Transcript Hedge Fund Domicile:

Hedge Fund Domicile:
Malta
Dr Maria Chetcuti Cauchi – Partner
Dr Priscilla Mifsud Parker – Partner
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Overview
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About the Firm
Malta Jurisdiction Overview
Malta Tax System
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Residence & Domicile
Corporate Tax & Effective Tax
Participation Exemption Regime
Limited Capital Gains Taxation
Other features
Summary of Income Flows
Tax Planning Ideas
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About the Firm
Malta Jurisdiction Overview
Professional Investor Funds
Taxation
About the Firm
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About the Firm
Truly multi-disciplinary
 Accountants
 Tax Advisors
 Lawyers
 Auditors
 Mgt Consultants
 IT Advisors
Offices
 Valletta
 Nicosia - Larnaca
 London
 Kiev - Odessa
Consulting
Legal
Tax
Audit
Fiduciary
Corporate
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About the Firm
Malta Jurisdiction Overview
Professional Investor Funds
Taxation
Malta Jurisdiction Overview
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Malta Jurisdiction Overview: Euro-Med Island
Multi-Cultural History
 Crossroads of Europe, N. Africa & Middle East
 Phoenicians > Arabs > Romans > Portuguese > Spanish
 Knights of St John > French > English
 Independence 1964
 Population: c. 400,000
Cultural Influences
 British, Italian
 Commonwealth Member
Languages
 Maltese || English
 Italian
 French, German, Spanish
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Malta Jurisdiction Overview: Reputable
Onshore
 Offshore laws revoked in 1994
 EU compliant
 OECD + FATF compliant
 Not on Blacklists
UK Heritage
 Tax: Income Tax Act, 1948
 Legal: Companies Act, Trust & Trustees Act
European
 EU Member since 2004, Eurozone since 2008
 Access to EU Funding
 Access to EU Tax Directives: P-S, Mergers, I&R
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Malta Jurisdiction Overview: Business Friendly
MALTA FINANCIAL SERVICES AUTHORITY
▪ Single Financial Services Regulator
▪ Flexible, practical,
▪ EU/FATF compliant
MAIN SECTORS:
▪ Tourism
▪ Financial Services - Captives, Hedge Funds,
Forex, Asset Mgt
▪ Shipping, Aviation, Manufacturing, Pharma,
ICT, i-Gaming.
FINANCIAL SERVICES HUB
FAVOURABLE TAX REGIME
• Royalties from MT Owned & Developed IP
• Reinvestment Tax Credits
• Favourable Tax Regime for Funds
• Favourable Tax Regime for Functionaries
setting up in Malta
GOVERNMENT INCENTIVES
• Enterprise Support
• Subsidized Rent - Factory, Warehouse Space
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Malta Jurisdiction Overview: Statistics, Rankings
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Financial Market Development – ranked 11 of 139 countries
(World Economic Forum’s ‘Global Competitiveness Report
2010-11)
Strength of Auditing & Reporting Standards – ranked 8th (up
from 12th the previous year)
Soundness of Banks - ranked10th (up from 13th)
Regulation of Securities Exchanges – ranked 12 (up from 13)
Competitiveness - 50th in the overall ‘global rankings’
Foreign Direct Investment:
 €11.9bn (end of June 2010) (double previous year)
 Significant equity capital injections into foreign companies,
 83% of that increase was in Financial Intermediation.
Gross Domestic Product: Financial Services = 12% of GDP.
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Malta Jurisdiction Overview: The Maltese Funds Industry
Exponential Growth in the last 5 years:
▪ More than 400 funds registered, including
UCITS
▪ First Unit Trust also formed in Malta in
February this year – allowing for more tax
planning opportunities
Desirable Location for Functionaries
▪ More than 70 fund management companies
(most of which are foreign);
▪ 18 fund administrators
▪ Alternative Investment Fund Managers
Directive (AIFM) - attracting more interest in
Malta from EU and non-EU managers
HEDGE FUNDS /
PROFESSIONAL INVESTOR FUNDS
HUB
Flexible and Approachable Regulator
▪ Open-Door policy
▪ Flexible & speedy response
Cost-Effective
▪ Lower Set up Costs
▪ Lower Annual Administration Costs
▪ Lower Tax burdens
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Malta Jurisdiction Overview: Regulator’s Approach
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Open-Door policy
Flexible & speedy response
“The approach has been to meet companies and discuss the
application of regulations with them, both at the pre- and post-licensing
phase ... most importantly, the MFSA uses two guiding principles,
particularly at the licensing phase – they are that the regulatory
process must be exhaustive, and no licence is granted without proper
due diligence. Malta’s system follows the EU. After all, we are
members of the EU, and we have not created our own system. We
apply all the necessary regulations as required. With all the new
regulations coming after the 2008 financial crisis, companies
appreciate having regular meetings with the regulator. The ‘firm but
flexible’ approach should not be taken to mean that we are
dispensing with any regulation; the flexibility is about how we discuss
a project and see how it can be modified to fit in with the regulations.”
Prof Joseph Bannister – MFSA Chairman
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About the Firm
Malta Jurisdiction Overview
Professional Investor Funds
Taxation
Professional Investor Funds
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Professional Investor Funds
Regulation
Licensing
The Players
Case Studies
Main Features
1 Regulation
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Salient Criteria
Maltese hedge fund product
 Similar in concept to the Irish QIF and the Luxembourg SIF;
 Only accessible to investors who can meet certain minimum
investment requirements;
 In essence, a Collective Investment Scheme.
Regulation
 the Act (ISA);
 the relevant Regulations, and
