Malta’s positioning as an international EU-based fund and fund management domicile presents a compelling proposition for fund managers either planning to set-up/re-domicile their fund(s) in/to Europe or setting up/relocating their fund management operation in/to Europe. The growth of Malta as a fund domicile has so far been spearheaded by the registration of various professional investor funds (PIF) falling under the PIF regulatory framework introduced by the Malta Financial Services Authority (MFSA), Malta’s single regulatory body, in the year 2000. Currently there are over 600 investment funds authorised by the MFSA consisting of PIFs, private equity and UCITS schemes. The regulatory framework is supported with an equally comprehensive legal framework allowing such funds to be set up as SICAVs, limited partnerships, trusts and contractual funds. As a result, Malta has recently been voted as Europe’s most favoured fund domicile by HFMWeek.
Malta is increasingly enjoying recognition as a fund domicile of repute because not only does it fulfil all the following criteria, but also boasts comprehensive legal and regulatory framework falling under the auspices of a single regulator, the Malta Financial Services Authority: 1. Jurisdiction location and time zone
The geographic location of the domicile has multiple ramifications on various other business and operational considerations such as: the location of the end investors; the ease of access to the jurisdiction in terms of flight connections; and the time zone of the domicile and its implications on the valuation of the investments held by the fund and its service providers.
Malta’s geographic location right in the middle of the Mediterranean makes it an ideal gateway to the EU for non EU financial services firms and, an open door to the financial services businesses of the Arab world.
2. Economic and political status of the jurisdiction
The development of the jurisdiction’s fund industry is, among other things, highly dependent on the presence of a robust and resilient banking sector which I consider as being the backbone of any developed or developing financial services jurisdiction.
With respect to Malta’s economic and political stability, despite the crisis that had hit the Eurozone countries in 2008, Malta has managed to boost its competitiveness and fiscal stability in the last five years. Malta’s banking sector was also ranked as 13th soundest out of 144 countries by the World Economic Forum.
3. Language barriers
International communication difficulties are often cited as concerns, and validly so as the day-to-day operational workflows linked to the services of a fund are, to a significant extent, dependant on the presence of a workforce where English (or any other language) needs to be widely spoken (and written). While Malta has its national Maltese language, English is spoken throughout the islands and is considered an official language of the country.
The English language is widely spoken in Malta with legislation written in both English and Maltese with the former taking precedence in the case of any necessary legal interpretations.
4. Legal and regulatory framework
These must be both comprehensive and efficient. The recent interest in UCITS structures will be beneficial for the European funds industry for this reason. Equally important, the introduction of the AIFM Directive has contributed and continues to strengthen the growth of those fund managers that will fall within its remit.
5. Operational and service framework
The presence of a highly developed operational and service infrastructure is also a critical factor. The quality of service providers is of key importance to investors and fund managers as is the availability of experienced/competent support services, such as legal and accounting firms, fund administrators and the availability of skilled directors in which Malta is rich.
The operational and service framework continues to grow with the formation of an industry cluster consisting of not only alternative investment and private equity funds, but also the presence of global custody services providers.
Notable is the strong presence of all the top four audit firms. Equally, Malta’s legal firms are multi-disciplinary providing advice across a broad range of financial services areas. Firms which are very well-connected with the major international networks such as Lex Mundi, Lexis Nexis, Chambers and Martindale among others 6. Workforce
A skilled and multilingual workforce is equally important, particularly as this reflects on the quality of all the aforementioned services that will be delivered to the fund. Malta’s highly skilled workforce is driven by the presence of an excellent educational system where students seeking to pursue tertiary education are actually paid a stipend by the government.
Malta also has a sophisticated telecommunications infrastructure, with large bandwidth networks providing high capacity communications to and from the island. Digital networks, satellite technology and high capacity fibre-optics link Malta with Europe, and mobile telephony operators provide wireless internet connections based on GPRS technology.
7. Type of targeted investors and their domicile
A jurisdiction close to the investor target market may psychologically have an impact on the ultimate decision as to whether to invest in the fund or otherwise.
8. Time to market
The speed of set-up as translated into the amount of time a fund takes from conception to launch is also significant. An understanding of the way the local authority processes investment applications for investment services licences is necessary, as this will have an impact on the planned execution in a timely manner of the business plan for the fund and the fund management company.
With the introduction of the Notifed Alternative Investment Fund Regime, new setups are now able to begin function within solely ten days of notifying the MFSA.
9. Set-up and ongoing costs
These critical factors will ultimately have a bearing on the expense ratio of a fund which will, in turn, impinge on its performance. This is particularly applicable to new fund set-ups, especially those that are launched with relatively low seed capital e.g. below €25m. Malta’s regulatory processing efficiency is becoming increasingly notable as are the highly competitive set-up and ongoing costs to operate a fund in Malta.
10. Tax status
The importance of structuring a fund in a tax-efficient way will always be paramount as this will bring with it the possibility to benefit from the domicile’s double-tax treaty network. Likewise, the jurisdiction will need to provide the most advantageous taxation scheme for the investors. Malta also has in place over 70 double tax treaties with both EU and non EU countries which lend themselves to the possibility of setting up tax efficient structures.