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Fund Managers Relocate to Malta

October 2012 - Finance. Legal Developments by Chetcuti Cauchi Advocates.

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Introduction: the Maltese Funds Industry

Malta has experienced consistent growth in the funds sector since the jurisdiction's accession to the EU in 2004, such that today it is legitimate to consider the country as a mature, well-established domicile rather than an emerging one. In fact the jurisdiction now hosts around 500 funds pursuing a variety of strategies, as well as a complete ecosystem of support services providers such as fund administrators, law firms and audit firms. The sector has now evolved to the point where managers are not just using the country as a domicile for funds, but are also increasingly looking at the jurisdiction as a domicile for their fund management operations.

This growth in the number of Malta domiciled fund managers is being driven by two sets of factors, namely:

Malta's Business Environment

Malta has, over the last two decades, striven to create an environment that is conducive to the development of international business and entrepreneurship. There are therefore a number of elements that make the jurisdiction attractive for any kind of business, not just fund management. These include the country's low cost base; its accessibility from major centres such as London, Milan, Zurich, Paris and Dubai; the availability of a well educated, English speaking workforce; and the existence of a broad network of professional service providers. Thanks to a system of tax refunds companies domiciled in Malta may also benefit from a highly competitive fiscal regime.

In addition to these factors, there are a number of arguments that apply more specifically to the financial services industry. Foremost among these factors is the attitude of the local regulator, the Malta Financial Services Authority (MFSA). The MFSA is a European regulator which requires adherence to the highest European standards, but nevertheless retains a very high level of approachability, and a sensible approach to problem solving. In more practical terms, this means that face to face meetings with the regulator can be secured within a matter of days, and the regulator takes the time to discuss solutions in an open and frank manner. This is a key advantage during a period when regulation is changing very rapidly. At the same time, thorough due diligence is conducted on every applicant, with new entrants being required to submit detailed documentation and references, which are then vetted by the regulator as part of a rigorous process.

Mindful of the importance of ensuring that human resources are maintained a level sufficiently high to sustain this growth, Malta has also introduced a special flat rate of personal tax for highly qualified professionals in the financial sector: the Malta Highly Qualified Persons Rules. Essentially this rule provides that, given the fulfilment of a number of conditions, the professional would be subject to flat rate of tax of 15%. This is allowing Malta to also grow its human capital as a financial services centre.

Another key advantage is the fact that Malta is a full EU member state. This means that financial businesses authorised in Malta gain access to the passporting rights introduced by the various directives promulgated in accordance with the Financial Services Action Plan (such as the Markets in Financial Instruments Directive for investment firms). A financial services business could therefore choose Malta as its domicile, triggering the various advantages that that entails, and use the jurisdiction as a platform from which to target the whole European market. Customers dealing with Maltese institutions also get the comfort of knowing that they are dealing with businesses which are regulated in accordance with high regulatory standards.

Regulatory developments at European level

The arguments outlined above apply in a fairly similar way to financial businesses across the board. There is however another factor that has been leading fund management companies to choose Malta as their domicile; the Alternative Investment Fund Managers Directive (AIFMD). AIFMD, which comes into force in 2013, will introduce an EU-wide passport for alternative investment fund managers which are domiciled within the EU. A Maltese fund manager regulated under the AIFMD would be able to enjoy broad freedoms to both manage as well as market funds throughout the EU. Note that under the de minimis provision, smaller managers with less than a hundred million Euro under management will not be regulated by the AIFMD, meaning that they would not automatically enjoy passporting rights, unless they opt-into the directive. It should be noted that at the same time as introducing an EU passport, the AIFMD will also make marketing for non-EU managers somewhat more difficult (though not as much as initially feared). Clearly this is creating an incentive for non-EU fund managers to reconsider their domiciliation options.

The Outlook for 2013

Taken together, the two sets of factors make the argument for the domiciliation of fund management companies in Malta a very persuasive one for fund managers. It is expected that over the coming months interest in the jurisdiction will increase sharply, as more fund managers become conscious of the forthcoming changes in the regulatory landscape.

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