an external investment manager, the latter must be based in Malta, so must the custodian, whereas with regards to the administrator, it is merely advisable and generally required for the latter to be Malta-based too. Indeed, flexibility in the Maltese structure stands out once again in so far as whilst Malta-based funds do not require the appointment of a local administrator, local administrators are not restricted to administering funds that are only registered in Malta.

Self-managed UCITS require that at least one director be resident in Malta. Both self-managed and externally managed UCITS require that all directors, senior officials and functionaries of the fund must satisfy the MFSA’s ‘fit and proper’ test to demonstrate solvency, competence and integrity in all their dealings. Moreover, it is mandatory for self-managed funds to appoint an investment committee made up of at least three members who are to be responsible for the overall fund strategy, asset allocation and risk management decisions, as well as, to appoint at least two portfolio managers to carry out day-to-day investment decisions. Once again, the custodian must be based in Malta, while the administrator need not.

Professional Investor Funds

The professional investor funds structure is targeted at high net-worth and sophisticated investors. Professional investors, unlike retail investors, are deemed to possess the requisite knowledge and understanding of the risks involved in investment markets. This is to say that PIF’s, qua non-retail funds, are subject to much less stringent regulatory rules than those to which retail funds must necessarily comply with. However, despite the more lenient regulatory framework applicable to PIF’s, in view of the fact that PIF’s do not comply with the meticulous requirements of the UCITS regime, PIF’s cannot avail themselves of passporting rights with other EU jurisdictions.

The PIF regime comes into three broad categories, each targeting a different class of sophisticated investors primarily on the basis of such investors’ wealth and investment experience. Consequently, PIF’s are subject to regulation that is proportionate to the type of investor profile under issue, such as the case of rules relating to the minimum investment threshold required from each individual investor. The first category refers to ‘experienced investors’. For an investor to participate in a PIF for experienced investors, a minimum entry investment of Euro 15,000 is required. The other two classes of PIF’s target ‘qualifying investors’ and ‘extraordinary investors’, the former requiring a minimum investment threshold of Euro 75,000, and the latter barred at Euro 750,000.

Whilst the threshold for participation is raised for qualifying and extraordinary investors, the level of regulation required in their respect is reduced. A case in point being, that in view of the quasi-retail nature of the PIF for experienced investors, the regulator intends to shield the interests of this class of investors by restricting the fund’s borrowing powers for investment purposes or leverage via derivative instruments to 100% of the NAV. Indeed, the leverage allowed here is set at the same level as that required for UCITS funds. On the other hand, the other two classes have no effective limitations on their investment or borrowing powers and the leverage they can apply, save where the investment relates to immovables. Other residual specific investment restrictions would be self-imposed by the fund itself.

Moreover, a PIF for experienced investors must necessarily have a Custodian or prime broker acting independently from the manager and/or administrator, whilst a PIF for both qualifying investors and extraordinary investors, may or may not, appoint a custodian or prime broker provided that in its absence adequate safe-keeping arrangements subsist.
Maltese PIF’s may be set up as self-managed or externally-managed CIS’s. Whilst a Malta-based PIF must appoint at least one local resident director to ensure compliance with local requirements, the functionaries appointed by the PIF, such as the investment manager and investment advisor, the administrator, and the custodian or prime broker, need not be based in Malta, in which case, it is recommended they are established and regulated in a recognised jurisdiction. Moreover, where the PIF operates from outside Malta a local judicial representative must be appointed. It is also of essence that the fund and any of its service providers satisfy, both at the licensing stage and on an ongoing basis, the rigorous ‘fit and proper’ test imposed by the MFSA.

Furthermore, it is possible to obtain a listing of the PIF – provided it is not a private company – on a regulated market, which, in Malta’s case, is the Malta Stock Exchange. Listing would naturally serve to better the international profile of the listed security and increase the marketability of the PIF already duly licensed. A foreign-based PIF that is marketed exclusively abroad and obtains a licence from the MFSA solely in order to obtain a listing locally on the Malta Stock Exchange must also appoint a judicial representative in Malta.

The efficiency of the MFSA is mirrored in its commitment to providing the promoter of a PIF with an ‘in principle approval’ of the fund within seven working days from submission of the full set of documentation in the case of experienced and qualifying PIF’s, and within only three working days in the case of an extraordinary PIF.

The credibility of Malta as a funds jurisdiction has been affirmed in so far as a number of hedge funds have been launched from and are now based on our islands.

Taxation of Malta-based CIS’s

Malta offers a highly competitive and beneficial tax package by operating an overall attractive corporate tax regime. Moreover, under Maltese law, the tax treatment of the income derived by CIS’s and any income derived by individual investors in the form of capital gains or dividends depends on whether the fund qualifies as a ‘prescribed fund’ or a ‘non-prescribed fund’. Essentially, a fund is classified as a prescribed fund if it satisfies two conditions cumulatively, namely, that the fund is resident and therefore based in Malta and that the value of the assets situated in Malta amounts to at least 85% of the value of the fund’s total assets. By default, other funds fall under the head of a non-prescribed fund. Hence, as a general rule, a very favourable tax regime applies to non-prescribed funds in so far as they are exempt from payment of tax in Malta on any income received.

Redomiciliation of Funds

Under Maltese law, a body corporate established and incorporated under the laws of an approved foreign jurisdiction, which is ‘similar in nature’ to a company as known under Maltese law, may be relocated to Malta under the Companies Act, 1996, provided that the laws of the foreign jurisdiction and the company’s constitutive documents authorise it to do so. Hence, a company being redomiciled to Malta need not pass through the cumbersome process of winding up in its country of incorporation.

Consequently, an overseas CIS that takes the form of an investment company may continue to exist in Malta under Maltese law, thereby becoming a Maltese investment company with full effects and for all intents and purposes, subject to the provisions of existing subsidiary legislation, namely the Continuation of Companies Regulations, and provided that it obtains the requisite licence from the MFSA. The MFSA endorses a policy to the effect that it is only reputable funds that may be relocated to Malta, and thus, the MFSA must be satisfied that funds seeking to redomicile to Malta have been operating for at least one year in their current home domicile before applying to move.

When all the requisite documentation has been filed with the Companies Registry in Malta and the Registry is satisfied that all conditions have been met, the Registrar of Companies will issue a Provisional Certificate of Continuation. A certified copy thereof will be sent to the foreign company’s registry together with a request to have the company struck off the register in the original jurisdiction of incorporation of the company. The certificate of cessation issued by the foreign registry will be presented to the Maltese Companies Registry together with the Provisional Certificate of Continuation so that the final Certificate of Continuation can be issued by the Maltese Registrar to show that the company has been registered as continuing in Malta.

Concurrently with the above-described redomiciliation procedure, the fund would have already undergone review by the MFSA for licensing purposes. This will ensure a smooth and seamless transition from one domicile to another.


Please contact either Dr. James Muscat Azzopardi or Dr.Lara Ferris for more information about the setting up of investment funds in Malta, on jamesma@ma-advocates.com or laraf@ma-advocates.com