Collective Investment Schemes
The Investment Services Act, Chapter 370 of the Laws of Malta (ISA) provides the statutory basis for regulating collective investment schemes established in or operating in or from Malta. A collective investment scheme generally collects money from the public, pools them together and invests such funds in assets, subject to those investment objectives being published in the scheme’s prospectus.
A CIS may be established in Malta in any of the below structures:
- Investment Company with Variable Share Capital (SICAV);
- Investment Company with Fixed Share Capital (INVCO);
- Limited Partnership
- Unit trust;
- Contractual fund;
- Incorporated Cell (either of Incorporated Cell Company or Recognised Incorporated Cell Company)
The aforementioned legal structures may permit their establishment either (i) as multi-fund (umbrella) companies with investment compartments thereunder (‘sub-funds’) whose assets and liabilities are segregated, thus enabling major cost-savings and allowing investors to easily switch between different sub-funds, or (ii) as multi-class companies whose capital is divided into multiple classes of shares.
According to the object and purpose of the CIS, it may be licensed as:
- Non-Retail CIS
- Professional Investor Funds (PIFs)
- Alternative Investment Funds (AIFs)
- Retail CIS
- UCITS Funds
- Retail Non- UCITs Funds
Our firm has the knowledge and expertise to provide your business with comprehensive assistance with the regulation and other matters such as with:
- corporate and fund structuring;
- drafting of corporate and offering documentation;
- coordinating the licence application with the Malta Financial Services Authority (MFSA);
- ongoing regulatory compliance and advice;
- passporting in or out of Malta under the relevant directives (UCITS and AIFMD); and
- listing with the Malta Stock Exchange (MSE)
Our spectrum of services and sectors of expertise include inter alia taxation, dispute resolution, employment, litigation, compliance and data protection, thus ensuring holistic assistance and bespoke advice to our clients throughout the life cycle of the collective investment scheme.
Professional Investor Funds
Professional Investor Funds (PIFs) are a special class of collective investment schemes which fall within the provisions of the Investment Services Act, 1994. PIFs are non-retail funds which are not subject to investment restrictions (apart from PIFs promoted to Experienced Investors) and are not regulated to the same extent as other Collective Investment Schemes (e.g. UCITS and AIFs). They are essentially AIFs which fall outside the scope of AIFMD and are therefore able to avail themselves of a lighter regulatory regime. They have been extensively used for investment in non-traditional investments and/or specialist instruments including private equity, derivatives, real estate, and traded endowment plans. Most Maltese PIFs are used for hedge fund set-ups.
As per the MFSA’s circular dated 19th May 2015 and with effect from 1st June 2015, a PIF may be established in the case of:
- A de minimis self-managed fund ( a self-managed fund above threshold may only be established as an AIF);
- A de minimis EU AIFM (however if the fund manager transitions to an EU AIFM, either by voluntarily opting in the AIFMD or by exceeding the respective de minimis thresholds, the fund will have to be converted to an AIF);
- A non-EU AIFM (a third country fund manager may also establish an AIF, subject to compliance with special provisions applicable to non-EU AIFMs managing EU AIFs).
Under the new regulatory status quo, EU AIFMs shall only be able to act as managers for AIFs.
The MFSA’s regulatory PIF regime distinguishes three principal categories:
- PIFs promoted to Experienced Investors (‘Experienced Investor Funds’);
- PIFs promoted to Qualifying Investors (‘Qualifying Investor Funds’); and
- PIFs promoted to Extraordinary Investors (‘Extraordinary Investor Funds’).
The main differences are summarized in the table below:
|Experienced Investor Funds||Qualifying Investor Funds||Extraordinary Investor Funds|
|Eligible Investors||Experienced Investors||Qualifying Investors||Extraordinary Investors|
|Setup time||2-3 months||2-3 months||2-3 months|
|Investment Restrictions||Direct borrowing for investment purposes and leverage through the use of derivatives is restricted to 100% of NAV. Other investment restrictions apply.||None, unless the fund invests in immovable property.||None.|
|Fund Manager||Optional. Self-managed PIFs allowed.||Optional. Self-managed PIFs allowed.||Optional. Self-managed PIFs allowed.|
|Custodian/Prime Broker||Required (must be independent from Fund Manager)||Optional (provided that there are adequate safekeeping arrangements)||Optional (provided that there are adequate safekeeping arrangements)|
|Money Laundering Reporting Officer (MLRO)||Required||Required||Required|
|Compliance Officer (may also act as MLRO)||Required||Required||Required|
|Offering Documentation||Offering Document||Offering Document||Offering Document / Marketing Document|
Alternative Investment Funds
The Alternative Investment Fund Management Directive (“AIFMD”) is intended to create a harmonized framework for the management and marketing of non-UCITS funds within the context of a high level of investor protection.
