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Malta: When It Comes To Funds, Why Choose Anywhere Else?

1024 778 Amicorp Fund Services

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Malta’s accession to the European Union in May 2004 has brought with it a growing reputation as a hedge fund domicile of choice. Malta was voted as Europe’s most favoured fund domicile by Hedge Fund Review’s 2013 and 2014 service provider rankings.

Flexible regulation, transparency and good governance are just some of Malta’s advantages, as well as its status as a cost-effective domicile for funds, asset managers, fund administrators and for custodians catering to the thriving fund industry.

Malta hosts around 600 investment funds with a combined net asset value of almost €10 billion, and the sector is growing and attracting sophisticated asset management activities all the time.

EU membership has enabled Malta to introduce rights so that investment services and UCITS schemes may be registered in Malta and passported to any EU country.

Alongside the advantages of EU membership and access to a market of over 500 million people in 28 EU economies, Malta also enjoys excellent relations outside of the EU, specifically with other Mediterranean nations in North Africa and the Middle East, making it an attractive base for European, American or Asian companies wishing to enter markets to the south. In addition, Malta is a signatory to more than 70 double-taxation treaties, covering most of the world’s high-growth markets facilitating international business.

Malta has established a comprehensive regulatory framework for the registration and marketing of funds and investment vehicles. Malta’s financial services framework and tax laws are in line with EU directives and requirements and regulated by the Malta Financial Services Authority (MFSA). The licensing process with the MFSA is quick, efficient and thorough.

That said, the MFSA does not accept just any type of investment funds into Malta, but will readily assist those funds carrying a seal of quality. The MFSA carries out regular due diligence on the fund manager, the board of directors and the members of the investment committee, and regulatory and statutory issues may be discussed with the regulator, even at the earliest stage.

What funds does Malta offer?
Collective investment schemes may come in the form of the SICAV, with its variable capital nature and the possibility of establishing sub-funds. This is the most widely used vehicle, particularly in the non-retail sector, and it can be structured to include master feeder funds and umbrella funds with segregated sub-funds.

Professional Investment Funds (PIFs) are targeted at increasingly experienced investors. PIFs target 3 main types of investor: the experienced investor, the qualifying investor and the extraordinary investor. The regime is designed to fast track regulatory approval with a reduced level of ongoing regulation and supervision, but the type of investor, and therefore the ongoing regulation, is determined by qualifying criteria.

The creation of a new regime for Alternative Investment Funds (AIF) is one of the biggest recent additions to Malta’s fund market after the coming into force of the Alternative Investment Fund Managers Directive (AIFMD) in 2014. Malta was one of the first EU member states to transpose the AIFMD into law and the AIF regulatory regime was specifically set-up to cater for this new fund category.

Malta’s legislation also provides for the setting up of UCITS (Undertakings for Collective Investment in Transferable Securities) and non-UCITS retail funds.

A new vehicle was established in 2012, called the Recognised Incorporated Cell Company (RICC). Directly targeting fund platform providers, this structure allows the RICC to provide, in exchange for payment of a platform fee, certain administrative services to its Incorporated Cells.

What about the Benefits & Costs?
The tax structure in Malta provides a significant incentive. Companies that list securities on the Malta Stock Exchange are not charged with capital gains tax and no stamp duty is due on the transfer of such shares or securities.

Malta’s regulatory and ongoing costs are extremely competitive and, when taken together with the various funds options, regulation and passporting rights, makes it a very attractive proposition.

How can Amicorp Fund Services Malta help?
Amicorp Fund Services Malta Limited forms part of Amicorp Group and is recognised as a fund administrator by the MFSA and offers a complete package of support services. These services allow our clients to focus on their core competencies of investment management and capital-raising. We achieve these goals by focusing on the following factors:

  • Fully automated fund administration services, based on state of the art, globally recognised technology, which integrates NAV calculation, investor administration, general ledger and KYC/AML features
  • Establish automatic feeds of financial data whenever possible, whether it concerns broker information or market data

The reporting package is carefully reviewed by a team of highly experienced fund administrators. As an ISAE-3402 Type II certified fund administrator, our internal control process is accredited by one of the reputable ‘Big 4’ firms. Using our state-of-the-art PFS Paxus software and online web reporting, we provide accurate and timely information to fund operators and investors.

