Malta has been building itself a reputation as a flexible yet onshore EU hedge fund domicile over the past years, with low set-up costs, efficient regulation, a beneficial tax treatment and Malta’s specialised professionals giving the Maltese domicile a competitive edge over other competing jurisdictions.
Hedge funds in Malta are referred to as Professional Investor Funds (PIFs), which are typically non-retail funds which could be either private or public in nature. Since PIFs are considered to be too risky for the public at large, only certain investors, which could either be ‘Qualifying Investors’ or ‘Experienced Investors’ or ‘Extraordinary Investors’, will qualify to invest in PIFs.
A PIF could take different legal forms, but the most common and widely used is that of a SICAV, which is an open-ended collective investment scheme vested with a separate legal personality, and it is formed under the Maltese Companies Act as an investment company with variable share capital.
Conditions for investors
Prospective investors in a PIF (no restrictions as to investor’s country of domicile) must qualify as either ‘Qualifying Investors’ or ‘Experienced Investors’ or ‘Extraordinary Investors’ in order to be permitted to invest in the particular PIF.
Experienced Investors are bound to maintain a minimum investment amount of EUR10,000 each in the PIF.
Qualifying Investors must maintain at all times a minimum investment amount of EUR75,000 each in the PIF.
Extraordinary Investors must maintain at all times a minimum investment amount of EUR750,000 each in the PIF.
The total amount of investment may not fall below these amounts unless such a reduction is a result of a fall in the PIF’s net asset value. Provided the afore-mentioned thresholds are complied with at all times, then additional investments of any amount may be made.
Limitation of investments by the fund
A PIF is subject to the investment objectives and policies outlined in its Offering Document. Otherwise, there are no restrictions on the investment powers of a PIF.
Furthermore, there are no investment leverage or borrowing restrictions if the fund is targeting Qualifying or Extraordinary investors. On the other hand, direct borrowing for investment purposes and leverage via the use of derivatives is restricted to 100% of NAV in funds targeting Experienced Investors.
Requirements in relation to service providers
An external fund manager may be appointed but the fund may also decide not to, in which case the PIF’s board of directors would have to assume responsibility for the scheme’s investment decisions and demonstrate competency in this regard.
A custodian is an external service provider in charge of safe keeping of the assets and must be appointed by a PIF targeting experienced investors. On the other hand, PIFs targeting qualifying investors or extraordinary investors need not appoint a custodian, in which case need to implement internal safe-custody arrangements.
A PIF must appoint an auditor approved by the MFSA. The MFSA may request the PIF to replace its auditor. The MFSA’s consent must be obtained prior to the appointment or replacement of an auditor.
Taxation of the fund and its investors
A Malta PIF is classified as a non-prescribed fund if its assets are predominantly situated outside Malta. Income of a non-prescribed fund is exempt from tax unless the income is derived from immovable property situated in Malta. Assuming the fund invested in is non-prescribed and the investors are not resident in Malta:
(a) Dividends paid by the fund are not subject to any withholding tax or further tax in Malta, and
(b) Gains on the transfer of units should not be subject to tax in Malta, whether such transfer is made through a redemption or otherwise.