Posts Tagged :

investment

Isle of Man

Fund Administration in the Isle of Man

1024 683 Galileo Fund Services Limited

Organizational-Development-Starts-at-the-Top1

The Isle of Man, amongst many other things, is an ideal centre for the administration of niche fund and investment products. The legislation in place offers a wide variety of fund structures around which the most appropriate investment vehicle may be constructed.

Moreover, the Island has developed over many years, a robust political and financial infrastructure with an emphasis on pragmatic regulation. The purpose of this paper is to give a brief background to the Isle of Man fund environment and to focus on one particular type of popular structure available in the Isle of Man, the Closed-Ended Investment Company or “CEIC”. CEIC’s have been successfully used by many fund promoters in recent years as the vehicle of choice when establishing an investment company, be it a private unlisted company or a stock market listed company. It should be remembered that the information contained within this paper is for guidance only and interested parties should consult the relevant original legislation when structuring an Isle of Man product.

The Constitutional position of the Isle of Man

The Isle of Man is a self-governing dependency of the British Crown and is not part of the United Kingdom. Through long-established constitutional convention, the Isle of Man has autonomy in relation to its domestic affairs, including taxation and business law. As the Island is not a member state of the European Union (as provided under Protocol 3 to the Act of Accession), EU rules only apply to the Isle of Man in relation to a limited range of matters. Tynwald, the Island’s parliament, has been in existence for over 1,000 years and is the world’s oldest continuously functioning parliament. As a common law jurisdiction, the Island’s legal traditions draw heavily on those of England providing a level of familiarity when dealing with the Island.

Regulatory environment

The Isle of Man has developed a reputation as a jurisdiction of quality through its enactment of pragmatic legislation enabling industry to operate in a business friendly environment whilst at the same time adhering to international standards of financial supervision. Fund managers, administrators, and providers of corporate and fiduciary services, are regulated by the Isle of Man Financial Services Authority (“FSA”) and to complement the licensing framework for the regulation of such entities, the Island has adopted extensive measures to prevent money laundering and the financing of terrorism.

Closed-ended Investment Companies

Legislation in the Isle of Man makes a fundamental distinction between an “open-ended investment company” and a “closed-ended investment company”. Open-ended investment companies are corporate vehicles which provide investors with a right of exit by allowing them to redeem their shares and are considered to be collective investment schemes for the purposes of Isle of Man law.

A collective investment scheme or fund is subject to regulation in the Isle of Man under the Collective Investment Schemes (“CIS”) legislation whilst a CEIC, which provides no such right of exit, is not currently subject to the same CIS regulations. To that end, a CEIC is treated in the same way as any other operating company for regulatory purposes and, as a result of this approach, there are a number of important advantages to operating such a company from the Isle of Man including:

• no regulatory pre-approval requirements for launch in the Isle of Man
• no requirement for a licensed fund manager or administrator to be appointed
• no prescriptive requirements as regards board composition
• no requirement for a separate custodian
• no restrictions on asset classes, investment strategy or leverage
• no prescriptive rules about permitted investors or minimum subscription requirements

Companies – both traditional and modern

Company legislation introduced in 2006 has given promoters wishing to use an Isle of Man investment company the choice between using a vehicle incorporated under the Companies Act 2006 or alternatively a more traditional vehicle established under the Companies Act 1931.

Key features of a 2006 Act company are:

• minimal administrative requirements
• flexible capital structure
• limited disclosure requirements
• suitably regulated registered agent must be appointed

1931 Act companies draw heavily on English corporate legislation and therefore have more prescriptive administrative and statutory filing requirements.

Solution Freedom

Listing an Isle of Man CEIC

Isle of Man CEIC’s are suitable for listing on many recognised investment exchanges and over the years have proved to be a popular choice of vehicle for listing on the AIM Market in particular. A CEIC is not required to appoint a licensed fund administrator, however an Isle of Man corporate services provider may be required to deliver statutory and on-going compliance services.

Taxation

The Isle of Man offers a tax neutral environment in many cases with no capital taxes and a zero rate of corporate tax for CEIC’s. Value added tax may, however be payable on fees levied by certain functionaries to an investment company, dependent on the jurisdiction in which they are based.

 

Finance

Malta Launches a New Investment Fund Structure – the Notified AIF

1024 683 Amicorp Fund Services

valletta

The Malta Financial Services Authority (MFSA) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds, the Notified AIFs, which will be promoted to qualifying or professional investors.

