Investment Services & Investment Funds

Investment funds and Investment Services are regulated by the Investment Services Act. Investment Funds are known in the Act as Collective Investment Schemes (CIS) and are based on the principle of risk spreading for its investors.

Investment Service Providers

Investment funds would normally require additional service providers apart from persons directly in the administration and management of the fund – such entities may require a licence in terms of the Investment Services Act issued by the Malta Financial Services Authority.

The following investment services must be carried out by licensed parties:

Reception and transmission of orders
Execution of orders on behalf of other persons
Dealing on own account
Management of Investments
Trustee, custodian or nominee services
Investment Advice
Underwriting of instruments and, or placing of instruments on a firm commitment basis
Place of instruments without a firm commitment basis
Operation of a multilateral trading facility

Investment service provider is licensed in a recognised jurisdiction a licence from Malta would not be necessary - reputable jurisdictions include EEA jurisdictions together with those jurisdictions with which Malta has a memorandum of understanding such as the United Kingdom, Portugal, South Africa and the Cayman Islands. Fund administrators do not require a licence in terms of Maltese law, however they must apply to the authority for recognition.

Taxation of Investment Service Providers

Maltese law does not provide for a special tax regime to investment service providers, however in line with the principles of the full imputation system, tax paid by a Maltese company may be attributed to its shareholders. Therefore although the investment service provider will be taxed at the standard corporate tax rate, on distribution of dividends, the shareholders may be entitled to a tax refund.

Investment Funds

Collective investment schemes are required to obtain a licence from the MFSA prior to commencement of operations. The regulator must be satisfied that the CIS would comply with the provisions of the law and relevant regulations at the licence application stage continuing to ensure compliance throughout the duration of the licence.

Legal Forms Available to Maltese Investment Funds

Investment funds can take up different legal forms in terms of Maltese law which include:

Companies with variable share capital (SICAV)
Companies with fixed share capital (INVCO)
Limited Partnership
Unit Trust
Mutual Fund

The former three legal forms are regulated by the Companies Act whereas the latter two are regulated by the Trusts and Trustees Act and by contract law in terms of the Civil Code respectively.

Types of Investment Funds

Maltese law provides for different types of investment funds with varying levels of regulation depending on the target investors. In this regard, Maltese law provides for retail funds and professional investor funds. The former is available to the general public and subject to more stringent regulation whereas the latter is aimed at investors that satisfy certain conditions prior to being accepted as an investor of the fund.

Maltese law also provides for the redomiciliation of investment funds – this would permit funds that are regulated outside of Malta to transfer their seat of registration to Malta. The fund will never cease to exist as a legal entity and therefore all of its rights and obligations will continue following its redomiciliation to Malta.

Retail Funds

Maltese retail funds may be classified as UCITS and non-UCITS funds. Retail funds are subject to the most stringent level of supervision due to the potential vulnerability of the general investing public. Retail funds are gaining in popularity following the recent international financial crisis which, perhaps somewhat unduly, was partly blamed on non-retail investment funds.

A Maltese non-UCITS fund may be setup as an open ended or closed ended fund and may offer its units to the general public in Malta and outside of Malta (subject to compliance with the host jurisdiction regulations). A Maltese UCITS fund must be formed as an open ended fund and may offer its units to the general public both in Malta and in any other EEA State in line with the passporting rules within the EEA applicable to UCITS funds.

Professional Investor Funds

Maltese law provides for three categories of professional investor funds that may be marketed to different types of investors and are identified as such. Maltese professional investor funds may be established in any legal form available to collective investment schemes and may be promoted to:

Experienced Investors with a minimum investment level of €10,000
Qualifying Investors with a minimum investment level of €75,000
Extraordinary Investors with a minimum investment level of €750,000

Taxation of Investment Funds

The tax treatment of investment funds depends on the classification of the fund as either a prescribed or non-prescribed fund. A fund is deemed to be a prescribed fund if at least 85% of the value of its assets is situated in Malta whereas a non-prescribed fund is a fund that is not classified as a prescribed fund.

Prescribed funds are taxed in the following manner:

15% withholding tax on bank interest
10% final withholding tax on interest, discounts or premiums received from the government of Malta, corporations or authority established by law in Malta or any other company or other legal entity in respect of a public issue
Tax on gains or income derived from immovable property in Malta
Any other income of an investment fund is not subject to tax in Malta

Non-prescribed funds are exempt from tax in Malta unless they have income which is derived from immovable property situated in Malta.