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PIFs

A Professional Investor Fund (PIF) is a special class of a collective investment scheme (CIS) which is subject to a much lighter and more flexible regime than UCITS, AIFs and other retail funds.

 

Qualifying Investor

Following amendments introduced during 2016, PIFS may be promoted to a qualifying investor who is defined as an investor that invests a minimum of €100,000 in the PIF and which may not, at any time, be reduced below this minimum amount by way of a partial redemption.  

A qualifying investor may be one of the following:

  • is a body corporate which has net assets of more than €750,000 or which is part of a group which has net assets of more than €750,000 or, in each case, the equivalent thereof;
  • is an unincorporated body of persons or association which has net assets of more than €750,000 or equivalent;
  • is a trust where the net value of the trust’s assets is more than €750,000 or equivalent;
  • is an individual whose net worth or joint net worth with that of the person’s spouse, exceeds €750,000 or equivalent; or
  • is a senior employee or director of a service provider to the PIF.

The fund is required to obtain a Declaration Form in which the qualifying investor confirms that he/she/it has read and understood the mandatory risk warnings and describes why he/she/it has satisfied the applicable requirements to be considered a qualifying investor.

It should be noted that the total amount invested may not fall below the established threshold of €100,000 unless this is the result of a fall in the NAV. Furthermore, provided that the minimum threshold is satisfied, additional investments of any size may be made. The minimum investment applies to each investor. However, in the case of an umbrella fund comprising several sub-funds, the respective thresholds are applicable on a per scheme basis rather than on a per sub-fund basis, thereby enabling the investor to spread the investment requirement across the various sub-funds.

A PIF is exempt from risk spreading and/or diversification requirements and is not subject to borrowing or leverage restrictions other than those which may be specified in the offering document.  A PIF is required to issue an offering document setting out the nature, structure, objectives, risks and functionaries of the fund. The offering document must be submitted to the MFSA before being circulated to the investors.

 

Legal Structure

Whilst the structuring of any fund will depend upon the promoters’ specific objectives and preferences, typical set-ups would involve the creation of voting shares issued to the fund’s promoters, providing them with the effective control over the structuring and general operation of the fund, whilst non-voting shares are issued to investors in the fund. Any changes to the rights attaching to the voting shares, redemption of such shares, and/or issue of additional voting shares will always require the prior approval of the MFSA.

A PIF may be set up as an investment company with variable share capital (“SICAV”), an investment company with fixed share capital (“INVCO”), a limited partnership, a unit trust or a common contractual fund. Usually, clients opt for the corporate form (SICAV) for various reasons, including operational flexibility.

A CIS may be structured as a multi-fund (umbrella) scheme, with a number of sub-funds thereunder, constituted by one or more different classes of shares (which may be denominated in different currencies). The assets and liabilities of each sub-fund are considered to constitute a separate patrimony distinct from the assets and liabilities of (and ring-fenced from the creditors of) the other sub-funds.

Furthermore, it is possible for a CIS in the form of a SICAV to be constituted as an incorporated cell company (“ICC”). The ICC may establish one or more funds as incorporated cells, each cell being a limited liability company (SICAV or INVCO) with separate legal personality (unlike the sub-funds of a multi-fund SICAV, which may have their assets and liabilities treated as a separate patrimony but do not have legal personality separate from that of the SICAV) and requiring a CIS licence independently from the ICC. It is also possible to set up a Recognised Incorporated Cell Company (“RICC”).  The RICC is constituted as a limited liability company, which may establish incorporated cells in the form of SICAVs or INVCOs, and which purports to provide such incorporated cells with administrative services. The RICC is required to obtain recognition from the MFSA for the provision of administrative services, while each incorporated cell must obtain a CIS licence. The rules on ICCs and RICCs are designed particularly to accommodate fund platforms.

 

Board of Directors

The Board of Directors of a PIF must be composed of one or more directors independent from the Manager and the Custodian. In practice, however, it is typical for two or more directors having experience in the financial services industry to be appointed, in order to ensure dual control of the fund’s business. In the case of a self-managed fund, this issue of independence between the fund manager and the fund does not exist since the fund will be managed by its own directors and investment committee, if appointed.