 the Investment Services Rules
Investment Services Act 1994 (ISA) the regulatory framework for:
 Investment services providers;
 Collective investment schemes (“CIS”), including PIFs.
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The three kinds of PIFs
Experienced
Investors
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• minimum investment
threshold of EUR 10,000
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Qualifying
Investors
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• minimum investment
threshold of EUR 75,000
Three levels of PIF targeting
different investors.
Lighter regulatory burdens are
imposed on PIFs targeting
more sophisticated investors
No strict need for a full
prospectus to be issued but
an Offering Memorandum is
required.
Extraordinary
Investors
• minimum investment
threshold of EUR 750,000
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An investor must state the
basis on which he
satisfies this definition,
either by:
(1) confirming that he/ she
is a person who:
• has relevant work
experience in the
financial sector or
• has reasonable
experience in the
acquisition and/or
disposal of funds of a
similar nature or risk
profile ... Or
• has carried out
investment transactions
in significant size at a
certain frequency; OR
(2) by providing any other
appropriate justification.
Persons who qualify as
‘Professional Clients’ in
terms of the MIFID,
automatically qualify as
‘Experienced Investors’.
Minimum Investment
A person having the
expertise, experience and
knowledge to be in a
position to make his own
investment decisions and
understand the risks
involved.
Conditions
Definition
Experienced Investors
The minimum investment
threshold is EUR10,000
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Other acceptable
investors
• entities having more
than €3.75 million under
their discretionary
management,
• other PIFs promoted to
Qualifying or
Extraordinary investors
and
• any Special Purpose
Vehicle owned by
person qualifying
themselves
Minimum Investment
corporate or noncorporate entities, groups,
trusts or individuals
having net assets in
excess of €750,000 OR
senior employees or
directors of the fund OR
relatives and close friends
of the promoters (up to
ten) OR
an individual, or the Board
of Directors (in case of a
corporate) or the general
partner (in the case of a
partnership) has
reasonable experience in
the acquisition and/or
disposal of :• funds of a similar nature
or risk profile;
• property of the same
kind as the property, or a
substantial part of the
property, to which the
PIF in question relates;
Other Conditions
Basic Conditions
Qualifying Investors
The minimum investment
threshold is EUR75,000
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other PIFs promoted to
Extraordinary investors
and
any Special Purpose
Vehicle owned by person
qualifying themselves
Minimum Investment
corporate or noncorporate entities, groups,
trusts or individuals
having net assets in
excess of €7.5 million;
senior employees or
directors of the fund
Other Conditions
Basic Conditions
Extraordinary Investors
The minimum investment
threshold is EUR750,000
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Comparison table
Criteria
• Minimum investment
• MFSA response time
• Self-management
• Self Administration
• Custodian requirement
• Use of leverage
• Investment restrictions
Experienced
• € 10,000
• 7 business days
• Yes
• Yes
• Yes
• 100% of NAV
• Some restriction
apply (mainly
diversification
criteria)
Qualifying
• € 75,000
• 7 business days
• Yes
• Yes
• No
• Not restricted
• Not restricted
Extraordinary
• € 750,000
• 3 business days
• Yes
• Yes
• No
• Not restricted
• Not restricted
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Legal Form
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SICAV (investment company with variable share
capital) – most common
Other possible legal forms include:
INVCO – investment company with fixed shared capital
 Unit trust
 Partnership
 Contractual
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Sub-fund structures with separate patrimonies per
sub-fund are permitted
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Shareholding Structure
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Depends upon the promoters’ specific objectives and
preferences
Typical set-ups would involve the creation of
“Voting Shares” issued to the fund’s promoters (with the
effective control over the structuring and general
operation of the fund)
 “non Voting Shares” issued to investors in the fund.
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Any changes to the rights attaching to the Voting
Shares, redemption of such shares, and/or issue of
additional Voting Shares will require the prior approval
of the MFSA in each case
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Investment Objectives
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All CISs - based on the principle of risk-spreading
PIF is to be shown to have some spreading or
diversification of investments in its portfolio
Fund also should holds near-cash investments for the
dual purposes and benefit of
diversifying the PIF’s portfolio and
 addressing the liquidity concerns that may arise as and
when investors take the opportunity to cash in their
holdings at any time when they are permitted to do so in
accordance with the Offering Document.
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Professional Investor Funds
Regulation
Licensing
The Players
Case Studies
Main Features
2 Licensing
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The Licensing Process
Stage 1: Pre-submission
Initial contact with regulator
Drafting of documentation
Submission
Stage 2: In-principle approval
Regulatory analysis of
documentation & feedback
In principle approval
Stage 3: Licensing
In principle conditions
satisfied
License issued
Post-licensing issues &
