Retail fundsAvailable vehicles
What are the main legal vehicles used to set up a retail fund? How are they formed?
The definition of a collective investment scheme under the ISA is vehicle agnostic. Under Maltese law, a fund may be established as a (1) company (ie, an INVCO or a SICAV (investment company with variable share capital)), (2) limited partnership, (3) unit trust, (4) foundation or (5) contractual fund. However, the most common legal vehicle used to establish funds, both retail and professional, is the SICAV.
The absolute majority of CISs in Malta are established as SICAVs. The rules relating to the manner in which a SICAV’s share capital is calculated, the possibility of establishing it as a multi-fund or multi-class structure, in addition to the legal ring-fencing of assets between share classes makes it one of the most flexible legal vehicles available.
A SICAV is constituted through the registration of its memorandum and articles of association with the Malta Business Registry, together with the submission of supporting documentation.Laws and regulations
What are the key laws and other sets of rules that govern retail funds?
The key laws and regulations regulating retail funds are the following:
- Companies Act and subsidiary legislation;
- ISA and subsidiary legislation;
- UCITS V Directive as transposed into local laws and regulations;
- AIFM Directive and Regulation, as transposed into local laws and regulations;
- Rules for Retail Collective Investment Schemes issued by the MFSA, including:
- Rules for Alternative Investment Funds issued by the MFSA. This provides the regulatory framework for retail AIFs, including:
- The Listing Rules (Admissibility requirements for Collective Investment Schemes), these are issued by the MFSA and are applicable to collective investment schemes listed on the Malta Stock Exchange.
Must retail funds be authorised or licensed to be established or marketed in your jurisdiction?
The ISA provides the statutory basis for the licensing and regulation of funds. It establishes that any collective investment scheme that does the following must first be licensed by the MFSA:
- issues or creates units or carries on any activity in or from Malta; or
- is formed in accordance with or exists under the laws of Malta, which issues or creates any units or carries on any activity in or from within a country, territory or other place outside Malta,
Thus, the licensing requirement applies both to funds established and marketed in Malta, funds established in Malta but marketed outside Malta, as well as funds established outside of Malta but marketed in Malta.
Foreign funds that do not benefit from EU passporting rights are required to hold a collective investment scheme licence in Malta prior to marketing their units in Malta, whether directly or indirectly through intermediaries.Marketing
Who can market retail funds? To whom can they be marketed?
The Maltese regulatory regime establishes two main categories of retail collective investment schemes, namely:
- UCITS; and
- non-UCITS retail funds, being any fund that is not a UCITS, and that targets retail investors.
Retail funds marketed to retail investors target investors who do not qualify as professional investors as defined in MIFID. Reference should be made to fund’s offering documents in this regard. Both open-ended retail funds and closed-ended retail funds can market their units to the general public in Malta, subject to any applicable provisions of the Prospectus Regulation in respect of the offer of units issued by closed-ended funds.
Open-ended and closed-ended retail funds can be marketed by the fund itself or by its fund manager.Managers and operators
Are there any special requirements that apply to managers or operators of retail funds?
The requirements that apply to managers or operators of retail funds stem from the ISA, the subsidiary legislation issued thereunder and the relevant MFSA Rulebooks. A retail fund can be externally managed or can be authorised as a self-managed fund (provided it adopts a corporate structure). A third-party manager can qualify as a de minimis fund manager, an AIFM or a UCITS ManCo. If the fund manager is established outside Malta, before it is able to manage funds established in Malta, it must determine whether it is exempt from licensing in Malta or whether it can avail itself of European passporting rights.Investment and borrowing restrictions
What are the investment and borrowing restrictions on retail funds?
The table below highlights, in general terms, the investment and borrowing restrictions applicable to retail funds.
Non-UCITS Retail funds
In such cases, the fund cannot borrow cannot more than 15 per cent of its total asset value.
Non-UCITS retail funds
Retail - AIFS
Vide Non-UCITS retail funds restrictions.
What is the tax treatment of retail funds? Are exemptions available?
Maltese tax legislation does not distinguish between retail and professional investment funds. The key distinction which determines the Maltese tax treatment of a fund is whether the collective investment scheme is classified as a ‘prescribed’ or ‘non-prescribed’ fund.
A fund (or a sub-fund if the scheme is divided into sub-funds) is treated as a ‘prescribed’ fund if:
- It is a fund of a Collective Investment Scheme formed in accordance with the laws of Malta; and
- the value of its assets situated in Malta amounts to at least 85 per cent of the value of the total assets of the fund; and
- it has so declared in writing to the Commissioner for Revenue.
On the other hand, Maltese funds that do not have such an exposure to Maltese assets and have made a declaration to that effect are classified as non-prescribed funds.
