Setting up a Fund in in Malta A Step by Step Guide Attractions of - - PowerPoint PPT Presentation

Setting up a Fund in in Malta

A Step by Step Guide Attractions of f th the Regimes

TECH

CHNICAL EXCE CELL LLENCE.

. PRACTICAL SOLU

OLUTIONS

A Steep Increase in the Total Number of Funds Domiciled in Malta

520 540 560 580 600 620 640 2011 2012 2013

PIF Licences were up by 6.5% from 2012 to the end of 2013

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

• A Broad Array of Structuring Solutions:

Fund Structures Range from utilising stand alone funds, umbrella funds and fund platforms. Also, Malta offers the use of Professional Investor Funds, Alternative Investment Funds, UCITS and Private Funds.

• A Responsive Regulator:

The MFSA’s high degree of accessibility and responsiveness boosts Malta’s allure as an attractive fund domicile.

• A High Degree of Regulatory Protection:

Malta’s investor protection laws and regulatory framework has attracted a number of international fund managers onshore as it enables them to use Malta’s badge of quality as a key selling point.

• Low Set-Up Costs and Professional Fees.

The Key Reasons Underpinning Growth. What Makes Malta An Attractive Fund Domicile?

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Overview of Types of Funds in Malta

Targeting experienced investors Targeting qualifying investors De Minimis AIFs Full Scope AIFs UCITS Retail Schemes AIFs PIFs Targeting extraordinary investors

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

The Structures Available

Collective Investment Schemes (whether PIFs or AIFs) may be set up as closed-end funds, open-ended funds, or a combination of both, and may assume a variety of legal forms:

• Investment Company with Variable Share Capital (SICAV)
• Investment Company with Fixed Share Capital (INVCO)
• Limited Partnership
• Unit Trust
• Contractual Fund
• Incorporated Cell Company (ICC)

Due to their liquid nature, UCITS funds must be structured as open- ended funds. With the exception of INVCO’s, UCITS funds can assume any of the legal forms above listed.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Professional Investor Funds (“PIFs”) in Focus

Following the implementation of the AIFMD, the MFSA has retained its highly successful PIF regime. The PIF brand which boasts a lighter, more flexible regulatory regime than that applicable to UCITS and AIFs may continue to be availed of by sub-threshold-AIFMs and Third Country Managers. PIFs fall into one of three categories, depending on the wealth and experience of fund investors:

• PIFs targeting Experienced Investors;
• PIFs targeting Qualifying Investors; and
• PIFs targeting Extraordinary Investors.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Main Advantages of PIFs

PIFs may be structured to invest in a variety of assets, ranging from plain vanilla equity and debt securities to more complex assets classes such as private equity, infrastructure and bespoke derivatives. PIFs boast a number of advantages over AIFMD-compliant AIFs. PIFs targeting Qualifying and Extraordinary Investors are not subject to any investment restrictions and limitations on the use of leverage. Moreover, no custodian needs to be appointed for PIFs targeting Qualifying and Extraordinary investors.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Characteristics of Experienced, Qualifying and Extraordinary PIFs

Experienced PIF Qualifying PIF Extraordinary PIF Minimum Investment (€) 10,000 75,000 750,000 Investment Restriction Direct borrowing for investment purposes and leverage through the use

• f derivatives is restricted

to 100% of NAV. Other investment restrictions apply. None, unless the fund invests in immovable property None Fund Manager Optional, self-managed PIFs allowed Optional, self- managed PIFs allowed Optional, self- managed PIFs allowed

Experienced PIF Qualifying PIF Extraordinary PIF Administrator Optional Optional Optional Custodian/Prime Broker Required Optional, provided that there are adequate safekeeping arrangements Optional, provided that there are adequate safekeeping arrangements Money Laundering Reporting Officer & Compliance Officer Required Required Required Auditor Required Required Required Offering/Marketing Documents Must prepare an

• ffering document

Must prepare an

• ffering document

Must prepare an

• ffering document or

a brief marketing document

Characteristics of Experienced, Qualifying and Extraordinary PIFs

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Two Drawbacks of the PIF Regime

• The PIF regime is not available to AIFMs whose AuM exceed the AIFMD’s

de minimis thresholds (Eur100M or Eur500M (for unleveraged funds with a lock-up period of 5 years) unless they opt to become AIFMD compliant leading to 2 regulatory regimes ; and

• PIFs can only be distributed on a private placement basis.
• AIFMs wishing to reap the benefits of the Single Market may hence

choose to ‘opt in’ to the full AIFMD regime in order to passport their funds on a pan-European basis.

• Managers can structure their funds as AIFs.

What Solutions are Available?

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Swiss Fund Manager EU Target Market Malta Domiciled AIF

Scenario One:

Swiss Fund Manager, Managing a Maltese AIF, Targeted Towards EU Investors

Options for Swiss Fund Managers

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

• During Timeframe 1, marketing will be regulated by the

national private placement regimes (“NPPR”) of each Member State. During this period, Swiss Managers may sell EU AIFs on a private placement basis to investors in the EU.

• If the private placement route is chosen, Swiss managers will
• nly have to comply with a limited number of provisions of

the AIFMD, namely the provisions governing ‘Transparency’ (Articles 22-24) and those governing ‘Controlling Interests’ (Articles 26-30).

• Swiss managers availing of this option must be aware that

the availability and scope of private placement rules vary widely across different Member States. This could make article 42 ‘private placements’ a thorny avenue to pursue.