The Scheme is required to obtain the written consent of the MFSA before the appointment or replacement of a Director. Furthermore, no Corporate Director shall be appointed unless it is regulated in a reputable jurisdiction and the name/s of the person/s who will represent the Corporate Director on the Board of Directors of the PIF are disclosed to the MFSA. In approving prospective Directors of a PIF, the MFSA will, as a matter of procedure, consider:

  1. their collective expertise in matters relating to PIFs;
  2. prior experience of the prospective Directors on fund boards; and
  3. knowledge on matters relating to principles of good corporate governance and regulatory issues.

 

Fund Management

The management arrangements for a PIF may be structured in one of two ways:

  1. Managed by an external fund manager; or
  2. A self-managed fund.

 

External Manager

Where an external manager is appointed, such manager may be established in Malta or outside Malta. If established in Malta, the proposed manager should be in possession of a Category 2 Investment Services Licence and be duly licensed and authorised by the MFSA to provide investment management services to collective investment schemes. On the other hand, if the manager is established outside Malta, the MFSA will conduct its “fit and proper” test in respect of the manager to ascertain whether it possesses the business organisation, systems, experience and expertise deemed necessary by the MFSA for it to act as Manager.

In the event the PIF appoints an investment manager that is licensed as an Alternative Investment Fund Manager (AIFM), the PIF would be become subject to an additional layer of regulation to render it compliant with the Alternative Investment Fund Manager Directive (AIFMD). It is for this reason that the PIF regime is more suitable for managers having assets under management (AUM) of less than €100 million (leveraged) or €500 million (unleveraged).

 

Self-Managed Fund

In the interests of simplifying the structure, it is also possible that the fund is established as a self-managed fund. Doing so would effectively vest responsibility for the discretionary management of the assets of the fund in the Board of Directors. In proposing this structure, the fund will need to satisfy the MFSA that the fund is capable of organising and controlling its affairs in a responsible manner and shall have adequate operational, administrative and financial procedures and controls to ensure compliance with all regulatory requirements and shall provide the MFSA with all the information it may require from time to time.

Where the fund is self-managed, the Board of Directors may consider appointing an Investment Committee which must be composed of at least 3 persons (who shall be expected to satisfy a full “fit and proper” probity check and competence assessment by the MFSA) and which committee shall be collectively responsible for the day-to-day investment management of the assets of the scheme according to the Terms of Reference established by the Board of Directors and approved by the MFSA. One member of the investment committee should be a resident of Malta.

If the self-managed fund route is followed, the initial, paid up share capital for the scheme should be at least €125,000, or the equivalent in any other currency and the NAV of the Scheme is expected to exceed this amount on an on-going basis.

If a self-managed fund exceeds the AUM thresholds of €100 million (leveraged) or €500 million (unleveraged) it would also be required to comply with specific provisions of the AIFMD.

 

Other Service Providers

Both the administrator and the custodian appointed to service a PIF may be based outside Malta.  PIFs are not required to appoint a custodian, although in such circumstances the fund would be expected to have adequate safekeeping arrangements in place, which must be satisfactory to the MFSA.

The following foreign services providers, appointed in respect of a PIF licensed by the MFSA, are exempt from the requirement to hold a licence or recognition certificate issued by the MFSA under the Investment Services Act:

  • a person resident outside Malta acting as trustee or custodian;
  • a person resident outside Malta providing the services of management of investments and, or investment advice;
  • a person resident outside Malta providing administrative services.

The above-mentioned exemptions are not automatically operative but their applicability is subject to a determination in writing by the MFSA.

PIFs are required to appoint a Compliance Officer, a Money Laundering Reporting Officer and a local auditor approved by the MFSA.

If a PIF effects its investments through one or more SPVs owned or controlled via a majority shareholding of the voting shares either directly or indirectly by the PIF, the SPV(s) must be established in Malta or in a jurisdiction which is not an FATF blacklisted country. In principle, the PIF must through its directors or general partner(s) at all times maintain the majority directorship of any SPV.