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Malta: The EU Domicile Allowing a Protected Cell Company Structure

1024 683 Jatco Insurance

Corporate

Malta is one of the very few domiciles which allow a Protected Cell Company (PCC) structure in the insurance sector. A protected cell in Malta allows a cell owner to insure directly own risk in the EEA and sell insurance to third parties in the EEA. The PCC structure can be applied to both insurance companies and insurance broker companies.

Operating model of a Protected Cell Company

A PCC operates in two parts; the company core and the cells. The core part comprises all non-cellular assets including the company’s core share capital, investments and liabilities. The core share capital may be the minimum required by law or larger depending on its activities. The core does not need to take any of the cell’s risk itself but must be solvent at all times, based on the business written by the whole company, including the cells. Once established, a PCC can form cells for third parties.

A PCC can create within its structure one or more “cells” for the purpose of segregating and protecting the cellular assets of the company from those of other cells or the assets of the core itself. The cells are independent from each other and from a legislative point of view are protected from each other. A cell is formed by the creation and issue of a class of cell shares within the cell company in respect of each individual cell. The core and its cells are to be treated as one legal entity, as the cells do not have separate legal personality. The cell is only treated as a separate entity for tax purposes. Cells contract through the PCC which acts on behalf of the cell.

The cell company and its cells may conduct business of insurance and reinsurance as principals, captives, in respect of general and long-term business and also as insurance brokers.

The Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2004 allow a licensed Affiliated Insurance Company to be registered as or convert to a protected cell company (PCC). Transfer of cellular assets is possible subject to approval of the MFSA. However, a cell company does not require cell transfer approval in order to invest, change investment of cellular assets or make payments or transfers from cellular assets in the ordinary course of the company’s business.

Cell Management

The PCC has a single board of directors which takes responsibility for the transactions within the core and cells, and for the statutory and regulatory compliance and corporate governance requirements of the company as a whole. Although the board may delegate the management and administration of a cell, or parts thereof, to a cell committee which may include representatives of the cell owner, it is ultimately the board of directors of the PCC which is responsible for all cells and cellular assets.

The assets of any one particular cell are only available to the shareholders and creditors of that cell; creditors of another cell have no recourse against them. However, in the event that the cellular assets of one cell have been exhausted, the company’s core assets may be secondarily liable to satisfy any cellular liability of one of its cells.

The PCC Structure

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The Benefits of the PCC

The PCC provides a number of advantages when compared to a stand-alone company. One of the key elements is that an insurance broker or insurance company can conduct business through the ownership of a cell using the core’s capital. Lower capital requirement means that each cell is only obliged to hold capital needed to protect its risks, while the own funds requirements apply to the PCC as a whole. Cells also benefit from lower running costs compared to stand-alone companies since there is no need to set up a separate company. Owners benefit from simpler administration and shared overhead costs.

Cells face lower risk since the risks within each cell will be legally segregated from other cells. Furthermore, PCCs and their cells in Malta can directly access EU markets through a single-passport route, thus avoiding fronting arrangements. Cells can also benefit from Malta’s favorable tax imputation system through which foreign shareholders can benefit from a tax refund after that year end taxation has been paid by the cell.

The authorisation process for cells is usually faster and less demanding since the management of the PCC is already known to the regulator. Entities that have not had a great deal of exposure to the business of insurance can benefit from the experience of the PCC in regulatory issues, as well as the day-to-day running of an insurance company or insurance brokerage company.

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Malta: A Package Deal Catering For Everyone

1024 680 Fiduciary Management

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It is well known that for decades Malta has been a jurisdiction of choice for the shipping community. However, the ongoing changes to the domestic and international legislation have made Malta all the more prominent, even outside the shipping industry.

The truth of the matter is that Malta has worked for some time now at placing itself in a position where it is considered to be a financial hub, with a range of financial services that goes beyond shipping. Today Malta’s financial services industry includes many sectors such as aviation, corporate structures, i-gaming, funds, tax advisory, residency and citizenship together with all the ancillary services. Whilst mention of the financial services industry does not necessarily bring to mind services such as residency, the truth of the matter is that each and every one of these sectors has an innate and intricate financial aspect which has become the main driver for opting for Malta.

