Recent developments in Malta's growth as a successful international financial centre
Laragh Cassar
Camilleri Preziosi
Valletta
Laragh Cassar (Bio)
Malta's financial services sector is growing steadily. It currently generates about 12% of the island's GDP and it is foreseen that this contribution shall increase to up to 25% of the island's GDP by 2015. The Global Financial Services Index published by the City of London ranked Malta as the fourth financial services centre which is most likely to gain importance in the next few years. Malta is also ranked 52nd among 133 economies in the global competitiveness table, the 13th soundest banking sector and 13th in the financial sophistication category.
Malta funds
Malta is becoming increasingly popular as a fund jurisdiction. This is evidenced by the 410 funds registered in Malta worth €8 billion and 108 new fund licences issued in 2010. The current success and the constant growth of the sector are attributable to Malta's domicile proposition to be further enhanced following the full integration of the UCITS IV (Undertakings for Collective Investment in Transferable Securities) and AIFM (Alternative Investment Fund Management) Directive. Malta is in a strong position to increase its share of the EU market, to date largely enjoyed by Ireland and Luxembourg.
One of the main advantages of choosing Malta as an alternative jurisdiction for registration and licensing of a fund is the accessibility and proactive development and flexible yet prudent approach of Malta's single financial services regulator. As a backdrop to this, Malta offers a cost efficient framework both at licensing stage and thereafter. Over the past two decades, Malta's legal system has been constantly updated in order to present a sophisticated and extensive legal framework. This was aimed at attracting foreign funds and other investment service companies to register and operate from Malta.
- Funds in Malta can be set up under various legal structures:
- Investment Company with fixed (INVCO) or variable (SICAV) share capital;
- Limited Partnership;
- Unit Trust;
- Contractual fund
- Incorporated Cell Companies
Notwithstanding the array of alternative vehicles, the most popular form of structure utilised in the setting of funds remains the SICAV. The SICAV can be structured to include master feeder funds and umbrella funds. Furthermore, each sub-fund is deemed to constitute a patrimony separate and distinct from other sub-funds thereby securing sound ring fencing.
2011 amendments within the legislation of the fund industry
In 2011, new regulations were introduced in order to provide for the establishment of incorporated cell structures specifically adapted to funds. This was an extension of the existing insurance cell companies. The Incorporated Cell Regulations however go a step further by allowing the registration and licensing of "Incorporated Cells" structured with different "patrimonies" under the umbrella of the Incorporated Cell Company (ICC). Under the new regulations each Incorporated Cell Company has separate legal personality and is treated as a separate company forming part of the ICC scheme.
As a principle each incorporated cell of an incorporated cell company is required to be licensed separately, and must also have its own memorandum and articles of association, which will be different to those of the other incorporated cells and the ICC. Being a separate company, each incorporated cell may have its own board of directors and company secretary but it is not precluded from having the same board of directors and company secretary as its ICC. The Regulations also provide that the financial statements of an incorporated cell do not consolidate with those of other incorporated cells except (unless constituting a subsidiary of the incorporated cell company and only to such extent). The Incorporated Cell Company Legislation is not common in other jurisdictions and thus this innovative approach is attractive for investors who aim to reduce the set-up costs and operating costs of an investment vehicle by sharing such costs but retaining a certain level of independence in decision-making and administration for each cell. This is particularly attractive for fund platforms.
Highly qualified persons tax treatment
An additional incentive which aims to attract more foreign investment to Malta is the creation of the scheme regulating qualifying individuals who may opt to be taxed at the flat rate of 15% on income which is received as from January 1 2010 in terms of a 'qualifying contract of employment' relating to activities which are carried out in Malta. A contract is deemed to be such if in respect of a particular year of assessment it provides a minimum annual income of €75,000. This flat rate is available up to a maximum of €5 million, with the remaining balance being exempt from tax. The person must be employed by a licensed company, or is otherwise in senior positions specified by the MFSA. The 15% flat rate applies for five consecutive years for European Economic Area nationals and for four consecutive years for nationals of other States.
Financial collateral
Malta is, and continues, to be a popular jurisdiction in cross border financing structures. The traditional provisions of Maltese law dealing with security interests have been updated to bring Maltese legislation in line with the Financial Collateral Directive. In fact, on the June 30 2011 further amendments were enacted pursuant to which financial collateral was, inter alia, extended to cover credit claims and to provide for a swift identification thereof and ensuring an efficient perfection of thereof. The Regulations refined the provisions of the enforcement of pledges over shares in a private Maltese limited liability company by removing the requirement on a pledgee to offer the pledged shares to the remaining shareholders prior to enforcing the pledge notwithstanding the absence of pre-emption rights in the company's constitutional documents.
The Maltese Civil Code was also amended to regulate title transfers (previously substantially unregulated) pursuant which the collateral giver transfers or assigns movable things so as to secure a present or future obligation. When the debtor has performed the secured obligations the collateral taker is bound absolutely to return the property to the collateral giver.
The above are mere examples of incentives that highlight Malta's relentless reinforcement of its legal framework in order to continue to enhance its growing reputation as an emerging global financial services centre.