Malta’s Fund regime allows for the re-domiciliation of an offshore / third country Hedge Fund and, thus, allowing for a continued operation. In fact, Malta has legislative provisions regulating both inward and outward continuation of companies, including investment companies. Continuation of a Collective Investment Scheme (CIS) is further addressed in Art 31 of the Investment Services Act, 1994 which lays down the process required for the re-domiciliation of a Fund, namely:
- Submission of an Application to obtain a CIS licence with the MFSA (including a Resolution of Directors addressing the intent to re-domicile the Fund to Malta and confirmation that such decision is not subject to regulatory issues);
- Advise Registrar of Companies with the intent of re-domiciling;
- The MFSA will carry due diligence procedures including the overseas regulator;
- An “in principle” approval will be issued by the MFSA following the routine 3-phase licensing process
Such continuation would entail that all underlying investments and investors would remain unchanged at Fund level. Moreover, any agreements held with prime brokers and other relevant counter-parties can be left unchanged. However, it should be noted that should the Hedge Fund to be re-domiciled be in the form of an Alternative Investment Fund (AIF) or a Malta UCITS Scheme, any counter-party agreements held with custodians / depositories may not be continued since such custodian / depository must be residing in Malta.
Redomiciliation is allowed from all EU, EEA and OECD member states, as well as other jurisdictions including the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, and Jersey.
Benefits of Hedge Fund Re-domiciliation to Malta
Flexible regulation, transparency and good governance have long been some of Malta’s key players for success, as well as its status as a cost-effective domicile for funds, asset managers, fund administrators and custodians / depositories.
The island continues to enjoy political and economic stability, as confirmed by the international rating agencies. The island’s banking systems were resilient in the face of the international banking crisis and faired extremely well compared to other economies in the Eurozone.
Finding the right vehicle for a fund can be time consuming. As a jurisdiction of choice, Malta offers a wide range of fund structures, and after carefully examining the expectations of potential investors, the type and location of underlying investments, any of the below collective investment schemes (CIS) can be established:
- Professional Investor Fund (PIF);
- Alternative Investor Fund (AIF);
- Notified AIF (NAIF);
- UCITS Schemes;
- Private Collective Investment Schemes;
- Contractual Fund / Mutual Fund.
Additionally, under the Maltese legal framework, a Collective Investment Scheme may take the form of any of the below:
- Open Ended Investment Company (SICAV);
- Closed Ended Investment Company (INVCO);
- Incorporated Cell Company within a Recognised Incorporated Cell Company;
- Limited Partnership;
- Unit Trust.
Malta’s legislation is in line with EU law and directives and is built on best practices from other finance centres. The Maltese legislation is designed to efficiently meet the needs of both the industry and the consumer and is regularly updated to reflect the latest market demands. Malta’s independent and risk-based regulator, the MFSA, ensures best practice and compliance whilst still keeping a “can do” approach for fund promoters wishing to choose Malta as jurisdiction of choice. Moreover, the country’s small size allows direct contact with licensees, which gives the MFSA a better understanding of the soundness of the license holders. This will help ensure a smoother start-up whilst keeping full compliance with all regulatory standards.
From a Taxation standpoint, Malta offers a highly efficient fiscal regime which adopts double taxation on a taxed company profits distributed as dividends. Malta companies are taxed at a rate of 35%. However, a full imputation system applies to the taxation of dividends whereby the tax paid by the company is imputed as a credit to the shareholder receiving the dividend to as low as 5% (or full refund in the case of participating holding).
As a general rule, Malta domiciled Funds are exempt from Maltese income and capital gains tax as long as they do not have more than 85% of their assets situated in Malta, i.e. non-prescribed. Additionally, when properly structured, such schemes could benefit from the following tax advantages:
- No Tax on the Net Asset Value of the scheme
- No withholding tax on dividends paid to non-residents
- No tax on capital gains on the sale of units by non-residents
- No taxation on capital gains on the sale of shares or units by residents provided these are listed on the Malta Stock Exchange