 

Enhanced Flexibility

PIFs are permitted to use side pockets in order deal with situations where certain assets within the fund’s portfolio become illiquid or comparatively hard to value, subject to certain conditions.

The use of side letters is allowed, but these must be circulated and approved by the Board of Directors / General Partner / Manager prior to issue, and must be kept in Malta at the registered office and be made available to MFSA for inspection.

Drawdown arrangements, whereby investors commit themselves to subscribe for a maximum amount of units in the fund which may be issued at a discount, are also permitted subject to certain disclosure requirements and other conditions.

 

Application process and fees payable to MFSA

The application for a licence to operate a PIF must be made to the MFSA. The MFSA may only license a PIF if it is satisfied that the PIF will comply in all respects with the relevant legislation, regulations and rules and that its directors and officers, or in the case of a unit trust or limited partnership, its trustee(s) or general partner(s) respectively, are fit and proper persons to carry out the functions required of them in connection with the scheme.

Upon submission of all documentation relative to the licence application in draft form (to the satisfaction of MFSA) and payment of the application fee, it is usually a matter of weeks for the MFSA to issue an in-principle approval in respect of the Fund. This is then followed by a submission of all documents duly signed in original, after which the MFSA issues a licence accordingly.

The PIF may appoint any service provider (e.g. investment manager, adviser, administrator, custodian or prime broker) it deems necessary. Where all service providers are based outside Malta and the PIF has not appointed a local resident director (in the case of a scheme set up as an investment company), a local general partner (in the case of a scheme set up as a limited partnership); or a local trustee (in the case of a scheme set up as a unit trust / common contractual fund), the PIF has to appoint a Local Representative.

The fee structure for fees payable to the MFSA by PIFs and AIFs is as follows:

SchemeSub-funds
Application for a PIF licence€ 2,000€ 1,000 (per sub-fund)
Annual Supervisory Fee€ 2,000€ 600 (per sub-fund)

Taxation

For income tax purposes, a distinction is made between prescribed and non-prescribed funds. Essentially, a CIS that has assets situated in Malta constituting at least 85% of its total asset value is classified as a Prescribed Fund.  Other licensed funds, including funds in an overseas-based scheme, are Non-Prescribed Funds.

In the case of Prescribed Funds, the CIS qualifies for an exemption from tax on income “other than income from immovable property situated in Malta and investment income” earned by the Prescribed Fund. The withholding tax on local investment income is 15% for bank interest and 10% for other investment income.  Income derived by the Prescribed Fund from immovable property situated in Malta is taxed at 35%.

There is no withholding tax on investment income received by Non-Prescribed Funds (including overseas based CISs), which enjoy an exemption from tax on income (other than income from immovable property situated in Malta) and capital gains realised on their investments.  They also enjoy an exemption from stamp duty. There is no wealth tax in Malta.

Foreign investors are not subject to Maltese tax on capital gains or income when they dispose of their investment (through redemption by the Fund or disposal to a third party) or when they receive a dividend or other income from the Fund. They are also entitled to benefit from the stamp duty exemption obtained for the Fund in connection with the acquisition or disposal of their units in the Fund.

How can we help you?

Avanzia Taxand is a corporate services provider licensed by the MFSA and we may assist in the application process, the drafting of documentation in connection with the legal set-up as well as some of the ongoing compliance requirements and filing obligations.

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Credit Institutions

Malta is known to have a stable and successful financial system leading to more business entities being set up in Malta. Following Malta’s accession to the EU in 2004, the financial services sector has grown exponentially and is nowadays one of the main pillars behind the country’s economic growth.  Indeed, despite of the European sovereign debt crisis which at that time had led to loss of confidence in financial institutions, Malta’s financial services sector including the banking sector has remained, and still is, remarkably robust and also thriving.