The AIFs falling within the scope of the notification process shall be managed by a full-scope AIFM. The Notified AIF is not authorised or in any way approved by the MFSA. In addition, Notified AIFs will not be subject to ongoing supervision. The MFSA shall make available and maintain updated on its website a List of Notified AIFs in good standing. The MFSA is separately assessing the licensing process for funds, particularly the Professional Investor Funds, currently licensed under Maltese law.

The Notified AIF can be established as any structure allowed under Maltese law and the AIFM will assume full responsibility for the Notified AIF and for the fulfilment of the obligations of the Notified AIF. EU/EEA AIFMs may submit a notification to the MFSA for an AIF to be included on the List of Notified AIFs. Third country AIFMs will be able to submit a request for notification of an AIF once the country where these have been established has been granted passporting rights pursuant to the AIFMD.

The process of notification of AIFs will be available to Collective Investment Schemes which are not already in possession of a licence issued by the MFSA in terms of the Investment Services Act. The MFSA will be publishing a list of documents required, together with a proforma prospectus template, to be submitted as part of the notification process of the AIF. Within 10 business days from the date of filing of a complete notification pack, the MFSA will proceed to include the AIF in the List of Notified AIFs.

The MFSA expects to start receiving requests for inclusion in the List of Notified AIFs from around the middle of the second quarter of 2016.

TaxPlanningART

Malta: What Are The International Tax Planning Opportunities? Part 3

1024 1008 Ciantar Associates

tax

In Part 1 of our overview of Malta’s tax system, we looked briefly at what Malta can offer when considering tax planning for your clients.

In Part 2, we examined some of those benefits in more detail.

Now, in our final part, we take a look at reliefs and investment incentives.

Relief From Tax Suffered Abroad

Besides the refund system which we have just discussed, Malta also has a number of mechanisms of relief from tax suffered abroad on foreign income. Thus income brought into Malta from dividends, interests, or royalties which have suffered tax at source can claim this tax by way of relief from Malta’s tax due.

CiantarChart1

In certain situations where it might not be possible to prove that tax has been suffered abroad, or even in situations where no tax has been suffered abroad, it is possible to apply what is known as the flat rate foreign tax credit (FRFTC), whereby a relief is applied on a notional tax rate suffered abroad even if that income has not suffered any tax at all.

CiantarChart2

This type of relief can also be applied where tax has been suffered abroad and it is deemed more beneficial to use the FRFTC as in the two examples shown above.

Investment Incentives
Besides tax advantages the Maltese Government also gives a number of extremely beneficial investment incentives for companies wishing to invest in Malta. All investment incentives have been incorporated under one authority in order to streamline operations and to remove any bureaucracy. In fact It is now possible for investors to know to which benefits they are entitled in a very short span of time. The main incentives can be listed under the following categories:

Investment Aid
Companies engaged in specific activities can benefit from tax credits on capital investment and job creation.

SME Development
Grants targeting the creation and development of innovative start-ups, and the development of forward looking small and medium-sized enterprises.

R&D and Innovation
Various incentives will be offered to stimulate innovative enterprises to engage in research & development.

Access to Finance
Companies may be assisted through loan guarantees, soft loans, loan interest subsidies or royalty financing in the case of highly innovative projects.

Enterprise Support
Assistance to businesses to support them in developing their international competitiveness, improving their processes and networking with other businesses.

Employment and Training
These incentives are administered by the Employment & Training Corporation. Enterprises are supported in recruiting new employees and training their staff.

Conclusion
Multinational companies and individuals seeking to lower costs and increase the return on their investment should seriously consider Malta in their international tax planning structure.

Malta encourages foreign investment and the Government has made it his goal to make Malta a financial centre of excellence within the EU. With this in mind bureaucracy has been reduced to a minimum and all efforts are being made to make the move to Malta as simple and cost effective as possible.

All related services have been grouped under one authority to improve efficiency and cut on bureaucracy and all professionals involved in the financial sector are heavily regulated and monitored to ensure a high level of professional service.