Yet Malta has gone further. It is all well and good to promote Malta as a safe country with a mild climate all the year round and a relatively low cost of living but we all know it takes a lot more to attract the brightest and finest to relocate. It is with this constantly in mind that legislative incentives are being implemented in Malta. Reference to a ‘holistic approach’ has been used to often in various industries that it has lost its importance. However the fact of the matter is that Malta has become such an attractive jurisdiction due to a holistic approach being taken in all industries. It is the sum of many Governmental policies and legislative enactments being developed over two decades, with one clear goal in mind that has led to this point.

From a personal income tax perspective, Citizenship and Residency programmes have been setup to compliment corporate tax incentives already in place and in effect for years. Ultimately the goal is to entice companies and their people to relocate to Malta lock, stock and barrel. Granted some people may only relocate for a few years but the fact of the matter is that for that period of time those persons are subject to tax in Malta and the effective place of management of the company they work for is Malta.

The Citizenship programme (known as Individual Investor Programme or ‘IIP’) was inaugurated in 2013 by Identity Malta, the authority set up by the Government to oversee the programme, and has seen since a significant influx of applications. The acquisition of Maltese citizenship, which is possible only via an Accredited Agent, is an attractive option for third country nationals as, upon naturalization, they are granted with the right to live, work and study in any of the 28 EU countries and Switzerland and gain visa-free access to 166 countries, including the EU and Canada. These advantages are further enhanced by the substantial tax benefits, both on corporate as well as individual level, envisaged under the Maltese regulatory status quo.

There are also various residency programmes to speak of but just to mention two; I will make reference to the Highly Qualified Persons (HQP) Rules and the Global Residence Rules. Given the expansion and modernisation of Malta’s economy, the conscious decision was taken by the Government to attract knowledgeable and experienced personnel in industries such as the financial services sector where expertise was either in short supply or lacking. This gave rise to the Highly Qualified Persons Rules aimed at attracting highly qualified persons to occupy ‘eligible office’ with certain types of companies. ‘Eligible office’ comprises employment in positions such as, Actuarial Professional; Chief Executive Officer; Chief Financial Officer; Chief Commercial Officer; Chief Investment Officer; Head of Investor Relations; amongst others. In essence, individual income from a qualifying contract of employment in an ‘eligible office’ is subject to tax at a flat rate of 15% as long as the requirements are satisfied.

On the other hand, the Global Residence Rules were implemented to allow an individual who has been granted special tax status in accordance with the these Rules, to be subject to a rate of tax of 15% on any income that is received in Malta from foreign sources.

When the effective rate of tax of a company can be brought down to 5% and the company’s personnel have the potential of being subjected to a rate of tax of 15%, all within the bounds of EU legislation, the whole package becomes very attractive. It offers the much needed stability to those stakeholders that face uncertain economic times. It also becomes an attractive jurisdiction for those stakeholders attempting to tap not only the EU but also the Commonwealth market (with the combined gross domestic product of the latter’s member countries being predicted to reach US$14 trillion by 2020). It becomes a cost effective, less bureaucratic yet well-regulated entry point into the EU. Therefore, the question that bids an answer is not ‘why Malta’ but rather ‘why anywhere else other than Malta?’

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.

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Isle of Man: The Final Piece in the Private Client Jigsaw

1024 768 Abacus

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The Isle of Man continues to be recognised as an international finance centre of excellence, no more recently than during the Professional Advisor International Fund and Product Awards 2015 where they won ‘Best International Finance Centre’, fending off strong competitors like Jersey, Guernsey, Dublin and Luxembourg.

Having successfully encouraged diversification of its economy over the years, the Island is currently home to a number of high performing sectors, one of the most successful being its financial services industry. This is due to having a proactive government, a robust regulatory framework and the ability to recognise that engaging with its stakeholders and forming positive relationships with professional service providers, such as Abacus, helps for a successful business environment in which all can flourish.

Abacus is one of the Island’s longest established and reputable service providers currently celebrating 40 years of excellence in providing a range of financial and professional administration services. Delivering value through the provision of corporate, trust, funds and tax solutions, our longevity and success is predominantly due to our underlying principles of integrity, independence and insight.

However, some of our success can be attributed to being ideally located in a jurisdiction that is home to a politically stable and proactive government, a robust regulatory framework and evolving industry sectors – one of its biggest and most successful being Financial Services, a sector which offers all of the pieces in the Private Client jigsaw…well almost!