The Maltese banking sector

The banking sector in Malta is composed of:

  • The Central Bank of Malta who is primarily responsible for maintaining price stability, promotion of a sound financial system and orderly capital markets;
  • The Malta Financial Services Authority (MFSA) who is the single financial services regulator in Malta and is therefore entrusted with the banking licensing, regulatory and supervisory function, and
  • Credit institutions whose principal business is the receipt of deposits and granting of credit facilities as well as other financial services such as retail banking, corporate banking, private banking, business banking and investment banking.  

Banks in Malta are regulated by the Banking Act, 1994 which is founded on EU legislation and is compliant with Basel Core Principles.   

The Basel Committee on Banking Supervision issued a set of reform measures in banking regulation known as Basel III which were transposed into EU law through the Capital Requirements Directive IV (CRD IV) and Capital Requirements Regulation (CRR), together known as the CRD IV package.  The CRD IV package was published in the Official Journal (OJ) of the EU on 27 June 2013. Member States, including Malta, were required to adopt these new laws and regulations with an effective implementation date of January 2014. The aim of these robust regulations was to strengthen the EU banking sector in a manner that banks would be able to absorb economic shocks whilst continue facing economic growth and activity.

As at June 2019, 23 entities held an active MFSA licence to operate as a credit institution in terms of the Banking Act, 1994.  

 

Activities of a bank

The core banking activities are defined as the acceptance of money deposits from the public or raising of money from the public for the purpose of lending to others or otherwise investing for the account and at the risk of the bank.

Besides the business of banking, the activities of a bank may include:

  • Financial leasing;
  • Payments services as defined in the Financial Institutions Act;
  • Issuing and administering other means of payment;
  • Guarantees and commitment;
  • Trading for own account or for account of customers in:

           (a) money market instruments (cheques, bills, certificates of deposit, and similar instruments);

           (b) foreign exchange;

           (c) financial futures and options;

           (d) exchange and interest-rate instruments;

           (e) transferable securities.

  • Participation in securities issues and the provision of services related to such issues;
  • Advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings
  • Money broking;
  • Portfolio management and advice;
  • Safekeeping and administering of securities;
  • Credit reference services;
  • Safe custody services, and
  • Issuing electronic money.

 

Licensing of banks in Malta

The Banking Act states that a company will be granted a banking license if:

  • Its’ own funds amount to not less than €5 million;
  • There are at least two individuals who will effectively direct the business of the credit institution in Malta;
  • The Authority is notified of the identities of the shareholders or members whether direct or indirect, that have qualifying holdings and of the amounts of those holdings or, where there are no qualifying holdings, of the twenty largest shareholders.  In terms of the CRR a ‘qualifying holding’ means a direct or indirect holding in an undertaking which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking;
  • All qualifying shareholders, controllers and persons who will effectively direct the business of the credit institution are suitable persons to ensure its sound and prudent management, and
  • the Authority is satisfied that there are no close links between that company and another person/s which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of the company under the provisions of the Banking Act.

In applying for a banking license with the MFSA, the following documents must be submitted:

  • Form 1 as annexed to Banking Rule 01 –  Application for Authority to Carry Out the Business of Banking in or from Malta;
  • Form 2 as annexed to Banking Rule 01 – Questionnaire for Qualifying Shareholders other than Individuals;
  • In terms of Banking Rule 01 – Personal Questionnaire for individuals who are or propose to be Directors, Controllers or Managers;
  • a copy of the Memorandum and Articles of Association of the institution
  • audited financial statements for the last three years (if applicable);
  • identity of all directors, controllers and managers of the institution;
  • identity of all shareholders with qualifying shareholding; and
  • identity of the individuals who will be effectively directing the business of the prospective bank.

Following the set-up of the Single Supervisory Mechanism (SSM) in November 2014, the European Central Bank (ECB) has become the authority in charge of all banking authorisations in the Euro Area irrespective of the size of the bank.  The rules emanating from the Single Supervisory Mechanism Framework (Regulation (EU) No 468/2014) state that when the National Competent Authority (NCA) receives an application for an authorisation to take up the business of a credit institution to be established in a participating Member State, it shall notify the ECB of the receipt of such application within 15 working days.  The MFSA will assess whether the applicant complies with all the national laws and regulations. If the MFSA is satisfied with the application, it will prepare a draft decision proposing that the ECB grants the application. The latter notification must be performed by the MFSA to the ECB and the applicant within at least 20 working days before the end of the maximum assessment period provided by the Banking Act which stands to be six months.  The ECB will take a decision on the draft authorisation decision it receives from the MFSA within 10 working days. If the MFSA concludes that the application does not satisfy the Banking Act and hence reject the application, it will notify the ECB with its decision.

