Malta continues to grow its hedge fund business as it offers a robust, comprehensive legal framework for the establishment of your Malta Hedge Fund and various types of investment funds. Setting up your Hedge Fund in Malta allows you to benefit from Malta's pro-business regulatory environment, as well as our knowledge and experience.
Maltese hedge funds or professional investors funds ("PIFs") (references to "PIFs", "Hedge Funds", "funds" and "schemes" below should be read and construed as interchangeable terms) are a special class of collective investment schemes which fall within the provisions of the Investment Services Act, 1994. These funds provide a "lighter" regulatory regime and more flexibility than UCITS and other retail funds which are also licensed by the MFSA.
PIFS have been extensively used for investment in non-traditional investments and/or specialist instruments including by way of example, private equity, derivatives, immovable property / real estate, and traded endowment plans.
Malta continues to grow its hedge fund business as it offers a robust, comprehensive legal framework for the establishment of your Malta Hedge Fund and various types of investment funds.
Setting up your Hedge Fund in Malta
allows you to benefit an array of benefits including the following:
- Possibility of re-domiciling or migrating existing hedge funds from other jurisdictions to Malta, thereby ensuring a seamless continuity of the fund and its investments.
- Possibility of applying for admissibility to listing;
- Availability of multi-class protected cell companies within the same investment company, enabling the creation of separate sub-funds with varying investment objectives;
- Possibility of having various service providers (such as its manager, investment advisor, prime broker, administrator or custodian) based outside Malta, subject to consideration and approval of the regulator;
- Time-sensitive handling of all applications by the regulator;
- Cost-effective regulatory and professional fee structures;
- High level of professional services and presence of all major audit firms.
- All business is conducted in the English language, providing international clients with a more comfortable working environment;
- Malta-registered Collective Investment Schemes are generally not subject to Malta tax.
Benefiting from the Scheme
When properly structured, such schemes would benefit from the following:
i. No income or company tax is imposed on hedge funds having more than 85% of their underlying assets situated outside Malta;
ii. No tax on the Net Asset Value of the scheme;
iii. No withholding tax on dividends paid to non-residents;
iv. No taxation on capital gains on the sale of units by nonresidents;
v. No stamp duty on issues or transfers of units;
vi. No taxation on capital gains on the sale of shares or units by residents provided such shares/units are listed on the Malta Stock Exchange (MSE).
Vehicle - Establishing a Professional Investment Fund in Malta
A PIF may be generally established in Malta in any of the following ways:
i. an investment company constituted by Memorandum and Articles of Association (i.e. SICAVs and INVCOs);
ii. a commercial partnership constituted by means of a partnership deed; or
iii. a unit trust constituted by a trust deed between a management company and a trustee (regulated by the Trusts and Trustees Act);
iv. a mutual fund established by way of contract (otherwise referred to in civil law jurisdictions as "fond commun de placement");
v. (Recognised) Incorporated Cells Company/Incorporated Cells
Whilst the forms indicated in (i) an (ii) above represent the corporate forms, those in (iii) and (iv) represent the non-corporate forms.
Categories of Professional Investor Funds
The regulatory regime for PIFs caters for three principal categories:
1. PIFs targeting to Experienced Investors;
2. PIFs targeting to Qualifying Investors; and
3. PIFs targeting to Extraordinary Investors.
PIFs targeting to Experienced Investors
An "Experienced Investor", is a person having the expertise, experience and knowledge to be in a position to make his own investment decisions and understand the risks involved. An investor must state the basis on which he satisfies this definition, either
a. by confirming that he/ she is:
i. a person who has relevant work experience having at least worked in the financial sector for one year in a professional position or a person who has been active in these type of investments; or
ii. a person who has reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile, or property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates; or
iii. a person who has carried out investment transactions in significant size at a certain frequency (for example a person who within the past 2 years carried out transactions amounting to at least EUR50,000 or USD 50,000 or equivalent currency at an average frequency of 3 per quarter)
OR
b. by providing any other appropriate justification.
Persons who qualify as "Professional Clients" in terms of the MIFID, automatically qualify as "Experienced Investors".
The minimum investment threshold is EUR10,000 or USD10,000 or equivalent in another currency. The total amount invested may not fall below this threshold (or equivalent) unless this is the result of a fall in the net asset value.
PIFs targeting Experienced Investors are subject to specific investment restrictions set out in Maltese rules. Whilst borrowing on a temporary basis for liquidity purposes is permitted and not restricted, borrowing for investment purposes or leverage via the use of derivatives is restricted to 100% of NAV.
