Non-retail pooled funds

Available vehicles

What are the main legal vehicles used to set up a non-retail fund? How are they formed?

Non-retail funds may be established as companies, limited partnerships, unit trusts, foundations or mere contractual arrangements. Nevertheless, the investment company with variable share capital (SICAV) remains the main vehicle used to establish a non-retail fund.

Laws and regulations

What are the key laws and other sets of rules that govern non-retail funds?

The Investment Services Act (ISA) is the cornerstone of fund regulation in Malta. The legislator in Malta has also published various subsidiary legislation under the ISA relevant to the regulation of non-retail collective investment schemes (CISs) in Malta. Each non-retail fund that may be set up in Malta is also governed by a dedicated set of rules published by the Malta Financial Services Authority (MFSA) (MFSA Rulebooks). The MFSA Rulebooks are, in turn, supplemented by additional guidance, circulars and other material published by the MFSA from time to time.

A CIS that is available for distribution to professional clients in terms of MiFID (professional clients) may be authorised as (1) a professional investor fund (PIF), being a non-EU harmonised CIS that may be established in Malta, or (2) an AIF (as defined under AIFMD). Each of these non-retail funds may be externally managed or self-managed. Additionally, EU AIFMs have a third option, the notified alternative investment fund (NAIF), which is an AIF that is not authorised by the MFSA, but whose existence must merely be notified by the AIFM to the MFSA. It therefore follows that a NAIF must be externally managed by an AIFM.

Authorisation

Must non-retail funds be authorised or licensed to be established or marketed in your jurisdiction?

Under the ISA, a CIS is prohibited from the following without a valid CIS licence:

  • issuing or creating any units, or carrying on any activity in or from Malta; or
  • issuing or creating any units or carrying on any activity in or from within a country, territory or other place outside Malta, while being formed in accordance with, or existing under the laws of Malta.

 

Accordingly, any CIS, wherever established, which intends to market (including through intermediaries) its units or shares in Malta is, unless specifically exempted, entitled to exercise EU passporting rights, or, without prejudice to the provisions of the ensuing paragraph, required to obtain authorisation.

While the above prohibition applies without limitation in respect of PIFs and AIFs, it is not relevant in the context of NAIFs. As noted above, and, in terms of the ISA (List of NAIFs) Regulations (Subsidiary Legislation 370.34, Laws of Malta) (NAIF Regulations), NAIFs are subject to a notification, as opposed to a fully fledged authorisation, process with the MFSA. Indeed, the NAIF Regulations specify that the inclusion of a NAIF in the List of NAIFs maintained by the MFSA pursuant to the NAIF Regulations does not imply that the NAIF is in possession of a licence granted in terms of the ISA.

Marketing

Who can market non-retail funds? To whom can they be marketed?

The Maltese regime that regulates the marketing of units or shares in a CIS (including the MFSA’s guidance on what constitutes marketing) differs according to whether the CIS qualifies as an AIF or UCITS.

The following table summarises the non-retail fund marketing options presently available in Malta, including by, and to, whom each of such funds may be marketed or subscribed by.

 

CIS type

Eligible to market

Eligible investors

AIF

 

  • AIF (if self-managed)
  • AIFM (if appointed)
  • Intermediary(ies) (if appointed)
  • Professional clients
  • Qualifying investors*

NAIF

 

  • AIFM
  • Intermediary(ies) (if appointed)
  • Professional clients
  • Qualifying investors

PIF

 

  • PIF (if self-managed)
  • Investment manager (if appointed)
  • Intermediary(ies) (if appointed)
  • Qualifying investors

* Non-retail funds may only be subscribed to by professional clients (as defined under MiFID) or qualifying investors (as such term is defined under the relevant MFSA Rulebooks).

 

The CISs referred to above may be marketed subject to, and in accordance with, applicable laws and regulation. Even though intermediaries may be appointed to undertake marketing, responsibility for same is vested in the manager, which then delegates this to intermediaries.

Ownership restrictions

Do investor-protection rules restrict ownership in non-retail funds to certain classes of investor?

Non-retail funds may only be subscribed to by professional clients (as defined under MiFID) or qualifying investors (as such term is defined under the relevant MFSA Rulebooks).

Managers and operators

Are there any special requirements that apply to managers or operators of non-retail funds?

The requirements that apply to managers or operators of non-retail funds stem from the ISA, the subsidiary legislation issued thereunder and the relevant MFSA Rulebooks. While the local regime regulating the management and operation of AIFs largely mirrors the AIFMD framework, the NAIF regime imposes ‘special’ requirements on the AIFM of the NAIF. Such requirements feature in the NAIF Regulations and Part B of the MFSA's Investment Services Rules for NAIFs. No special or additional requirements apply to managers or operators of PIFs; rather, considering that the PIF is a local, non-EU harmonised product, the legal and regulatory framework applicable to managers or operators of PIFs is generally more flexible.

Tax treatment

What is the tax treatment of non-retail funds? Are any 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; 
  • 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 non-retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

AIFs and NAIFs established in Malta are required to entrust the safekeeping of their assets to a custodian, which must, inter alia, 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 non-EU AIF managed by a Maltese AIFM, in which case the custodian may be established in Malta or in the third country where the non-EU AIF is established. While PIFs are also subject to asset protection rules, the nature and extent of such rules differ from those applicable to AIFs and NAIFs.

The primary sources of local legislation and regulation in this regard are the ISA (Custodians of CISs) Regulations (Subsidiary Legislation 370.32, Laws of Malta) and Part BIV of the MFSA’s Investment Services Rules for Investment Services Providers.

Governance

What are the main governance requirements for a non-retail fund formed in your jurisdiction?

The general governance requirements common to non-retail funds, inter alia, include the following.

 

Registration and authorisation

This includes the filing of the memorandum and articles of association with the Malta Business Registry (MBR), together with supporting documentation as required in terms of the Companies Act. The information provided to the MBR upon incorporation is to be kept updated, in the event of any changes to the corporate structure or the constitutional documents. For a fund to operate in Malta it must have a licence issued by the MFSA in terms of the ISA.

 

Corporate governance

A non-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.

 

Officers and service providers

Officers and service providers include the appointment of a company secretary, a compliance officer and a money laundering reporting officer. Depending on the nature of the fund in question, a CIS may, and, in certain cases is required to, appoint a number of service providers, including an investment manager, investment adviser, fund administrator, registrar and transfer agent, and a custodian or prime broker, as applicable.

 

Record-keeping

Non-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 non-retail funds?

Non-retails funds established in Malta are subject to various external reporting requirements. The below is a non-exhaustive summary of the main reporting requirements applicable to non-retail funds in Malta.

 

External reporting

Reporting requirement

Reportable to

Annual Return

MBR

Beneficial Ownership Information

MBR

Audited Financial Statements

MBR, MFSA and Tax Authorities

Annual Fund Return

MFSA

Central Bank of Malta Returns

MFSA

Income Tax Return

Tax Authorities

Value Added Tax Return

Tax Authorities

AML/CFT Risk Evaluation Questionnaire

FIAU

 

The service providers of non-retail funds established in Malta are also subject to separate periodic reporting requirements, including, without limitation, in terms of the AIFMD.