What does a Private Client jigsaw look like…? Firstly, there is no ‘typical’ private client – anyone working in the financial services industry knows that each and every client has bespoke needs and requirements. However for the purpose of this piece, a private client could be an ultra-high net worth individual who has acquired his wealth through the family business which is involved in UK property development; he owns a private jet and is currently looking to purchase a yacht.

So which pieces of the jigsaw does the Isle of Man have to offer? And where does Abacus fit in?

Firstly, the Isle of Man is the perfect jurisdiction for the establishment and operation of property holding structures, offering efficient and cost-effective arrangements for all types of property acquisition through various vehicle types, ranging from private wealth structures to collective investment schemes that can facilitate a commercially effective pooling of investor capital and a convenient reporting mechanism. With the right advice and structuring it can be a tax effective solution, particularly for UK non-resident and non-domiciled individuals.
At Abacus, we establish and administer property holding structures designed to meet our client’s individual objectives and requirements and provide a range of support services to ensure that the structure is correct and runs efficiently.

Secondly, the Isle of Man is a one-stop shop for private global aviation business. Not only does it have an aircraft register which has been voted the best in the world in a survey of leading aviation lawyers from around the globe, it offers owners a neutral nationality registration prefix, a secure mortgage register and a professional infrastructure with experience in aviation finance. The Isle of Man Aircraft Registry is renowned for its high customer service ethos and its focus on safety and service…what more could you want for your aircraft?

With strong relationships across the Island’s aviation industry, we assist owners and their representatives in understanding the diverse requirements associated with owning and operating an aircraft, whilst providing tax efficient ownership structures that facilitate aircraft operation on a private and/or commercial basis.

Jigsaw-Puzzle

Thirdly, is the Island’s strong history and heritage in shipping – it has one of the fastest growing ship registers in Europe and a Registry that provides a high quality and fast response customer service with a low cost scale of charges. It is also favourably on the much sought after ‘White List’ of the Paris Port State Control Memorandum of Understanding and has been a popular register for yachts, with a significant number currently waving the Isle of Man Ensign.

As a highly experienced corporate service provider, Abacus has significant experience in a wide range of international ownership structures and administration services for yacht owners, making us well placed to assist with the complexities of yacht ownership. We work with our clients to ensure that custody and management of their prized vessel stays on an even keel, from establishment of the structure through to its ongoing administration. We also offer yacht registration services but understand that choosing a flag for a vessel is very much a personal choice and that the Isle of Man may not always be the most practical or effective place for a client. It is here that our office in Malta, a jurisdiction which is growing rapidly in popularity amongst the yachting industry, can offer a full range of yacht ownership, registration and administration services in an alternative EU jurisdiction.

Another is that the Isle of Man is a cost effective alternative for private clients and their investment, fund management and administration requirements. With a well-established fund sector, supported by a range of professional service providers including investment managers, fund administrators, legal firms, custodians, auditors and fiduciaries, the Island offers a compelling and cost-effective alternative for the domicile of investment funds.

As an established fund services provider, Abacus offers a fully cross-border administration solution to fund managers and intermediaries establishing and operating fund structures for clients internationally. We deliver support by providing market leading technology customised to provide added value and improve our client’s relationship with shareholders, promoters and other service providers. Our proposition includes an efficient and effective cost base coupled with a client service ethos designed to add speed, quality and flexibility to the fund administration service.

As we come closer to completing the puzzle, we come to the Island’s Residence and Citizenship opportunities. The UK Tier 1 (Investor) Visa is aimed at High Net worth Individuals and their families who are looking to obtain alternative residence and citizenship by making a qualifying investment into the Isle of Man. An applicant must meet the eligibility and due diligence requirements and complete the application process but if successful can obtain British citizenship.

With understanding and experience of citizenship programmes, we are able to advise and assist individuals and their families wishing to apply for citizenship in an alternative EU jurisdiction. We can help clients choose an appropriate programme and country of residence (we can also offer three Maltese residence and citizenship programmes) and guide them through the application process to ensure that preparation and submission of their application is correct and processed in an expedient manner.

So now the picture is near complete, what is Abacus’ part in the puzzle? Simply, we are the final piece…we utilise the Island’s capability and apply our knowledge and experience to develop and provide solutions that keep pace with change and ever more sophisticated tax planning, to ultimately assist private clients in the effective structuring and management of their wealth. We are the piece that holds it all together and make the Private Client jigsaw complete!