Malta-NAIF

Notified Alternative Investment Funds: Malta’s novel investment product

1024 512 Fiduciary Management

malta

During the post-AIFMD era, whereby most jurisdictions seem to have fallen into a regulatory hibernation with reference to funds, Malta has once again proven to be abreast of developments. The Malta Financial Services Authority (‘MFSA’) has recently announced the launch of a new framework applicable for notification of Alternative Investment Funds (the ‘Notified AIFs’) which will be promoted to Qualifying or Professional Investors (as defined below).

The new framework will be applicable to collective investment schemes which are not in possession of a licence issued by the MFSA, in terms of the Investment Services Act (Chapter 370 Laws of Malta), and are managed by a full-scope Alternative Investment Fund Manager (‘AIFM’), authorised and regulated under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers (‘AIFMD’). In respect of such a collective investment scheme, an AIFM, which is in possession of either (i) a licence granted by the MFSA under the Investment Services Act or (ii) a management passport under Article 33 of the AIFMD, shall make a notification to the Regulator undertaking responsibility for it and for the fulfilment of its obligations. Third country AIFMs will be able to submit a request for notification of an AIF once passport rights under the AIFMD have been extended to their country of establishment.

Under the novel regime, the Notified AIFs may be established as either closed-ended or open-ended and can avail themselves of any legal structure from the wide spectrum already in place, catering for both corporate and unincorporated forms (e.g. SICAV, INVCO, Incorporated Cell Company, Incorporated Cell of a Recognised Incorporated Cell Company, contractual fund etc.). However, the following types of collective investment schemes shall fall outside the scope of the notification process: (1) funds which do not fall under the definition of ‘AIFs’, (2) self-managed AIFs, (3) AIFs which are sold and promoted to investors other than those who fall under the definition of ‘Qualifying’ or ‘Professional Investors’ (see below), (4) AIFs managed by third country AIFMs (pre-passport), (5) loan funds and (6) AIFs that invest in non-financial assets such as antiques, works of art etc. (currently real estate funds are excluded from the notification process as well but this will most probably be amended as per MFSA’s preliminary feedback).

As stated above, Notified AIFs may be marketed only to Professional and Qualifying Investors. ‘Professional Investors‘ are investors who are considered to be professional clients or may, on request, be treated as professional clients within the meaning of Annex II to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (‘MiFID’). ‘Qualifying Investors‘ (a new regulatory term introduced by MFSA) are defined as those investors who (a) invest a minimum of EUR100,000 or its currency equivalent in the AIF – which amount shall not be reduced below this threshold at any time by means of a partial redemption, (b) declare in writing to the AIFM and the AIF that they are aware of and accept the risks associated with the proposed investment and (c) either have net assets in excess of EUR750,000 or are senior employees or Directors of service providers to the Notified AIF.

malta

As soon as the duly completed notification pack (the notification request along with a Prospectus and supplementary documentation) has been filed with the MFSA, the Authority will proceed to

include the AIF in the list of Notified AIFs within ten business days. The same period applies in case of amendment of a Notified AIF’s Prospectus as well. Such inclusion shall not be construed as licence, authorisation or approval on behalf of the MFSA whereas a list of Notified AIFs in good standing (hereinafter referred to as the ‘List’) will be maintained and updated on the Authority’s website. The procedure used for the notification of AIFs shall also be used for the notification of additional sub-funds.

Since the new framework essentially places reliance on the AIFM’s regulated status, it follows that the said AIFM has increased powers and responsibilities placed on its shoulders to offset the lack of direct prudential regulation with reference to the investment product. In view of such reliance policy, the AIFM, prior to submitting a request for the AIF’s inclusion in the List, is required to perform the ‘fitness and properness’ test on both the service providers as well as the governing body of the AIF and may therefore veto any appointment thereof on such grounds. Furthermore, any rights (other than any rights to income or capital) of any founder or similar shares must be transferred to and exercisable only by the AIFM upon inclusion of the AIF in the MFSA’s List.

The attractive tax regime currently applicable to licenced collective investment schemes (based on the dual classification into prescribed and non-prescribed funds) will be extended to the Notified AIFs as well, thus easing the investors’ minds. This decision was hailed by the industry as it put an utterly appealing package deal on Malta’s investment table, placing the country once again in the vanguard of pioneering jurisdictions.

