setting up a fund in malta · order to obtain a passport, swiss managers must be licensed by the...

Setting up a Fund in Malta

A Step by Step Guide Attractions of the Regimes

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

A Steep Increase in the Total Number of Funds Domiciled in Malta

520

540

560

580

600

620

640

2011 2012 2013

PIF Licences were up by 6.5% from 2012 to the end of 2013


A Broad Array of Structuring Solutions:Fund Structures Range from utilising stand alone funds, umbrella funds and fund platforms.Also, Malta offers the use of Professional Investor Funds, Alternative Investment Funds, UCITSand Private Funds.

A Responsive Regulator:The MFSA’s high degree of accessibility and responsiveness boosts Malta’s allure as an attractivefund domicile.

A High Degree of Regulatory Protection:Malta’s investor protection laws and regulatory framework has attracted a number ofinternational fund managers onshore as it enables them to use Malta’s badge of quality as a keyselling point.

Low Set-Up Costs and Professional Fees.

The Key Reasons Underpinning Growth. What Makes Malta An Attractive Fund Domicile?


Overview of Types of Funds in Malta

Targeting experienced

investors

Targeting qualifyinginvestors

De Minimis AIFs

Full Scope AIFs

UCITS

Retail SchemesAIFs PIFs

Targeting extraordinary

investors


The Structures Available

Collective Investment Schemes (whether PIFs or AIFs) may be set up as closed-end funds, open-ended funds, or a combination of both, and may assume a variety of legal forms:

Investment Company with Variable Share Capital (SICAV)

Investment Company with Fixed Share Capital (INVCO)

Limited Partnership

Unit Trust

Contractual Fund

Incorporated Cell Company (ICC)

Due to their liquid nature, UCITS funds must be structured as open-ended funds. With the exception of INVCO’s, UCITS funds can assume any of the legal forms above listed.


Professional Investor Funds (“PIFs”) in Focus

Following the implementation of the AIFMD, the MFSA has retained itshighly successful PIF regime. The PIF brand which boasts a lighter, moreflexible regulatory regime than that applicable to UCITS and AIFs maycontinue to be availed of by sub-threshold-AIFMs and Third CountryManagers.

PIFs fall into one of three categories, depending on the wealth andexperience of fund investors:

• PIFs targeting Experienced Investors;

• PIFs targeting Qualifying Investors; and

• PIFs targeting Extraordinary Investors.


Main Advantages of PIFs

PIFs may be structured to invest in a variety of assets, ranging from plain

vanilla equity and debt securities to more complex assets classes such as

private equity, infrastructure and bespoke derivatives.

PIFs boast a number of advantages over AIFMD-compliant AIFs. PIFs

targeting Qualifying and Extraordinary Investors are not subject to any

investment restrictions and limitations on the use of leverage.

Moreover, no custodian needs to be appointed for PIFs targeting

Qualifying and Extraordinary investors.


Characteristics of Experienced, Qualifying and Extraordinary PIFs

Experienced PIF Qualifying PIF Extraordinary PIF

Minimum Investment (€)

10,000 75,000 750,000

Investment Restriction

Direct borrowing for investment purposes and leverage through the use of derivatives is restricted

to 100% of NAV. Other investment restrictions

apply.

None, unless the fund invests in immovable

propertyNone

Fund ManagerOptional, self-managed

PIFs allowedOptional, self-

managed PIFs allowedOptional, self-

managed PIFs allowed

Experienced PIF Qualifying PIF Extraordinary PIF

Administrator Optional Optional Optional

Custodian/Prime Broker

Required

Optional, providedthat there are

adequate safekeeping arrangements

Optional, providedthat there are

adequate safekeeping arrangements

Money Laundering Reporting Officer &Compliance Officer

RequiredRequired Required

Auditor Required Required Required

Offering/MarketingDocuments

Must prepare an offering document

Must prepare an offering document

Must prepare an offering document or

a brief marketing document

Characteristics of Experienced, Qualifying and Extraordinary PIFs


Two Drawbacks of the PIF Regime

The PIF regime is not available to AIFMs whose AuM exceed the AIFMD’s

de minimis thresholds (Eur100M or Eur500M (for unleveraged funds

with a lock-up period of 5 years) unless they opt to become AIFMD

compliant leading to 2 regulatory regimes ; and

PIFs can only be distributed on a private placement basis.

AIFMs wishing to reap the benefits of the Single Market may hence

choose to ‘opt in’ to the full AIFMD regime in order to passport their

funds on a pan-European basis.

Managers can structure their funds as AIFs.

What Solutions are Available?


Swiss Fund Manager

EU Target Market

Malta Domiciled AIF

Scenario One:

Swiss Fund Manager, Managing a Maltese AIF, Targeted Towards EU Investors

Options for Swiss Fund Managers


During Timeframe 1, marketing will be regulated by the

national private placement regimes (“NPPR”) of each

Member State. During this period, Swiss Managers may sell

EU AIFs on a private placement basis to investors in the EU.

If the private placement route is chosen, Swiss managers will

only have to comply with a limited number of provisions of

the AIFMD, namely the provisions governing

‘Transparency’ (Articles 22-24) and those governing

‘Controlling Interests’ (Articles 26-30).

Swiss managers availing of this option must be aware that

the availability and scope of private placement rules vary

widely across different Member States. This could make

article 42 ‘private placements’ a thorny avenue to pursue.

