Malta: The Malta Option is "in-the-Money"

Unsurprising tradition

Fund managers don't like surprises. And it is this aversion to anything unknown that has caused the more "traditional" financial centres like London, Luxembourg, Ireland and Switzerland to boom as financial centres towards which fund managers have gravitated and established themselves over the past 20-odd years. However there is nothing quite like a financial crisis and increased tax burdens in many of these European financial centres to provoke fresh thinking and new solutions to address these challenges.

Enter Malta. An island sovereign state situated just 93 km south of Italy, a full Member State of the European Union since 2004 and part of the Eurozone since 2008. The island's ambitions to establish itself as a leading financial centre of excellence find their origin in the early 1990s at which time volumes of financial legislation were enacted to build what is now the backbone of a modern, forward-looking and robust legal system which is fully compliant with EU Directives and Regulations. Indeed as an EU Member State, Malta actively participates at every level of the EU's institutions to contribute towards the on-going development of the European legislative and regulatory landscape and ensure that the island's booming financial services sector is permitted to grow within a legal framework intended to create opportunity, rather than stifle it.

The Malta Financial Services Authority (MFSA) is the single super-regulator of all financial services and was formally established in 2001, effectively merging the regulatory and supervisory functions formerly conducted by the Malta Financial Services Centre, the Central Bank of Malta and the Malta Stock Exchange. Its regulatory remit spans across the financial sector including banking, investment services, hedge fund regulation and insurance. The Registry of Companies and the Listing Authority are also housed within the MFSA premises, bringing all the key regulatory organs under one roof, thereby improving communication between them.

The turning point

Malta's EU membership in 2004 has been the single most significant milestone in placing the jurisdiction on the same "map" as other major European financial centres, namely London, Ireland and Luxembourg. On the basis of this development stakeholders seeking the benefits of EU harmonisation in the financial services field were able to look at the Maltese option which, when considered in the light of the island's attractive fiscal framework, a network of almost 60 double taxation agreements, availability of the highest standards of professional support and personnel, and the fact that all business is carried out in English, collectively provide an offering which cannot be discounted or discarded before serious consideration.

Then there are the lifestyle-related considerations including the warm climate and the low crime rate, making it a very safe place to live. Furthermore, the island's strong work ethic provides managers and other employers with a pleasant surprise, contrasting sharply with the stereotypical Mediterranean attitude towards work generally. Of course much of this work ethic is attributed to the legacy of Malta's 164 years under British rule, between 1800 and 1964.

Time to strike

All of these factors have caused Malta to gain ground as the jurisdiction of choice for fund managers and it looks like this trend will continue to pick up momentum in the years to come. Whilst EU-wide growth figures in the fourth quarter of 2010 failed to meet the expected performance levels and the whole of Europe currently sits on the verge of a much speculated "double dip" recession, Malta has experienced a real economic boom, with a tangible increase in the number of fund managers deciding to move their operations to Malta in 2010.

According to MFSA figures there were 48 fund managers licensed in Malta in November 2010 and indications suggest that the number of fund management licences issued in 2010 is likely to be exceeded in 2011. This growth potential is further galvanised by the fact that some of the heavyweight service providers are beginning to establish a degree of presence on the island- Deutsche Bank has been licensed to act as a custodian in December 2010 and there is much talk of the possibility that BNY Mellon and State Street will follow suit imminently. The demand for more Malta-based custodians is evidently on the increase and it is inevitable that the upward curve in Malta-registered funds will provide further opportunities for players in this space.

It is not only the quantity of Malta licensed managers that have increased but also the quality of such applicants which has been notable. Quality is indeed the thrust of the island's current efforts across the financial services industry and whilst the MFSA applies a very welcome "open door policy" providing licensees and prospective licensees quick and easy access to the regulators, the rigorousness of the Authority's compliance visits ensures that licensees maintain the highest standards of practice in conducting their business from Malta. The emphasis on quality also permeates the working relationships developed with professional advisors entrusted to structure, implement and support the regulated entities and the high levels of educated personnel available from amongst the islands 400,000 inhabitants and the increasing number of experienced expats moving to Malta from other financial services centre.

Interestingly, in a recently published survey circulated amongst UK-based fund managers focussing on alternative jurisdictions to Ireland and Luxembourg for fund-management, fund servicing and fund domiciliation, Malta fared as the best known Mediterranean fund domicile, with managers looking to use Malta either as a base for their funds or as a place to open an office, or both.

With specific reference to manager migration, 62% of the managers interviewed indicated that they may move their operations out of the UK and, of those, 23% indicated that the move would be made by the end of 2012. The reasons for relocation were unsurprising, making specific reference to increased taxation, AIFM Directive pressures, proximity to investors and remuneration-related pressures, as the main motivators, in that order of priority.

In the context of this trend, Malta's proposal to introduce a flat personal tax rate of 15% on income to attract foreign specialized workers couldn't come at a better time to help attract significant new talent to fill specialized positions in the industry. This development is expected to be implemented in the first half of 2011 and is waited with much anxiety by stakeholders. Unofficial indications also suggest that income in excess of Eur 5 million will be exempt from Malta tax, however all of these details will only be certain once the relative legislative instruments are implemented and given the force of law.

The message from all of this seems adequately clear: Malta is open for business and the time has never been riper for fund managers to strike. This island state has sufficiently proven that it possesses all the critical components required to secure itself as a centre of excellence for financial services within the EU.

Dr. Andrew J. Zammit is Managing Partner of Zammit & Associates-Advocates in Malta and heads its Corporate and Financial Services practice. He is also Director and Head of Legal of the CSB Group and may be contacted on or

Copyright © 2011. Zammit & Associates & Advocates. All rights reserved.

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.

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