compliance
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Official Costs
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MFSA Application fee: EUR 2,500
MFSA License fee: EUR 2,000
License maintenance fee: EUR 2,000
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Stage 1
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Draft documentation
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offering memorandum,
 constitutional document,
 service provider agreements
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Meetings
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Face to face meetings with regulator
 introduce the project
 initial concerns are flagged and can be discussed.
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Documentation is submitted for regulatory review.
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Stage 2
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Regulatory review commences
Written feedback is communicated by the regulator.
Amendments may be suggested or requests for
clarification made.
Requests are generally not prescriptive and can be
discussed and negotiated.
‘In Principle’ approval issued.
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Stage 3
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In principle conditions to be satisfied - formalities such
as
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forming the corporate vehicle &
 submitting final documentation
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Final license is issued & license fee is paid
Possibly post-licensing pre-commencement of business
conditions
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License is issued
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Fit & Proper Test
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Fit and Proper Test for
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Directors,
 Officers,
 Trustee(s) in case of a unit trust
 General Partner(s) in case of common contractual fund or
limited partnership
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MFSA’s assessment will centre around:
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the protection of investors and the general public;
 the protection to the reputation of Malta taking into
account Malta’s international commitments;
 the promotion of competition and choice; and
 the reputation and suitability of the applicant and all
other parties connected with the Scheme.
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Fit & Proper Test
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Three criteria that must be met
 integrity;
 competence; and
 solvency.
Integrity - PIF, its officers and its Service Providers acting
honestly and in a trustworthy fashion
Competence - persons responsible for running the PIF must
be able to demonstrate an acceptable amount of knowledge,
professional expertise and experience. Degree of
competence required will depend upon the job being
performed. The MFSA will take into account the
qualifications, experience and skills of those involved.
Solvency - ensuring that proper financial controls and
management of liquidity and capital is applied.
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Listing
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PIF can be submitted for listing on a recognised
exchange
application for admissibility to listing can been submitted
concurrently with an application for a PIF
documents submitted for PIF licensing need not be
resubmitted as part of the application for listing
if MFSA is informed of the PIF’s intention to apply for
admissibility to listing, approved documents for licensing
of PIF will be deemed to be approved in relation to both
the application for PIF as well as admissibility to listing.
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Professional Investor Funds
Regulation
Licensing
The Players
Case Studies
Main Features
3 The Players
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Service Providers/Functionaries
MANAGER,
ADMINISTRATOR,
CUSTODIAN,
PRIME BROKER,
INVESTMENT
ADVISOR
Recognised
Jurisdictions:
EU and EEA
Members OR
signatories to a
Multilateral MoU OR
signatories to a
Bilateral MoU with
the MFSA covering
the relevant sector of
financial services
Location:
no need to be
established in Malta
so long as they are
based within a
recognised
jurisdiction
(regulated to a
standard which the
MFSA finds
acceptable)
Existing
relationships can be
maintained
Directors – no need
for them to be
established in Malta
(expect selfmanaged fund - at
least one director
must be resident)
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DIRECTORS
Board of
Directors
• An essential role
• actual control over the fund and the fund’s strategy
• point of reference between the fund, the regulator,
the fund members and the fund’s players
• majority of meetings to be actually held in Malta
• use of self-managed funds, especially in the nonretail market, has been on the increase in recent
years
Self-Managed • board assumes an even broader function
• assumes the role of the Fund Manager
Fund
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Fund Manager
Maltese Third
Party Manager
Non-Maltese
Third Party
Manager
Sub-Manager
• should be in possession of and duly licensed with a Category 2 Investment
Services Licence issued in terms of Article 6 of the Act
• from recognised jurisdiction
• in case of appointment of a Sub-Manager with limited or full discretion for
the management of the assets, Sub-Manager is not subject to MFSA’s
approval. Manager to exercise care and diligence in the selection of a SubManager and to assume responsibility for the acts of the Sub-Manager
• specific conditions for self-managed funds
Self
Management
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Administrator
Characteristics
Maltese Third
Party
Administrator
Non-Maltese
