Funds

Malta’s reputation as a hedge fund domicile was established with the island’s accession to the European Union in May 2004.

Back then, only four hedge funds were domiciled in Malta. Currently, over 400 investment services licenses have been issued.

EU membership has positioned Malta on a level playing field with other European Union countries, and introduced passporting rights so that investment services and UCITS schemes may be registered in Malta and passported to any EU country. Such membership, as well as the Malta Financial Services Authority’s membership in the Committee of Securities Regulation (CESR), guarantee a sound regulatory and legislative framework which inspires confidence. Moreover, euro adoption, on the 1st of January 2008 has helped Malta remove the cost of exchanging currency, allowing businesses and individuals to consummate previously unprofitable trades.

The Malta Financial Services Authority (MFSA) regulates banks, insurance and investment services in a flexible yet diligent manner. Abiding by the principle of quality over quantity as well as investor protection, it will not accept any type of investment funds into Malta, but will readily assist those funds carrying a seal of quality. In this regard, the MFSA carries out regular due diligence on the fund manager, the board of directors and the members of the investment committee. A key benefit is that regulatory and statutory issues may be discussed with the regulator, even at the fund’s gestation stage.

The basic structure used for collective investment schemes is the SICAV with its variable capital nature and possibility to establish sub-funds within such structure. Professional Investment Funds (PIFs), on the other hand, constitute a new variety, seeking progressively lighter regulation for funds targeted at increasingly financially literate investors. PIFs refer to the Experienced Investor Fund, the Qualifying Investor Fund and the Extraordinary Investor Fund.

The tax structure in Malta also provides a significant incentive. Companies that list securities on the Malta Stock Exchange are not charged with capital gains tax; nor is stamp duty due on transfer of such shares or securities. Furthermore, Malta has an extensive double taxation treaty network which is growing at a steady rate.

Despite being an EU member, Malta is cost competitive with respect to registrar and listing fees, but also with respect to the renting of office space in prime areas, labour costs and communications expenses.

Furthermore, government’s policy of providing free education to all – from the primary educational years to the top tertiary levels – guarantees a rising number of graduates, particularly in the field of accountancy and law which are two essential professions in the financial services sector. Our banks and investment services firms are well equipped with such professionals and this is usually one of the main attractions for foreign investors.

Skilled staff are, however, not only provided by the University of Malta, but also at a lower level by the Malta College for Arts, Science and Technology (MCAST). Other academic and industry-based institutions train students at all levels according to what is required to satisfy the demand of this sector. Various courses are, in fact, offered annually to train both students and staff on fund administration, valuation, accounting, portfolio management, and fund incorporation.

An advantage over other domiciles is that funds registered in Malta, while required to appoint at least one resident director, are not required to appoint a local administrator. The major banks in Malta have expanded their fund administration and custody business, and, with the World Economic Forum Global Competitiveness Report 2008-2009 positioning Malta within the top 10 with respect to soundness of banks from 134 countries, this could only mean good prospects. Furthermore, several accountancy and law firms have reinforced their specialisation in this field and can therefore provide such services at a higher standard and greater efficiency.