Transcript Sadis & Goldberg LLP

Sadis & Goldberg LLP
Relevance of Malta Structures
for US Managers
MALTA FINANCIAL SERVICES AUTHORITY
February 16, 2015
2
Steven Huttler, Partner
Sadis & Goldberg LLP
Steven Huttler is a partner in the firm’s Financial Services and Corporate Groups. Mr. Huttler has
extensive experience in corporate, finance, investment fund and securities matters, including the
representation of U.S. and foreign investment funds, underwriters, and private clients in various
registered public and private offerings of debt and equity securities totaling in excess of $10 billion.
As part of his investment fund practice, Mr. Huttler has served as corporate counsel to many private
investment funds and partnerships based in or domiciled in the United States and in international and
offshore jurisdictions such as the Cayman Islands, Bermuda, the British Virgin Islands, Ireland,
Luxembourg, Isle of Man, Jersey, Guernsey, Cyprus, Mauritius, United Kingdom, Austria, Russia,
India and Gibraltar. Mr. Huttler's legal practice has exposed him to diverse fund clients with an
exceptionally wide range of investment programs and structures, including large mutual funds and
hedge fund complexes, private equity firms, real estate partnerships and funds, venture capital funds
and funds focused on specialty finance assets. He has also counseled small start-up hedge funds and
financial industry entrepreneurs. His practice has included structuring and establishing start-up funds
and managed accounts, and structuring investment funds to benefit from U.S. double taxation treaties.
He has advised management companies and fund managers on compensation structures, restructured
and reorganized funds, structured, negotiated and documented fund trades, negotiated seed, joint
venture and start up agreements, and advised on a range of sophisticated transactions. He has also
represented financial services providers, such as brokerage firms (including proprietary trading
broker-dealers), fund administration firms and third party marketing firms in structuring their
operations, reorganizations to achieve tax benefits, advising on disputes with clients, and in the
development of forms for their pension, investment, trading, administration and other services to
investment funds, equity, debt and option traders and other clients.
3
When Do US Managers Consider European
Structures?
A. Legal: Most Prominently AIFMD
B. Marketing
C. Tax
4
AIFMD Requirements:
1. Local presence for Fund and Manager
2. Local presence of risk management
5
Cultural Issues Faced by US Managers With
Most Non-US Structures
 Control
 Compare typical US structures to non-US
structures
6
US Fund Structure
Principals
Investment Manager
General Partner
Key:
= Limited Partnership
= LLC
= Individuals
-------- = Contractual
relationship
Delaware
Fund
7
Non-US Fund Structure
Board of
Directors
Principals
Investment Manager
Shareholders
Key:
= Company
= LLC
= Individuals
-------- = Contractual
relationship
Fund
(Company)
8
Tax and Related Issues: Reasons why
US Managers Require Offshore Funds
 Offshore (and certain US investors) investors wish to be opaque to
IRS filings
 No Estate Tax exposure
 UBTI
 Leverage – Not widely understood: Offshore structures needed
for tax exempt US investors more than non–US investors
9
US Tax Issues Created by Offshore
Structures
 US Source Income
 FIRPTA
 Withholding
10
Marketing Issues
 Certain classes of investors have legal or cultural
preference in the entity in which they invest
 English vs. French/German speakers
 Latin America, Caribbean and Madoff
 “White Labelling Products”
11
How Malta Fits in to Needs of US Managers
 Timing
 Likelihood of approval (“Motivated” Regulatory Regime)
 Cost (including minimum capital requirements for investment
managers)
 Many examples of clients who rejected European structures
altogether because of these issues
12
Local Malta Tax Considerations
 Unlike the Cayman Islands, BVI and the Channel Islands, Malta is not a “zero tax” jurisdiction
 However, in contrast to such zero tax jurisdictions, Malta has a broad tax treaty network,
including a tax treaty with the US. The Malta tax treaty with the US contains strong limitations
on benefits clause (i.e., anti-treaty shopping provisions).
 No Withholding Taxes. Malta generally does not impose a withholding tax on Malta-source
interest, dividends and royalties paid to nonresidents of Malta. There is also no branch
remittance tax.
 Corporate Income Tax – A corporation that is resident in Malta is subject to income tax in
Malta on its worldwide profits, with credits granted for overseas taxes. The corporation’s net
income is taxed at a flat 35 percent rate. A corporation is resident in Malta if it is incorporated in
Malta or if management and control of the business is carried out in Malta. Interest payments are
fully deductible in calculating net income and there are no specific thin capitalization rules in the
Malta tax legislation.
 Individual Income Tax – Residents of Malta are subject to income tax on their worldwide
income at graduated rates up to 35 percent. Nonresident individuals are not subject to Malta
income tax on their non-Malta source income.
13
Malta - Challenges
 Overcoming institutional resistance
 Perceived issues – local experience, knowledge
and responsiveness
 Number of Depositaries
14
US/Malta Funds Collaboration in the
Short Term Future: Takeaways
 Middle Market Funds
 Need to combat widespread or willful ignorance
by US participants in “reverse solicitation”
 Larger fund managers with EU needs combined
with need for speed to market
15
Sadis & Goldberg LLP
If you have questions, please contact:
Steven Huttler
Sadis & Goldberg LLP
551 Fifth Avenue, 21st Floor
New York, NY 10176
212.573.8424
[email protected]