PIFs targeting Qualifying Investors
A "Qualifying Investor", is required to meet one or more of the following criteria:
1. a body corporate which has net assets in excess of EUR750,000 or USD750,000 (or equivalent in another currency) or which is part of a group which has net assets in excess of EUR750,000 or USD750,000 (or equivalent in another currency);
2. an unincorporated body of persons or association which has net assets in excess of EUR750,000 or USD750,000 (or equivalent in another currency);
3. a trust where the net value of the trust's assets is in excess of EUR750,000 or USD750,000 (or equivalent in another currency);
4. an individual, or in the case of a body corporate, the majority of its Board of Directors or in the case of a partnership its General Partner who has reasonable experience in the acquisition and/or disposal of :-
i.funds of a similar nature or risk profile;
ii.property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates;
5. an individual whose net worth or joint net worth with that person's spouse, exceeds EUR750,000 or USD750,000 (or equivalent in another currency);
6. a senior employee or Director of Service Providers to the PIF;
7. a relation or close friend of the promoters limited to a total of 10 persons per PIF;
8. an entity with (or which are part of a group with) EUR3.75 million or USD3.75 million (or equivalent in another currency) or more under discretionary management, investing on its own account;
9. the investor qualifies as a PIF promoted to Qualifying or Extraordinary Investors;
10. an entity (body corporate or partnership) wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.
Minimum initial investment is EUR75,000 or USD75,00, or equivalent in another currency. The total amount invested may not fall below this threshold (or equivalent) unless this is the result of a fall in the net asset value.
In principle, targeting Qualifying Investors are not subject to any investment or borrowing (including leverage) restrictions other than those which may be specified in their Offering Document.
PIFs targeting to Extraordinary Investors
An "Extraordinary Investor" is required to meet one or more of the following criteria:
1. a body corporate, which has net assets in excess of EUR7.5 million or USD7.5 million (or equivalent in another currency) or which is part of a group which has net assets in excess of EUR7.5 million or USD7.5 million (or equivalent in another currency);
2. an unincorporated body of persons or association which has net assets in excess of EUR7.5 million or USD7.5 million (or equivalent in another currency);
3. a trust where the net value of the trust's assets is in excess of EUR7.5 million or USD7.5 million (or equivalent in another currency);
4. an individual whose net worth or joint net worth with that person's spouse, exceeds EUR7.5 million or USD7.5 million (or equivalent in another currency);
5. a senior employee or Director of Service Providers to the PIF;
6. the investor qualifies as a PIF promoted to Extraordinary Investors;
7. an entity (body corporate or partnership) wholly owned by persons or entities satisfying any of the criteria listed above which is used as an investment vehicle by such persons or entities.
Minimum initial investment is EUR750,000 or USD750,000 or equivalent in another currency. The total amount invested may not fall below this threshold (or equivalent) unless this is the result of a fall in the net asset value.
In principle, PIFs targeting Extraordinary Investors are not subject to any investment or borrowing (including leverage) restrictions other than those which may be specified in their Offering Document/ Marketing Document.
Application Process for a PIF Licence
The processing of a Collective Investment Scheme Licence generally takes between six and twelve weeks from the date that an application complete in all respects is submitted to the MFSA. In the case of Malta PIFs having a third party Manager and all service-providers based and regulated in recognised jurisdictions, the MFSA is committed to respond to licence applications within 7 business days, provided that all relevant documentation (including the application form) has been properly completed and attached to the application form
The application process may be summarised in the following three phases:
Phase One -Preparatory
a)It is recommended a preliminary meeting with the MFSA is held in in advance of submitting an application for a licence wherein the proposal is described. It is essential that the Applicant provides a comprehensive description of the proposed activity at the beginning of Phase One.
b)Submission of a draft Application Form, together with supporting documentation and payment of the non-refundable application fee/s. The draft Application form and the supporting documentation will be reviewed by the MFSA and comments provided to the Applicant within 3 weeks from submission of the application documents
c)"Fit and proper" checks begin at this stage. This entails following up all the information which has been provided in the Application documents submitted. This includes contacting overseas regulators (where applicable) and referees.
d)The applicability of the relevant Standard Licensing Conditions is determined by the MFSA depending on the nature of the proposed scheme. These licence conditions are very important since they represent the ongoing requirements to which the Applicant will be subject, once licensed.
Phase Two – Pre-Licensing
a) Authority issues its "in principle" approval for the issue of a licence;
b) Submission of signed copies of the revised application form together with supporting documentation in their final format;
c) Finalisation of any outstanding matters, and resolution of any other issues raised during the application process.
d)A licence will be issued as soon as all pre-licensing issues are resolved.
Phase Three – Post Licensing/ Pre-Commencement of Business
The Applicant may be required to satisfy a number of specific post-licensing matters prior to formal commencement of business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