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Malta: What Are The International Tax Planning Opportunities? Part 2

1024 737 Ciantar Associates

SOLUZIONI

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

In this part, we will take you through some of those benefits in more detail.

From 1st January 2007 a new set of provisions to the Income Tax Act and the Income Tax Management Act came into force, further strengthening Malta’s bid to become an important financial centre within the EU by 2015, the date set by the Maltese Government.

Malta practices a full imputation system of taxation which is unique within the EU. The basic concept of this system is that income received net of tax is grossed up in the hands of the recipient and taxed once more at the applicable rates of tax of that individual or body corporate. The tax suffered on the income is than taken as a tax credit and a refund or a topping up of the tax will then take place according to which rate of tax is the higher. This system coupled with a classical system gives rise to plenty of tax planning opportunities, which is what is making Malta so popular with investors worldwide.

The headline corporate tax rate is of 35%. However, upon a distribution of a dividend, shareholders can claim a refund of up to 6/7 of the tax suffered on the dividend bringing the net effective tax down to 5%. This refund is paid within a maximum of 6 weeks from the payment of the company tax.

If a Maltese registered company owned in full or in part by non-resident shareholders received dividend income from a Participating Holding (PH) i.e. dividend income from outside Malta, a full refund may apply to the shareholders upon distribution of a dividend . In certain cases the company may benefit from what is known as a Participation Exemption (PE) whereby a company need not pay the tax on this income from the outset.

The definition for PH is as follows:

• When a company holds directly at least 10% of the equity shares of the company, or
• Has the option to acquire up to 10% of the share capital, or
• Is entitled to first refusal in the event of a proposed disposal off all equity shares, or
• Has the right to sit on the board of directors, or
• Holds an investment of at least €1.2 Million in a company not resident in Malta and which is held for an interrupted period of 183 days or,
• Where these shares are held for the furtherance of the business, such holding should not be held as trading stock for the purpose of a trade.

The definition has been extended to include certain partnerships, thus enhancing Malta’s competitiveness as a holding company jurisdiction.

In order for a company to qualify for a PE it is enough to satisfy these provisions. However, for new companies incorporated on or after 1st January 2007 and for existing companies after 31st December 2010, the following anti-abuse provisions apply:

1. The foreign entity in which the PH is held must be resident or incorporated in a country or territory which forms part of the EU; or
2. is subject to any foreign tax at a rate of at least 15%; or
3. less than 50% of its income must be derived from passive interest or royalties.

If ALL three conditions are NOT met then BOTH of the following conditions must be satisfied:

1. The PH must not constitute a portfolio investment; and
2. either the body of persons not resident in Malta; or
3. its (the body of persons) passive interest or royalties have been subject to foreign tax at a rate of not less than 15%.

If a company satisfies the conditions for a PH and the anti-abuse provisions, it can opt not to declare this income in its tax return outright and no tax will be due.

Alternatively, the company may opt to declare this income, which might be beneficial in cases where the foreign shareholders would need to show that income has suffered tax. In this case, the company will benefit from a full refund payable within a maximum of 6 weeks from payment of the tax.

If a company satisfies the definition of PH but not the anti-abuse provisions it will still benefit from the 6/7 refund, i.e. it will have to pay the corporate tax of 35% and upon a distribution of a dividend the shareholder will apply for the a refund of the tax paid, effectively bringing down the net tax charge to 5%.

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Passive Income
Companies receiving passive interest or royalties from abroad, a 5/7 refund will apply on tax suffered in Malta upon a distribution of a dividend.

Passive interest or royalty income is defined as income which is NOT derived directly or indirectly from a trade or business, where such interest or royalties have not suffered any foreign tax, directly, by way of withholding, or otherwise, at a rate of tax which is less than 5%.

Such income will be taxed normally in the hands of the Maltese company (i.e. 35%) but will only result in 5/7 refund when distributed (i.e. 10%).

It is possible to ask the Inland Revenue department for an advance revenue ruling on whether such income falls under these provisions or not.

 

In this article, we have described in more detail two areas in which Malta offers exciting tax planning opportunities – simple and advantageous to individuals and companies seeking to do business in a jurisdiction making itself impossible to ignore.

In our final part, we will take a look at two more areas where Malta can be advantageous for your clients. In the meantime, if you would like any more information on why Malta could be the jurisdiction of choice for your clients’ tax planning opportunities, please do not hesitate to get in touch.