Euro

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

The Notified AIF regime puts Malta on a level playing field with Luxembourg, a long established fund domicile. The latter has recently introduced the Reserved Alternative Investment Fund (RAIF – or fonds d’investissement alternatif réservé, FIAR) framework. Whereas a detailed comparison between the two regimes is outside the scope of this article, reference should be made to the main difference between the two products. Whereas the notification to the MFSA constitutes a sine qua non for the establishment of a Notified AIF, upon the receipt of which it will be included in the respective List maintained and updated on the Regulator’s website as per above, RAIFs are not registered with the Luxembourg supervisory authority (the Commission de surveillance du secteur financier, CSSF). They are established through a notarial attestation of their constitutive documents, which must then be deposited with the Register of Trade and Companies (‘RCS’) in order to be published in the Mémorial, the official Luxembourg State Gazette.

Malta has made the wiser choice here as the inclusion of the Regulator in the whole procedure (even within such limited scope as has been described above) may add another layer of protection in the eyes of the potential investors, thus providing the sought after safeguards for such investment endeavours. If one takes into consideration other regulatory discrepancies as well (e.g. the requirement for appointment of local depositary for RAIFs whereas lack of any such requirement for Notified AIFs), then the scales are unambiguously tilting towards Malta as an AIF domicile alternative.

It is expected that requests for inclusion in the List will start being received by the MFSA from around the middle of the second quarter of 2016.

Malta’s Notified AIF framework will unequivocally be a game-changer in the funds world. This is due to the fact that, whereas the AIFMD was meant as a predominantly management regulation ensuring adequate supervision (and regulation) of AIFMs, rather than the funds themselves, the industry’s bitter experience was a profound regulation overlap between the manager and the product (thus raising compliance costs and ultimately impeding investment on behalf of professional investors who, due to their higher level of sophistication should be granted more leeway). Malta, boasting a track record when it comes to a pro-investor mentality (evidenced e.g. through the preservation of the PIF alongside the NF regime), has once more proven itself to be a true regulatory torchbearer uniquely positioned to cater for the investment industry.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and should in no way be construed as advice. Specialist advice should be sought about your specific circumstances.

Malta

The Private Hedge Fund Industry in Malta

1024 683 Simon Ciantar, Senior Partner

progression

Malta is fast becoming a significantly important financial centre within the European Union. A long history of fiscal and investment incentives for foreigners wishing to set up shop in Malta have led to a very attractive package for both investors as well as for non-residents wishing to use Malta in their international tax planning structures.

One area which is seeing an increase in popularity in recent months is the use of Malta’s Private investment fund legislation. Especially with Investors looking for alternative vehicles to their current Swiss investments.

Professional Investor Funds (PIFs) are regulated under the Investment Services Act (ISA) – Chapter 370 of the Laws of Malta. The ISA establishes the regulatory framework for investment services providers and for Collective Investment Schemes (CIS) – which include PIFs.

Collective Investment Scheme means any scheme or arrangement which has as its object or as one of its object the collective investment of capital acquired by means of an offer of units for subscription, sale or exchange and which has the following characteristics:-

• The scheme or arrangement operates according to the principle of risk spreading; and either
• The contributions of the participants and the profits or income out of which payments are to be made to them are pooled; or
• At the request of the holders, units are or are to be re-purchased or redeemed out of the assets of the scheme or arrangement, continuously or in blocks at shout intervals; or
• Units are, or have been, or will be issued continuously or in blocks at short intervals.

 

PIFs Set Up In Malta – Advantages

• Unlike the retail UCITS Fund, the PIF does not have investment restrictions and can invest in practically an unlimited variety of movable and immovable assets, from financial securities and instruments, to immovable property and more ‘exotic’, such as art collections, vintage cars and watches etc.;

• PlFs are therefore typically adaptable to the traditional private equity fund structures to the more innovative and complex hedge funds;

• No leverage restrictions, except for (i) PIFs targeted to Experienced Investors; and (ii) PIFs targeted to Experienced or Qualifying Investors which are property funds. The leverage restrictions may be further relaxed by using a special investment vehicle;

• The Maltese regulator is very approachable and adopts a pro-active and flexible approach to new business proposals (subject to the primary objective of adequate investor protection). Pursuant to this flexible approach, legislative amendment proposals are considered and processed as and when the need arises to keep abreast with new products in the industry and to address the needs of promoters and investors in a timely fashion;

• In most cases no external service providers need be appointed (subject to the Fund having suitable internal or other alternative resources and arrangements as may be necessary to protect the interests of investors). Thus it is possible to set up self-managed funds without appointing an external Manager, as well as to set up a fund which does not appoint a custodian but adopts alternative adequate safe-keeping arrangements;