 

Fees

An application fee of €35,000 is also required upon submission of the aforementioned application.  Credit institutions licensed under the Act must also pay an annual supervision fee of 0.02% of its deposit liabilities as reported at the end of the year immediately before the year in which the fee is payable. This must not be less than €25,000 and not more than €1,200,000.  Companies which are incorporated outside of Malta, but which have representative offices in Malta, shall pay the MFSA a fee of €3,600 every year.

 

Banking structures in Malta

The Maltese Banking Act, prescribes that no business of banking shall be transacted in or from Malta except by a company which is in possession of a licence granted under the said Act unless it is a credit institution licenced in a Member State or EEA State and is exercising its’ right under European Union Law.  In essence, a bank may operate in Malta as follows:

  • A Bank fully licenced by the MFSA, or
  • An EU Bank exercising its right to passport into Malta and establish a branch.  In this case, these branches are exempt from the licensing requirement, however, they are required to register the branch with the Maltese Registrar of Companies within one month from establishing a branch in Malta; or
  • A non-EU licensed Bank establishing a branch of the same bank in Malta. or
  • A representative office of a Bank licensed in another jurisdiction.  The activities must be restricted to purely liaison activities and may not include financial transactions or execution of any documents.  In such cases, the foreign bank must submit a notification to the MFSA that they have an intention of establishing an office.

 

Monitoring and supervision

Upon commencement of activities, Maltese licensed banks are required to monitor the capital adequacy of their own funds in ensuring that they hold sufficient capital against the credit risk, the market risk, the operational risk, the large exposures, and the liquidity and leverage amongst other requirements whilst ensuring that effective policies and procedures and good governance are in place.  The regulations emanating from the CRD IV aim at improving the quantity and quality of capital through the introduction of additional capital buffers in addition to the minimum capital requirement of 8% of the risk weighted assets of which 4.5% of the risk weighted assets must be met with Common Equity Tier 1 Capital whilst also introducing new liquidity ratios (Liquidity Coverage Ratio and Net Stable Funding Ratio), amongst others.

Following the implementation of the SSM, which comprises of the ECB and the NCAs of the EU Member States, a new supervision system has been introduced.  Credit institutions are classified as significant institutions or less-significant Institutions depending on criteria such as the total value of the assets and their economic importance.  The ECB directly supervises institutions classified as significant through the supervision conducted by the Joint Supervisory Teams (JSTs) comprising of staff from both the ECB and the NCA.  JSTs supervise around 1,200 entities (120 groups) which are equivalent to around 85% of the total banking assets of the Euro Area. In Malta the three largest domestic banks, namely Bank of Valletta plc, HSBC Bank Malta plc and MeDirect Group Limited are subject to supervision by JSTs.  The NCAs are directly responsible for the supervision of the less significant institutions which make up to around 3,500 entities. Hence, the ECB is the direct supervisor of the biggest banks and indirect supervisor of the smaller banks. In the case of Malta, the MFSA is also directly responsible for the remaining less-significant Institutions.  Banks are subject to an annual supervisory fee levied by the ECB.

 

Passporting rights

Over the last decade, the Maltese banking sector has experienced a shift towards liberalisation and foreign ownership.  Indeed, highly respected names have established operations in Malta and use Malta as a strategic base for further expansion.  The implementation of the European Passport Rights for Credit Institutions Regulations makes Malta an ideal platform from where a credit institution may establish itself and provide banking services across the EU or EEA and therefore benefit from the EU’s Single Market. Conversely, a credit institution which is authorized by a regulatory authority in a Member State of the EU or the EEA may benefit from the European passport to establish a branch in Malta or provide cross-border services in Malta, without being required to obtain a separate licence from the MFSA.  