Options for Swiss Fund ManagersSwiss Fund Manager, Managing a Maltese AIF,

Targeted Towards EU Investors

Timeframe 1: Concluding Mid-2015

National Private

Placement Rules

Applicability of AIFMD

Controlling Provisions

Applicability of AIFMD

Transparency Rules


From mid-2015, Swiss AIFMs may opt for passporting rights

subject to fulfilling all the requirements of the Directive. In

order to obtain a passport, Swiss Managers must be licensed by

the regulatory authority of their Member State of Reference.

In order to be eligible for a license the Swiss AIFM must appoint

a legal representative in Malta.

It is notable that at the end of Timeframe 2, ESMA may decide

to disallow private placements.

Options for Swiss Fund Managers Swiss Fund Manager, Managing a Maltese AIF,

Targeted Towards EU Investors

Timeframe 2: Mid-2015 until 2018

Member State of

Reference

Passport

Full Directive Applicability


Scenario Two:

Swiss AIFM, Managing a Maltese AIF, Marketed in a Third Country

Options for Swiss Fund Managers

Swiss AIFM Malta Domiciled AIF

Third Country Target Market


Options for Swiss Fund ManagersSwiss AIFM, Managing a Maltese AIF,

Marketed in a Third Country

Where a Swiss AIFM intends to manage one or more Malta AIFsand market the same in a third country, the Swiss AIFM must:

Before mid-2015, marketing in the third country will beregulated by the national private placement regimes(“NPPR”) of such third country. Therefore, during this period,Swiss Managers may sell EU AIFs on a private placementbasis to investors outside the EU.

As of mid-2015 (at the start of Timeframe 2) obtain a licensefrom its Member State of Reference, which in the presentexample would be Malta. In order to be eligible for a licensethe Swiss AIFM must appoint a legal representative in Maltawhich will act as a point of liaison with the MFSA; and

Comply with the relevant Third Country’s national marketingregime.

At no stage will a passport become available for this type ofactivity.

Member State of

Reference

Full Directive

Applicability

Third Country’s National Regime


The Licensing and Authorisation Process

Collective Investment Schemes (“CISs”) established in Malta must obtain a

collective investment scheme license under the Investment Services Act, Cap.

370 of the laws of Malta (the “ISA”) before commencing any activity in or from

Malta. The parties involved in the CIS and the service providers must meet the

MFSA’s “fit and proper” criteria, a process that assesses integrity, competence

and solvency.

The MFSA responds to license applications expeditiously, particularly if all

service providers are based in recognised jurisdictions.


The Application Process for PIFs/AIFs

The Application Process Consists of 3 Phases:

Preparatory PhasePreliminary meetings are held between the applicant and the MFSA to discuss the proposalprior to submitting an application for a license. A draft application form is then submittedtogether with the supporting documentation, such as the personal questionnaire forms (‘PQs’)of the proposed management of the fund.

Pre-licensing PhaseThe MFSA issues an “in-principle” approval for the issue of a license after the applicant finalisesany outstanding matters. Signed copies of the application form together with supportingdocuments in their final format are submitted.

Post-licensing PhaseThe applicant may be required to satisfy certain post-licensing matters prior to the formalcommencement of business.


Supporting Documents

Together with the application form an applicant must submit the following:

1. Draft offering document or marketing document;

2. Draft memorandum and articles of association;

3. Draft board of directors resolution;

4. Application fee;

5. Details of the Directors of the PIF/AIF;

6. Details of the Founder shareholders holding more than 10% voting shares.

Supplementary application documents are required in the case of a self-managed PIF/AIF.Such documentation includes:

1. PQs and detailed CVs of members of the Investment Committee or Portfolio Manager;

2. Terms of reference regulating the procedures of the Investment Committee.


Local Presence Requirements

In order to be granted a collective investment scheme license, the applicant must have

its registered office in Malta.

In the case of externally managed PIFs, the fund must have one local director.

Conversely, in the case of self-managed PIFs, the fund must establish an in-house

Investment Committee (“IC”) made up of at least three members, wherein once IC

member must be local. Additionally, irrespective of whether the PIF is internally or

externally managed, it must appoint a local compliance officer, who may also act as the

fund’s money laundering reporting officer.


Taxation

Third Party Manager

A mix of the full imputation of tax system and refund system would result in a partial non-

taxable refund of the tax paid by the manager, upon the distribution of dividends.

The PIF/AIF

CISs investing more than fifteen per cent of their assets outside Malta are exempt from income

tax and capital gains tax on the revenue generated from their investments. CISs are neither

subject to value added tax (VAT) for the supply of services outside Malta.


TaxationInvestors in the CIS

Non-resident investors are exempt from income tax and capital gains tax on the dividend

received and the income received from the transfer of their participation or shares in the CIS.

No stamp duty is payable by investors on a transfer of their participations in the CIS

Highly Qualified Employees

Certain highly qualified persons employed by the CIS may be eligible for a reduced flat rate of

income tax of fifteen per cent.

Double Taxation Treaties

PIFs/AIFs may benefit from Malta’s extensive network of double-taxation treaties with around

58 countries, most of which are modelled on the OECD model


Malta Stock Exchange

PIFs/AIFs may increase their investor base by applying for listing on the Malta Stock Exchange

(‘MSE’). A PIF/AIF listed in Malta may seek listing on foreign exchanges.

The MSE offers a solid infrastructure and an international footprint as it is a member of

international organisations, and has been designated a recognized stock exchange for tax

purposes by the HM Revenue in the UK.


Fees

PIF/AIF Fee Application Fee (€) Annual Supervisory (€)

Scheme 2000 2000

Per Sub-Fund 1000 600


Thank you for your attention
