Collective Investment Schemes

Licensable activities

A licence is required for a Collective Investment Scheme if such Collective Investment Scheme:

• shall issue or create any units or carry on any activity in or from Malta;

• is formed in accordance with, or existing under, the laws of Malta and shall issue or create any units or carry on any activity in or from within a country, territory or other place outside Malta.

The MFSA has the power to exempt schemes that are essentially “private” in nature and purpose.

The Custodian

As a general rule, the Custodian of a Scheme should be established in Malta, but alternative custodial arrangements may be considered by the MFSA, as long as they achieve adequate protection for Unit holders and for the Scheme’s assets.

The Manager

The Management Company of a Scheme should have an established place of business in Malta. However, the MFSA has the power to exempt from the licensing requirements an overseas management company or administrator of sufficient standing and repute.

Criteria for the grant of CIS Licences

When considering whether to grant or refuse a Licence, the MFSA has, in particular, to have regard to:

• The protection of investors and of the general public;

• The protection of the reputation of Malta;

• The promotion of competition and choice;

• The reputation and suitability of the applicant and all other parties connected with the Scheme.

1. Open Ended Investment Companies (SICAVs)

A SICAV is an investment company with variable share capital. The objects of this type of company consist of the collective investment of its funds in securities and in other movable and immovable property with the aim of spreading investment risk. A SICAV can be established both as a public company and as a private company. The investor of a SICAV can realise his investment either through the sale of his shares or redemption.

2. Close Ended Investment Companies (INVCOs)

INVCOs are companies having a fixed share capital. The aim of such companies is also to spread investment risk and to give its shareholders the benefit of the results of the management of its funds. INVCOs can only be established as public limited liability companies.

3. Mutual Funds

Mutual funds are non-corporate funds whereby contractual arrangements are made between the management company and its investors. The investor entrusts the management company with a pool of funds pursuant to a declared investment policy. A collective investment scheme may apply for a primary listing on the Malta Stock Exchange. It may also apply for a secondary listing if it is already listed on an exchange somewhere else. The main benefit of listing is that capital gains made by the investor on the disposal or transfer of a holding are exempt from tax.

Fiscal provisions

The fiscal provisions relating to the taxation of funds and investment services companies are designed to complement the Investment Services Act (ISA) and to create a fiscal regime which allows for the rapid development of a funds industry in Malta, both at a domestic and international level.

Collective Investment Schemes have generally taken the form of:

• Funds (SICAVs); and

• Unit trusts.

ISA licensed funds are exempt from tax in Malta and, as a result, are specifically excluded from benefiting under Malta’s double taxation treaty network. Capital gains realised by the fund remain exempt from tax in Malta. A collective investment scheme that opts to pay tax is entitled to treaty relief as well as other methods of reducing the impact of double taxation.

Maltese residents may invest in ISA funds and are subject to a 15% final withholding tax on distributions received from the fund and on any gains made through the redemption of shares or units in the fund. The final withholding tax regime applies to both Maltese individuals and Maltese companies. No further Maltese tax is payable on receipts from ISA funds and there is no requirement for individuals to disclose the income or gains received from ISA funds on their income tax returns. To the extent that the amounts received are disclosed in an income tax return, the tax deducted is available as a credit against the total tax liability of the Maltese investor. Non-residents receiving dividends out of a scheme’s foreign sourced income are entitled to a refund of Malta Tax paid. This refund will normally be two-thirds of the Malta tax paid by the scheme. In certain exceptional circumstances the refund may increase to 100% where the dividends being distributed by the Scheme derive from a “participatin holding” the main qualifying criterion being a holding of at least 10% of the equity shares in a foreign body of persons.

In addition, in respect of all Collective Investment Schemes and funds, there is:

• No stamp duty on share issues or transfers;

• No tax on the net asset value of the scheme;

• No withholding tax on dividends paid to non-residents;

• No taxation on capital gains on the sale of shares or CIS units by non-residents;

• No taxation on capital gains on the sale of shares or CIS units by residents provided such shares/units are listed on the Malta Stock Exchange (MSE).