The new kid on the block
In the wake of the implementation of the UCITS IV Directive and the imminent adoption of the Alternative Investment Fund Managers Directive (‘AIFM’) European Union fund domiciles are becoming particularly attractive to fund managers.
Increasingly, managers are considering relocating their investment fund to an onshore jurisdiction in order to avail themselves of a pan-European marketing passport. According to Bloomberg, Malta is topping fund managers’ choice of domicile lists for re-domiciliation from offshore jurisdictions, but not only. Funds are also being relocated to Malta from other member states such as Luxembourg and even certain funds located in the UK having moved part of their operations to Malta.
Good regulation & reasonable taxation
The success which Malta is experiencing in attracting investment funds is primarily attributable to the favourable taxation regime enjoyed by investment funds domiciled in Malta, its investors and service providers. Funds domiciled in Malta are exempt from paying any tax on their income or capital gains unless these are derived from certain assets located in Malta. Additionally, service providers located in Malta, such as fund administrators and fund managers, may benefit from tax rebates which bring the effective corporation tax payable in Malta down to 5%. Another attractive scheme recently introduced in Malta is that created under the Highly Qualified Persons (‘HPQ’) Rules in terms of which qualifying persons employed with licensed collective investment schemes and service providers established in Malta may benefit from a flat rate of 15% income tax rare. In order to qualify for such tax rate the person must hold an ‘eligible office’ which may be generally classified as C-level and other high management positions and must have a minimum income of €75,000 per annum.
A highly reputable and business-sensitive regulator (the Malta Financial Services Authority), lower set up and maintenance costs and the efficient procedure in place for relocating funds to Malta have also greatly contributed to establishing Malta’s successful track-record in the funds industry.
The process of re-domiciliation
Re-domiciliation is an efficient way of migrating a fund to Malta without having to dissolve and re-incorporate the investment vehicle. This process ensures a critical level of continuity resulting in little disturbance to the investors and to the fund’s assets which do not need to be transferred to a newly incorporated entity. The fund’s contractual relationships with its service providers are also unaffected in so far as the Maltese regulatory regime allows funds to have service providers such as administrators and custodians based in other jurisdictions which are recognised by the Regulator. Additionally, funds that are listed on a stock exchange outside Malta can retain their listing provided the particular exchange allows for this.
Since 2002, Malta has had regulations in place permitting the re-domiciliation of corporate bodies to Malta, thereby becoming subject to Maltese company and taxation laws. In order for an overseas corporate entity to be eligible to continue in existence under the laws of Malta, it must be formed and registered in an approved jurisdiction. Jurisdictions forming part of the EU, EEA, OECD as well as most offshore centres are considered to be approved jurisdictions. An approved jurisdiction must allow for the outgoing re-domiciliation under its laws. Closed-ended as well as open-ended investment vehicles may be relocated to Malta under these regulations. Since 2011, the range of vehicles eligible for re-domiciliation has been expanded to include collective investment schemes which have adopted a SICAV incorporated cell company structure, a development which should be particularly attractive to ‘cellular’ structured funds looking to relocate to an onshore jurisdiction.
As from the 1st of July 2011, the UCITS IV Directive was transposed into Maltese law. Fund managers wishing to market the units of a Malta-based UCITS outside of Malta may now avail themselves of a more streamlined passporting procedure to the other 26 member states of the union. The UCITS IV passport regime coupled with the tax planning opportunities offered by Malta and the recent removal of the requirement to have the UCITS management company located in the same country in which the UCITS is established are likely to further increase Malta’s popularity amongst fund promoters interested to convert their offshore fund to the much sought after UCITS ‘brand’.
The Maltese fund industry expects a further boost upon the implementation of the AIFM Directive in 2013. Under the Directive the re-domiciliation of non-retail, professional investor funds to Malta would allow managers to benefit from the European passport for marketing of alternative funds across Europe. It is also expected that offshore fund managers will relocate to a European jurisdiction or replicate their structures in an onshore jurisdiction and benefit from a ‘management services passport’ under the Directive.
Most probably Malta is indeed the “new kid on the block”, but only insofar as awareness about the regulatory and tax opportunities which it offers to funds, managers and administrators are concerned. In reality Malta has had a solid financial services regulatory framework and has been an attractive cost and tax efficient base for several years. That, as well as a well-trained workforce, over fifty double tax agreements including with the US, the UK, Russia, France and China, English as a second language and, why not, close to 300 days of sunshine each year!
First Published In:
New European Economy, Spring 2012