Third Party
Manager
• Administrative services may
• either be carried out by an appointed third party Administrator
or
• be undertaken by the appointed Manager.
• should be in possession of a Fund Administration recognition
certificate issued in terms of Article 9A of the Act
• from recognised jurisdiction
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Custodian
Experienced
Investors PIF
Qualifying /
Extraordinary
Investors PIF
If no Custodian
is Appointed
• obligatory appointment of a third party Custodian
• responsible for the safe keeping of the assets of the PIF and
• undertaking monitoring duties over the PIF’s Manager
• independent from the Manager and
• need not be established and regulated in Malta.
• recommended appointment of a third party Custodian
• may be a Prime Broker, for safekeeping the PIF’s assets
• there is no obligation to have either
• responsibilities above remain with the Directors/ General Partner(s)/ Trustee and officers of the PIF
• should be in possession of a Category 4 Investment Services Licence issued in terms of Article 6 of the Act.
Maltese Third
Party Custodian
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INVESTMENT ADVISOR
Characteristics
• person responsible for the provision of investment advice to the PIF or its Manager on the assets of the
PIF
• does not have any discretion with respect to the investment and re-investment of the assets of the PIF
• appointment is not required
• proposed Investment Adviser need not be established and regulated in Malta
Non-Maltese
Advisor
If appointed by
the PIF &
Maltese
If not appointed
by the PIF
• the Adviser should be in possession of a Category 1A, 1B, 2 or 3 Investment Services Licence issued
in terms of Article 6 of the Act and should be duly licensed and authorised by the MFSA
• appointed directly by the Manager, Investment Adviser is not subject to MFSA’s approval and no
eligibility criteria apply
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Professional Investor Funds
Regulation
Licensing
The Players
Case Studies
Main Features
4 Case Studies
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Case study 1: Listed equity fund
Liquidity:
high; Fee
flexibility
required
Investment
strategy:
EU listed
equity
Size of fund:
small, EUR 20m
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Case Study 1: Listed equity fund
Sub-Fund A: 2%
of NAV + 20%
performance fee
Sub-Fund B:
2.5% of NAV +
15%
performance fee
SICAV – Self
Managed + Self
Administered
Sub-Fund C: 3%
of NAV, and no
performance
fees
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Case Study 1: Listed equity fund
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Fund is structured as an open ended SICAV with three
sub-funds
Legal structure permits redemptions with the fund, thus
providing liquidity for investors
Different sub-funds have different fee arrangements,
thus increasing attractiveness to different types of
investors.
Sub-funds have separate patrimony (assets &
liabilities). Same structure can be used with sub-funds
pursuing different investment strategies.
Fund is self-managed & self-administered: reduces cost
base for smaller funds
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Case Study 2: Life settlements funds
Highly illiquid;
Asset class
subject to high
withholding
taxes
Investment
strategy: US
senior life
policies
Size of fund: Medium,
EUR 150m
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Case Study 2: Life settlements fund
Fund
Manager
Servicing
Agents
Trustee
Administrator
Custodian
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Case Study 2: Life settlements fund
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Fund structured as unit trust with full suite of service
providers
Unit trust structure provides tax transparency, which can
be used to mitigate effect of withholding taxes
Investors settle funds with the trustee who invests them
in accordance with instructions of the fund manager
Size of fund permits employment of full suite of service
providers – administrator for NAV calculation, custodian
for asset safe-keeping (could be done by trustee),
servicing agents to maintain policies
Assets are highly illiquid so fund is close-ended
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Professional Investor Funds
Regulation
Licensing
The Players
Case Studies
Main features
5 Main Features
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Use
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Professional Investor Funds
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be used a fully-fledged Hedge Fund for a variety of assets
such as securities, bonds, derivatives, money
instruments, debt instruments, other funds, tangible
movables and immovable property.
 ideal for umbrella or multi-class funds
 utilisation and protection afforded by segregated cell
companies enjoying distinct legal personality.
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Flexibility
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Funds targeting Qualifying and Extraordinary investors
have no restrictions on their investment strategy.
Service providers located in other jurisdictions can be
engaged.
MFSA willing to accommodate specific requirements
and innovative arrangements
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Self-management
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Malta PIFs can be self-managed and selfadministered
Need to demonstrate sufficient competence and
resources
No need to engage third party fund manager,
administrator, custodian (expect for PIFs targeting
Experienced Investors)
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Cost effective
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Cost effective jurisdiction, ideal for funds with a NAV of
less than EUR 100m
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Fund administrator can be engaged for half the cost of