Options for Swiss Fund Managers

Swiss Fund Manager, Managing a Maltese AIF, Targeted Towards EU Investors

Timeframe 1: Concluding Mid-2015

National Private Placement Rules Applicability

• f AIFMD

Controlling Provisions Applicability

• f AIFMD

Transparency Rules

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

• From mid-2015, Swiss AIFMs may opt for passporting rights

subject to fulfilling all the requirements of the Directive. In

• rder to obtain a passport, Swiss Managers must be licensed by

the regulatory authority of their Member State of Reference.

• In order to be eligible for a license the Swiss AIFM must appoint

a legal representative in Malta.

• It is notable that at the end of Timeframe 2, ESMA may decide

to disallow private placements.

Options for Swiss Fund Managers

Swiss Fund Manager, Managing a Maltese AIF, Targeted Towards EU Investors

Timeframe 2: Mid-2015 until 2018

Member State of Reference Passport Full Directive Applicability

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Scenario Two:

Swiss AIFM, Managing a Maltese AIF, Marketed in a Third Country

Options for Swiss Fund Managers

Swiss AIFM Malta Domiciled AIF Third Country Target Market

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Options for Swiss Fund Managers

Swiss AIFM, Managing a Maltese AIF, Marketed in a Third Country

Where a Swiss AIFM intends to manage one or more Malta AIFs and market the same in a third country, the Swiss AIFM must:

• Before mid-2015, marketing in the third country will be

regulated by the national private placement regimes (“NPPR”) of such third country. Therefore, during this period, Swiss Managers may sell EU AIFs on a private placement basis to investors outside the EU.

• As of mid-2015 (at the start of Timeframe 2) obtain a license

from its Member State of Reference, which in the present example would be Malta. In order to be eligible for a license the Swiss AIFM must appoint a legal representative in Malta which will act as a point of liaison with the MFSA; and

• Comply with the relevant Third Country’s national marketing

regime. At no stage will a passport become available for this type of activity.

Member State of Reference Full Directive Applicability Third Country’s National Regime

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

The Licensing and Authorisation Process

Collective Investment Schemes (“CISs”) established in Malta must obtain a collective investment scheme license under the Investment Services Act, Cap. 370 of the laws of Malta (the “ISA”) before commencing any activity in or from

• Malta. The parties involved in the CIS and the service providers must meet the

MFSA’s “fit and proper” criteria, a process that assesses integrity, competence and solvency. The MFSA responds to license applications expeditiously, particularly if all service providers are based in recognised jurisdictions.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

The Application Process for PIFs/AIFs

The Application Process Consists of 3 Phases:

• Preparatory Phase

Preliminary meetings are held between the applicant and the MFSA to discuss the proposal prior to submitting an application for a license. A draft application form is then submitted together with the supporting documentation, such as the personal questionnaire forms (‘PQs’)

• f the proposed management of the fund.
• Pre-licensing Phase

The MFSA issues an “in-principle” approval for the issue of a license after the applicant finalises any outstanding matters. Signed copies of the application form together with supporting documents in their final format are submitted.

• Post-licensing Phase

The applicant may be required to satisfy certain post-licensing matters prior to the formal commencement of business.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Supporting Documents

Together with the application form an applicant must submit the following:

• 1. Draft offering document or marketing document;
• 2. Draft memorandum and articles of association;
• 3. Draft board of directors resolution;
• 4. Application fee;
• 5. Details of the Directors of the PIF/AIF;
• 6. Details of the Founder shareholders holding more than 10% voting shares.

Supplementary application documents are required in the case of a self-managed PIF/AIF. Such documentation includes:

• 1. PQs and detailed CVs of members of the Investment Committee or Portfolio Manager;
• 2. Terms of reference regulating the procedures of the Investment Committee.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Local Presence Requirements

In order to be granted a collective investment scheme license, the applicant must have its registered office in Malta. In the case of externally managed PIFs, the fund must have one local director. Conversely, in the case of self-managed PIFs, the fund must establish an in-house Investment Committee (“IC”) made up of at least three members, wherein once IC member must be local. Additionally, irrespective of whether the PIF is internally or externally managed, it must appoint a local compliance officer, who may also act as the fund’s money laundering reporting officer.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Taxation

Third Party Manager A mix of the full imputation of tax system and refund system would result in a partial non- taxable refund of the tax paid by the manager, upon the distribution of dividends. The PIF/AIF CISs investing more than fifteen per cent of their assets outside Malta are exempt from income tax and capital gains tax on the revenue generated from their investments. CISs are neither subject to value added tax (VAT) for the supply of services outside Malta.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Taxation

Investors in the CIS Non-resident investors are exempt from income tax and capital gains tax on the dividend received and the income received from the transfer of their participation or shares in the CIS. No stamp duty is payable by investors on a transfer of their participations in the CIS Highly Qualified Employees Certain highly qualified persons employed by the CIS may be eligible for a reduced flat rate of income tax of fifteen per cent. Double Taxation Treaties PIFs/AIFs may benefit from Malta’s extensive network of double-taxation treaties with around 58 countries, most of which are modelled on the OECD model

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Malta Stock Exchange

PIFs/AIFs may increase their investor base by applying for listing on the Malta Stock Exchange (‘MSE’). A PIF/AIF listed in Malta may seek listing on foreign exchanges. The MSE offers a solid infrastructure and an international footprint as it is a member of international organisations, and has been designated a recognized stock exchange for tax purposes by the HM Revenue in the UK.

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Fees

PIF/AIF Fee Application Fee (€) Annual Supervisory (€) Scheme 2000 2000 Per Sub-Fund 1000 600

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS

Thank you for your attention

TECHNICAL EXCELLENCE. PRACTICAL SOLUTIONS