Posts Tagged :


Isle of Man

Fund Administration in the Isle of Man

1024 683 Galileo Fund Services Limited


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.


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.



Malta – The First EU Member State Allowing Cell Structures For Insurance Linked Securities

1024 683 Jatco Insurance


The key to Malta’s success in the insurance sector lies in its EU membership, which allows licensed companies in Malta to write business in any of the other member states. Furthermore, Malta is the first European Union member state to adapt cell structures available for insurance linked securities transactions.

A securitisation cell company (SCC) is an insurance linked securities platform for private collateralised reinsurance transactions. An SCC is a single legal entity that can establish one or more segregated cells for the purpose of entering into securitisation transactions. It is a platform structure which offers low costs and quicker set-up time for each transaction. An SCC would be authorised as Reinsurance Special Purpose Vehicle (RSPV) under the Maltese RSPVs Regulations and must be fully compliant with the EU Solvency II Regime.


Application for Authorisation

The creation of a cell in an SCC is subject to prior regulatory approval. The MFSA is committed to processing applications in accordance with customary market-standard time frames agreed with applicants prior to the submission of all relevant application documentation.

An SCC is a company empowered to establish cells for the purpose of entering into securitisation transactions. Maltese law allows for the establishment of multi-currency cells with each cell empowered to issue notes in one or more currencies multiple series and tranches of notes can be issued in respect of the same cells, provided that each cell can only have only one cedant.


The SCC Structure


The SCC Core is prohibited to transact to limit contagion risk. The SCC’s Board of directors will be responsible for the entire entity, including cells. The SCC will have to be MFSA authorised and may be managed by a licenced insurance manager. The Cells shall be established for each hedge-fund counterparty and shall enter into risk transfer contract with European (re)insurer. There is no minimum capital requirements to establish cell. Furthermore, multiple transactions are permitted provided risk transfer counterparty is same cedant. The Cell accounts shall be in base currency, if election is made and contractual tranching within the cell is also possible.


Cells Ring-Fenced From Other Cells

The Maltese law states that assets and liabilities attributable to each cell established by a securitisation cell company constitute a separate patrimony of the SCC. Assets attributable to a particular securitisation cell are only available to creditors transacting with that cell.

Any proceedings against a cell (and any provisional administrator or liquidator appointed in respect of the SCC) will, in accordance with the SCC Regulations, be required to respect the status of each cell as a segregated patrimony that is separate from assets and liabilities of other cells and the SCC itself.


Legal Environment

Securitisation transactions that are structured through the use of an SCC benefit from provisions confirming the bankruptcy remoteness of securitisation vehicles contained in the Securitisation Act. The same benefit is granted, by means of Regulation 16 of the RSPV Regulations applying certain provisions of the Securitisation Act to RSPVs. This includes:
• confirmation of bankruptcy remoteness of RSPVs;
• affirmation that RSPVs are not collective investment schemes and alternative investment funds; and
• provisions on the privileged position of securities holders of an RSPV in respect of the assets held by the RSPV, subject to the terms of a subordination agreement.


Tax Treatment

The SCC benefits from tax rules applicable to securitisation vehicles. Malta’s Securitisation Transactions (Deductions) Rules, 2011 (the ‘Tax Deductions Rules’) provide for a wide list of deductions which can be claimed by securitisation vehicles over and above any other deductible expenses which may normally be claimed by a Maltese company. These deductions enable a securitisation vehicle to effectively wipe out its chargeable income, thereby resulting in tax neutrality at the Malta level.

The Tax Deductions Rules establish a framework for the determination of:

1. the income of securitisation vehicles;

2. the applicable deductible expenses, and

3. the originator’s deemed income.

The Tax Deductions Rules allow a securitisation vehicle to deduct expenses over and above those which are normally allowed in terms of the Income Tax Act. These additional deductible expenses consist of:

• sums payable by the securitisation vehicle to the originator or assignor of the securitised risk;

• premiums, interest or discounts in relation to the financial instruments issued, or funds borrowed, by the securitisation vehicle;

• any expenditure incurred by the securitisation vehicle in respect of its day to day administration, and collection of receivables; and

• any fees of third party servicer providers (including the originator) to whom the day to day administration is delegated.

Should the securitisation vehicle have any remaining income after the above allowable expenses have been deducted, it may opt to claim a further deduction of an amount which is equal to the said remaining income (the ‘Further Deduction’). In this manner, the securitisation vehicle will end up with no chargeable income. Exercise of this option is subject to the irrevocable written consent of the originator or assignor.


Tax Treatment of Ceding Undertaking

The amount of deductions claimed by the securitisation vehicle and relating to:

• the cost of acquisition of the securitisation assets; or

• the cost of the assumption of risk; or the Further Deduction referred to above;

are all deemed to be income in the hands of the ceding undertaking, and shall be regarded as income or gains from a business or trade.

The Tax Deductions Rules provide that income so attributable to the ceding undertaking is considered as arising in Malta unless the control and management of the business of the ceding undertaking is exercised outside Malta. Thus, such income would only be liable to Maltese tax in the hands of the ceding undertaking if it is:

• either incorporated in Malta; or

• incorporated outside Malta but is tax resident in Malta by virtue of its control and management in Malta

Other ceding undertakings will not be liable to Maltese tax in respect of such income.


Malta Reinsurance Special Purpose Vehicle Structure