• Even where service providers are appointed, it is not mandatory to appoint service providers established in Malta; thus promoters could set up the Fund in Malta (and benefit from the various advantages this entails) and continue to use the services of foreign service providers with whom they are accustomed to act;

• Set-up and on-going costs are relatively cheaper than in other jurisdictions;

• The use of Special Purpose Vehicles can:
(i) increase tax efficiency of the structure (and, in particular, may make it possible to benefit from favourable double tax treaty provisions. which may not otherwise be available);

(ii) provide structuring efficiencies, such as containing some high or undesirable risks at the SPV level (through the distinct personality the latter is vested with);

(iii) prove efficient to relax leverage restrictions otherwise applicable at Fund level.

valletta

Functionaries

A PIF may appoint any functionaries it may deem necessary and which may include the following:-

• Manager;
• Administrator;
• Investment Advisor and
• Custodian/Prime Broker

Any functionary appointed by the PIF which is located outside Malta and which provides services to PIFs in Malta must satisfy the MFSA’s criteria of sufficient standing, repute and of regulatory status abroad.

The appointed functionary need not be based in Malta. If a PlF is located outside Malta, a judicial representative must be appointed.

In the case of PIFs promoted to Experienced Investors, the appointment of a Custodian is a requirement.

The service provider should be either:

• established and regulated in a jurisdiction (EU/EEA/Jurisdiction with which the MFSA has bilateral/multilateral MOUs covering the relevant financial service sector); or
• a subsidiary of a firm established and regulated in a recognised jurisdiction which controls the subsidiary and undertakes to provide the necessary information to the MFSA;
• considered by MFSA to be subject to equal or comparable level of regulation in its jurisdiction.

In the latter cases, it is recommended to apply for preliminary indications of acceptability by the MFSA.

 

PIFs – Fee Structure and Listing

A fee is payable when the licence application (even if in draft) is submitted (€1,500 for the scheme and €1,000 per sub-fund). An annual fee (€1,500 for the scheme and €500 per sub-fund) is payable on the day a licence is issued and on each subsequent anniversary thereafter.

 

Tax Treatment

The provisions of Maltese tax legislation relating to the taxation of CISs are intended to create a fiscal framework that supports the development of the fund industry in Malta at the domestic and international levels.

euro_banknotes_ribbon_bow_white_background_80228_1280x720

Tax exemptions and withholding tax

For tax purposes, a fund or a sub-fund of an umbrella collective investment scheme may be classified as a prescribed or a non-prescribed fund. Essentially, a fund in a locally-based scheme is classified as a prescribed fund if the value of the assets situated in Malta is at least 85% of the value of the total assets. Other licensed funds, including all funds in overseas-based schemes, are classified as non-prescribed funds.

All income of collective investment schemes is exempt from tax in Malta except for the withholding tax applicable to local investment income in the case of prescribed funds. Thus local investment income (excluding dividends) derived by prescribed funds is subject to a final withholding tax of 15% in the case of bank interest and 10% in the case of other investment income.

No tax is withheld on investment income received by non-prescribed funds.

No tax is payable by non-resident investors on capital gains realised on the disposal of their investment or when they receive a dividend from a fund (whether prescribed or non-prescribed).

Tax is, however, payable by the Maltese resident investors in such funds when they dispose of their investment or when they receive a dividend. This tax qualifies, subject to certain conditions, for a 15% rate under the final withholding tax system.

 

CISs – Exemption from other taxes

In addition, in respect of Collective Investment Schemes, there is:

• no stamp duty on share issues or transfers;
• no wealth or other tax on the net asset value of the scheme;
• no taxation on capital gains on the sale of shares or CIS units held in prescribed funds by residents provided such shares/units are listed on the MSE.

ABOUT CIANTAR ASSOCIATES
Ciantar Associates is an accountancy and audit firm. We cater for a variety of enterprises and we would be able to assist you in company formations, bank introductions and loan facilities, personnel selection, management cost controls and audits, taxation consultancies and also legal/financial representations, fiduciary, nominee and trustee services. We pride ourselves in giving our clients personalised attention, creating an environment whereby our clients feel safe to invest. Please look at our website, www.sciantar.com for updates about this topic and any further related information.

 

  • 1
  • 2