A non-prescribed fund is exempt from Maltese income tax on any income and capital gains, other than income derived from immovable property situated in Malta. A prescribed fund is also exempt from tax in Malta except for income derived from immovable property situated in Malta, bank interest (which is subject to a 15 per cent withholding tax), and other types of investment income (which are subject to a withholding tax of 10 per cent).
Any income or capital gains derived by non-resident investors from a Maltese fund are not subject to any withholding tax so long as they are not owned and controlled by, directly or indirectly, nor act on behalf of, an individual who is ordinarily resident and domiciled in Malta.
Distributions made to recipients who are resident individuals or persons owned and controlled by, directly or indirectly or acting on behalf of individuals ordinarily resident and domiciled in Malta out of untaxed profits are subject to a 15 per cent withholding tax.Asset protection
Must the portfolio of assets of a retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?
The custodian must be separate and independent from the fund manager and must act independently and solely in the interests of the unit holders. The custodian of a UCITS and a retail AIF fund must have an established place of business in Malta and be in possession of an investment services licence issued in its favour by the MFSA. Such local presence and authorisation requirements do not apply in the context of a PIF or a non-EU AIF managed by a Maltese AIFM.
The following regulations apply to the protection/safekeeping of the funds' portfolio assets:
- Investment Services Act (Custodians of Collective Investment Schemes) Regulations (Subsidiary Legislation 370.32, Laws of Malta); and
- The MFSA's standard licence conditions applicable to investment services licence Holders that Qualify as Custodians.
What are the main governance requirements for a retail fund formed in your jurisdiction?
Retail funds established in Malta are subject to various governance requirements that are conventional in the context of the regulated investment funds industry. The below is a non-exhaustive summary of the general governance requirements common to all retail funds.
Registration and authorisation
Retail funds operating from Malta are typically established as SICAVs. Their registration in Malta requires the filing of the memorandum and articles of association with the Malta Business Registry, together with supporting documentation as required in terms of the Companies Act.
Furthermore, all funds would only be able to operate from Malta if these are in possession of a licence issued by the MFSA in terms of the ISA.
A retail fund established in Malta is required to implement a robust corporate governance structure. The governing body is legally bound to promote the best interest of the fund and its investors and is responsible for the good governance of the fund, its proper administration and management, as well as for the general supervision of its affairs.
In practical terms, the MFSA typically requires that the board of directors of funds be composed of at least three individuals having the skills required to be able to direct and monitor the operations of the fund. In particular, at least one of the directors, must be independent of the service providers to the fund, including the management function. The board of directors is expected to appoint service providers to the fund having the knowledge, skill and competence required to be able to provide the services to the fund that they are engaged to perform.
Officers and service providers
CISs are also required to appoint a secretary to the governing body (to the extent that the legal structure of the fund necessitates the secretary’s appointment), a compliance officer and a money laundering reporting officer. While the Compliance Officer is responsible for assisting the fund in complying with any conditions attached to its CIS licence, and the relevant rules and regulations, the Money Laundering Reporting Officer assists the fund in complying with its anti-money laundering and terrorist financing (AML-CFT) obligations as a ‘subject person’ under the applicable AML-CFT laws.
As noted above, depending on the nature of the CIS in question, a CIS may, and, in certain cases is required to, appoint a number of service providers, including an investment manager, investment advisor, fund administrator, registrar and transfer agent, and a custodian or prime broker, as applicable.
Retail funds established in Malta are subject to numerous record-keeping obligations that stem from distinct pieces of local legislation and regulation.Reporting
What are the periodic reporting requirements for retail funds?
The table below sets out the list of external reports that retail funds are expected to prepare.
Malta Business Registry (MBR)
Beneficial Ownership Information
Audited Financial Statements
MBR, MFSA & Tax Authorities
Annual Fund Return
Central Bank of Malta Returns
Income Tax Return
Value Added Tax Return
AML/CFT Risk Evaluation Questionnaire
Financial Intelligence Analysis Unit (FIAU)
Provided that UCITS are also required to publish half-yearly reports.Issue, transfer and redemption of interests
Can the manager or operator place any restrictions on the issue, transfer and redemption of interests in retail funds?
In the case of UCITS, any restrictions on the issue, transfer or redemption of interests must be disclosed in the scheme’s prospectus. If set up as an investment company and if provided for in their constitutional documents, UCITS funds can temporarily suspend the repurchase or redemption of units provided the suspension is exceptional, justified and in the interests of the investors.
In the case of retail AIFs, any restrictions on the issue, transfer and redemption of interests must be in line with the provisions of the fund’s prospectus. AIF managers of open-ended retail AIFs can also place restrictions on the redemption of interests to manage liquidity risk. AIF managers can employ tools such as gates, partial redemptions, notice periods provided they are disclosed to investors before they invest and periodically if there are any material changes to them.