The transposition of the AIFMD in Malta has been effected under the Investment Services Act (Cap. 370 of the Laws of Malta), the subsidiary legislation and the Investment Services Rules issued thereunder.
An AIF is essentially a collective investment scheme which is not licensed as a UCITS fund and is defined as “a collective investment scheme, including sub-funds thereof, which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and which does not qualify as a UCITS Scheme in terms of the UCITS Directive”. Therefore, hedge funds, private equity funds, real estate funds, venture capital funds and others all fall within the scope of the AIFMD
Full compliance with the aforementioned Directive provides an AIFM with the opportunity to avail itself of the European passport (AIFM Passport) for the cross-border marketing and management of AIFs within the EU.
The AIFMD also adopts a lighter “de minimis” regulatory regime with regard to sub-threshold fund managers.
The MFSA has committed itself to process applications for the authorisation of AIFs within seven working days, provided all relevant documentation has been provided and that all functionaries appointed for the AIF are based and regulated in Malta, the EU, the EEA and other OECD jurisdictions. With respect to self-managed AIFs, the MFSA shall inform the applicant in writing within 3 months of the submission of a complete application, whether or not the licence has been granted.
Undertakings for Collective Investments in Transferable Securities (UCITS)
UCITS are open-ended Undertakings for Collective Investment in Transferable Securities regulated on an EU level. UCITS funds are able to be freely marketed across Europe and their units distributed cross-border by following the notification procedure set out in the UCITS Directive. Maltese UCITS schemes are popular due to their flexibility and the tax efficient features that they offer. They are open to all investors (both retail and institutional) and are the most common investment fund type in Europe. The UCITS brand is also recognised internationally, and many UCITS funds are registered in non-European countries such as Switzerland, Hong Kong, Singapore, Taiwan, Bahrain, Chile and Peru.
Key Features of UCITS
|Fund Promoter||The promoter is responsible for the fund’s structure set up and distribution. No eligibility requirements are applicable|
|Fund Manager||Optional. A Maltese UCITS scheme may be self-managed or may appoint a UCITS European management company approved by the MFSA. The manager must have satisfactory financial resources and liquidity at its disposal|
|Custodian||Required. The UCITS scheme must appoint a custodian to whom the assets of the scheme are entrusted for safekeeping. The custodian must have an established place of business in Malta and be a licensed institution or another institution acceptable to the MFSA, with a place of business in Malta|
|Administrator||Optional. The UCITS scheme may appoint an administrator, who need not be based in Malta, provided such administrator is recognized by the MFSA. The services typically provided include valuation, transfer agency and registrar, corporate secretariat and listing agent|
|Investment Advisor||Optional. The UCITS may appoint an investment advisor who must have sufficient financial resources and liquidity at his disposal and demonstrate sufficient and relevant experience|
|Money Laundering Reporting Officer (MLRO)||Required|
|Auditor||Required. An auditor must be approved by the MFSA and is responsible for certifying the fund’s annual report and accounts, which should include an audit report. The scheme must have at all times a Compliance Officer and a Money Laundering Reporting Officer|
|Approval Time||2-3 months. Dependent on factors such as fund’s complexity and submission of complete applications|
|Taxation||Exempt from income and capital gains tax (subject to not investing in immovable property situated in Malta)|
|VAT||Exempt without credit|
Management Company Passport
A key development under UCITS IV is the introduction of a passport for UCITS management companies permitting UCITS funds to be managed on a cross-border basis. This means that a management company located in one member state is permitted to manage UCITS established in other member states.
This can be done both by way of establishing a branch, and on a cross-border basis. A branch has to comply with the relevant conduct of business rules of the host member state; in cross-border situations, the home member state conduct of business rules apply. The management company (its organisational structure including risk management) is supervised by home state regulation while the UCITS is governed by host state regulation.
The provisions of UCITS IV Directive also enable the set-up of master-feeder structures, whereby one UCITS invests at least 85% of its Net Asset Value (NAV) in another UCITS, thus enabling the management and administration of these structures to be centralized in a single jurisdiction and economies of scales to be realized (with respective reduction in costs to investors).
Non- UCITS Retail Schemes
Malta also allows for the setup of non-UCITS schemes. Non-UCITS are retail funds that are made available to the general public and thus are regulated in a greater level of detail than other funds which are offered to more experienced investors. Non-UCITS can only offer their units in Malta, however the requirements for the set-up and operation of these funds are similar to UCITS. Therefore, their use is limited and a non-UCITS is only set up if the fund is solely intended for the Maltese market and does not require an EU passport. An overseas based non-UCITS fund must obtain a UCITS license before it can be sold in Malta.