Dr Antonia Zammit considers the growth of the investment services and fund industry in Malta and its bid to become the European fund domicile of choice.
The outstanding performance in the investment services and fund industry in 2010 is a clear indication that Malta’s robust yet flexible investment services and fund regime has been tried, tested and is now much sought after by the industry. It has, in fact, been a record year in terms of the number of investment funds and fund management companies that have relocated to Malta, primarily from offshore jurisdictions.
The introduction of the legislative framework in relation to the continuation of companies to Malta is not recent. The Continuation of Companies Regulations was introduced in 2002. The regulations were used sporadically throughout the years but it is only in the last couple of years that they have proved to be an extremely beneficial tool for the further development of Malta’s ever growing financial services industry.
The Malta Financial Services Authority has recognised this increase in demand by investment fund promoters to re-domicile investment funds to Malta and in fact, at the beginning of 2010, issued guidelines entitled “Guidelines on re-domiciliation of offshore Funds to Malta” to facilitate the regulatory process undertaken by the investment funds that decide to re-domicile to Malta.
The result of re-domiciliation is that an investment fund moves from one domicile of choice to another. It is the change in nationality of the investment fund whereby the company is not dissolved and another company formed, but the fund ceases to be registered in the exit jurisdiction and once the required procedures are carried out, is registered as a Maltese company with the registrar of companies in Malta. The investment fund is then subject to Maltese company law, which incorporates the EU Company Law Directives, and Maltese tax law. The investment fund is then also subject to the Maltese regulatory framework, whereby it is required to seek authorisation and obtain a licence by the Malta Financial Services Authority on its relocation to Malta.
The possibility of re-domiciling an existing investment fund from a third country is an important facility, in that it does not give rise to the crystallisation of capital gains for investors. The assets remain untouched, with no need to be transferred or adjusted. Also, the custody or prime brokerage agreement may remain in place since Malta offers the possibility for the setting up of funds where the service providers need not be based on the island. The MFSA finds no need for the principal service providers to be based in or regulated in Malta so long as they are based in an equally reputable jurisdiction.
The process involved in respect of the re-domiciliation of an investment fund to Malta is relatively straight forward. The company must be a body corporate registered or incorporated in an “approved country or jurisdiction”. The MFSA permits the re-domiciliation of companies from all EU, EEA and OECD member states as well as the Bahamas, Bermuda, the British Virgin Islands, The Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey and the Mauritius, to name a few. Also, the law of the exit jurisdictions and the company’s constitutive documents must provide for the option for the continuation of companies.
The list of documents required by the Registrar of Companies in Malta is reasonable - a resolution taken by the shareholders holding the voting rights of the foreign investment fund, authorising the re-domiciliation to Malta; a good standing certificate issued by the exit jurisdiction’s registrar of companies; a declaration signed by at least two directors of the fund, as well as a legal opinion confirming a number of issues regarding the status of the investment fund.
The uncertainty posed on third country managers and investment funds by the proposed Alternative Investment Fund Managers Directive has resulted in a number of already existing investment funds moving to Malta. The latest draft of the Directive, which is in its final leg of the approval stage and which is set to be implemented by all member states of the European Union by 2013, has resolved a few of the uncertainties in respect of non-European fund managers marketing non-European funds in the European Union. However, there still remain restrictions which concern offshore investment funds interested in European investors and consequently, such funds will continue to shift their operations onshore.
Once a decision is taken by the investment funds to move onshore, the next decision is: where to? Malta has become a favourable jurisdiction not only because of re-domiciliation procedures but also due to a number of other features that give Malta that winning formula. Malta is renowned for having a sophisticated legal framework. Maltese law is primarily civil law based, having adopted throughout the years a number of interesting common law concepts, especially in the company law sphere. The combination of the two legal systems provides for a variety of legal structures for fund promoters to choose from. The most popular legal framework when setting up funds in Malta is the SICAV, due to its flexibility. SICAVs may issue multi-currency classes of shares and may be set up as single fund structures or as umbrella structures with segregated sub-funds. Classes of shares in a SICAV may also have different features - such as different rights, different fee structures and different entry requirements.
Malta’s popularity as a financial services centre has increased tremendously also because of the investor protection mechanism included in the legal system. The segregation of assets and liabilities pertaining to a sub-fund in an umbrella structure, from those of other sub-funds in the same umbrella structure, is also a very attractive feature.
Another winning asset is the quality of the human resources Malta has to offer. The widespread use of the English language and its strategic geographical position are also key features of this jurisdiction.
Investment funds registered in Malta are exempt from paying any tax on their income or capital gains unless these are made from assets situated in Malta. The large number of double taxation agreements Malta has entered into is also beneficial in attracting more investment funds to the island.
Indeed, Malta has experienced significant growth in 2010 as a fund domicile in view of its status as an onshore financial centre having a legal and regulatory framework which is flexible yet still having sound supervisory practices. Despite the encouraging positive performance being experience, Malta is determined to strive to maximize its potential and become the European fund domicile of choice.
Antonia Zammit, Ganado & Associates, Advocates, Malta