other EU fund domiciles
 Competitive professional fees
 Competitively priced human resources
 Low statutory fees
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About the Firm
Malta Jurisdiction Overview
Professional Investor Funds
Taxation
Tax Planning Ideas
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Taxation
Introduction
Taxation of Fund
Taxation of Corporate Vehicle
Taxation of Financial Services
Professionals
1 Introduction
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Introduction
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Malta’s hedge funds tax regime is among the most
competitive in Europe
The regime is built on three main pillars:
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Taxation of the fund vehicle
The corporate & trusts tax regime
Taxation of financial services professionals
Each of these will be considered in turn
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Malta’s Tax Regime
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Onshore
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Offshore laws revoked in 1994
High Corporate Tax Rate: 35%
Not on Blacklists
OECD + FATF compliant
EU Compliant
Commonwealth Member
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Malta’s Tax Regime
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European
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EU Member since 2004, Eurozone since 2008
Access to EU Funding
Access to EU Tax Directives:
Parent-Subsidiary Directive, Merger Directive
Interests & Royalties Directive
VAT Directives.
Low Resulting Tax Rate: 0-10%
Unilateral Double Tax Relief, FRFTC 25%
Extensive Tax Treaty Network: All EU MS’s+, > 60
treaties.
Quick Availability of Tax Rulings
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Taxation
Introduction
Taxation of Fund
Taxation of Corporate Vehicle
Taxation of Financial Services
Professionals
2 Taxation of Fund
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Taxation of the fund vehicle
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Maltese fund tax is relatively straightforward
The main factor is the distinction between prescribed
and non-prescribed funds
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Prescribed funds
It is incorporated in Malta
the value of the assets situated in
Malta allocated to that fund for the
purpose of its operations is, or is
expected to be 85% or more of
the value of the total assets; and
Prescribed
Fund
it has been so classified by the
Commissioner of Inland Revenue
by means of a notice in writing
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Non-Prescribed funds
It is incorporated in Malta
total value of the assets situated
in Malta allocated to the fund is, or
is expected to be less than 85% of
the total value of the assets
NonPrescribed
Fund
it has been so classified by the
Commissioner of Inland Revenue
by means of a notice in writing
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Prescribed Fund – Taxation @ Fund Level
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Any bank interest is subject to a 15% final withholding tax
Interest, discounts or premiums earned on Maltese
government stocks or bonds are subject to a final withholding
tax at 10%
Income from immoveable property situated in Malta is subject
to Maltese property tax at 35%
All other income is exempt from tax (Art. 12 (1) (s)) and
therefore:
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Dividends received from other CISs or from Maltese
companies are not subject to any further tax;
Income from foreign sources is not taxed at fund level;
Capital gains derived from the disposal of securities or units in
other schemes are not subject to tax.
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Prescribed Fund – Taxation @ Investor Level
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Non-Resident Investors = both income and capital gains
are exempt from tax in Malta.
NB: taxes may still arise at the level of the investor in his
country of tax residence
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Non-Prescribed Fund – Taxation @ Fund Level
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Fully exempt from Maltese tax on its income (including that
arising from local investments, and capital gains)
Dividends received from Maltese and foreign companies are
not subject to further tax at the fund level
NB: Income from immoveable property situated in Malta
remains subject to the local tax regime (35%)
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Non-Prescribed Fund – Taxation @ Investor Level
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Non-Resident Investors = Zero tax on income or capital
gains, whether any dividend distributed is reinvested or
otherwise
NB: taxes may still arise at the level of the investor in his
country of tax residence
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Conclusions
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Tax neutral at fund and investor level if assets are
located outside Malta.
NB: non-Malta taxes may be imposed particularly on
any gains made by investors depending on their
personal tax status.
If a unit trust is used as the fund vehicle then there is
the additional benefit of the investors being able to claim
relief for any WHT paid at the underlying level.
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Taxation
Introduction
Taxation of Fund
Taxation of Corporate Vehicle
Taxation of Financial Services
Professionals
3 Taxation of Corporate Vehicle
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Fund Managers
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
Malta’s hedge fund regime is flexible and permits local
funds to be managed by funds established in
recognized jurisdictions
Nevertheless Malta has many features which make it
attractive as a domicile for fund managers as well:

Workforce (professional & multi-lingual)
 Regulation
 Location

The jurisdiction also provides an attractive corporate tax
environment
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3. Malta Trading Structures
Shareholder
Tax Refund
@ 30%
Dividend
€30K
€65K
Net MT
Tax
5%
Tax @ 35%
Company
€35K
IRD
Net Income (after
expenses)
€100K
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Procedure for refunds






These statutory refunds are legally guaranteed
Payable directly by Inland Revenue Department
Paid to shareholders within 14 days from payment of tax
If there is a delay, interest becomes payable in favour
of the company
Our firm handles all aspects of the application for the
refund
We successfully operate hundreds of these tax-efficient
structure
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Using the MT tax regime for fund managers





Formation of local company
Obtainment of fund management license (minimum
capital = EUR 125,000)
Contractual arrangements between fund vehicle and
fund management company
End result = fund management fees derived from the
fund taxed at the effective rate of 5%
Plus: Maltese fund management licenses are
passportable under MiFID (and AIFMD)
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Taxation
Introduction
Taxation of Fund
Taxation of Corporate Vehicle
Taxation of Financial Services
Providers
4 Taxation of Financial Services Providers
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Personal Tax in Malta



The personal tax rate is set in accordance with a
number of tax bands, starting from 15% going up to
35%
BUT for financial services professionals = with effect
from 1 January 2010 = special tax rate of 15%
Requirements




occupying an “eligible office”
with companies licensed and/or recognized by the
Malta Financial Services Authority
applies to individuals not domiciled in Malta,
provided that the income amounts to at least €75,000
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Personal Tax in Malta

“Eligible office” comprises employment in one of
the following positions:
 Actuarial
Professional,
 Chief Executive Officer;
 Chief Financial Officer;
 Chief Insurance Technical Officer;
 Chief Investment Officer;
 Chief Operations Officer;
 Chief Risk Officer;
 Chief Technology Officer;
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Personal Tax in Malta

“Eligible office” comprises employment in one of
the following positions:
 Chief
Underwriting Officer;
 Head of Investor Relations;
 Head of Marketing;
 Portfolio Manager;
 Senior Analyst (including Structuring
Professional);
 Senior Trader/Trader.
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Taxation of Financial Services Professionals
Applicable to
Employees of
Functionaries
To attract top
financial
services
personnel
Financial services
professional in Malta
to be taxed at 15%
for five years
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Overview of our Services

Typically we project manage the whole process, from
set up to finish and post-compliance matters, including:





Drafting of legal documentation (OM, prospectus, M&A
etc)
Representation before authorities
Negotiations and co-ordination with service providers
Advice re: legal structure, taxation, contracts
Post-licensing compliance and maintenance
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[email protected]
Thank You
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