 

Taxation

Banks in Malta are subject to the general rules of taxation.  Shareholders may avail themselves from Malta’s full imputation tax system and therefore when in receipt of dividends they are entitled to a tax credit which is equal to the tax borne on the profits out of which the dividends are paid.  Shareholders may also be entitled to tax refunds upon the distribution of taxed profits. Tax refunds may be claimed on all profits excluding interest and any other income derived from the provision of loans which finance the acquisition, development or renovation of Maltese immovable property since such profits are allocated to the Immovable Property Account and no refunds may be claimed.

Malta has a wide network of tax treaties which may reduce the withholding tax rates on dividends, interest and royalties paid to Malta. On the other hand, Malta does not impose or levy any withholding taxes on outgoing dividends, interest and royalties.  

Heavily capitalised banks may also avail from the Notional Interest Deduction Rules which entitle companies to claim a tax deduction equivalent to the notional interest calculated on its equity thus making equity financing on the same level playing field as debt financing for taxation purposes.  Other benefits emanating from the Maltese tax system include the ‘participation exemption’ on profits derived from participating equity holdings and no capital gains on transfer of shares in a non-property company held by non-resident shareholders.

For further details on the Maltese taxation system in Malta, please refer to Corporate Taxation.

How can we help you?

Avanzia Taxand is a corporate service provider registered with the MFSA and we may assist in the application process with the MFSA, the drafting of documentation in connection with the corporate structure set-up as well as some of the ongoing compliance requirements and filing obligations especially those related to secretarial and taxation.

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Payment Institutions

The iGaming industry as well as the e-Commerce industry have significantly increased the need of payment gateways in Malta.  The Maltese authorities have proactively responded to this change and now Malta become a destination of choice for the setting up of Payment Institutions (PI).  Malta has developed an advanced telecommunications infrastructure and offers a highly skilled multilingual workforce making it a supreme destination to the setting up of customer care centres.  

PIs are regulated by the Financial Institutions Act, 1994. In 2017, the European Union (EU) had published the Payment Services Directive 2 (PSD2) (Directive 2015/2366/EU) to be transposed by Member States, including Malta, into their laws and thereby repealing Payment Services Directive 1 (PSD 1). The transposition deadline for its implementation was set to 13 January 2018. The new directive builds on the previous directive and is designed to increase consumer protection, make payments safer and enhance innovation and competition. The regulatory and supervisory requirements for PIs are less rigid than those required for other credit or financial institutions.

Unlike credit institutions, financial institutions cannot fund their activities through the taking of deposits or other repayable funds from the public.  

 

Activities of PIs

PIs may engage in the following activities which are laid down in the Second Schedule to the Financial Institutions Act:

  1. Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;
  2. Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;
  3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider for the execution of direct debits, including one-off direct debits, the execution of payment transactions through a payment card or a similar device and for the execution of credit transfers, including standing orders;
  4. Execution of payment transactions where the funds are covered by a credit line for a payment service user to execute of direct debits, including one-off direct debits, execute the payment transactions through a payment card or a similar device and execute  credit transfers, including standing orders;
  5. Issuing and/or acquiring of payment instruments;
  6. Money remittance;
  7. Execution of payment transactions where the consent of the payer to a payment transaction is transmitted by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting solely as an intermediary on behalf of the payment service user and the supplier of the goods and services.

PIs may also carry out the following additional activities:

  • The provision of operational and closely related ancillary services such as ensuring execution of payment transactions, foreign exchange services strictly in relation to payment services, safekeeping activities, and storage and processing of data;
  • The operation of payment systems;
  • Certain business activities other than the provision of payment services;
  • When payment institutions engage in the provision of payment services, they may only hold payment accounts used exclusively for transactions, and
  • Payment institutions may grant credit related to certain payment services referred to in (4), (5) or (7) above only if further requirements* are met.

* The further requirements are:

  • the credit is ancillary and granted exclusively in connection with the execution of a transaction; and
  • notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed with the act shall be repaid within a short period which shall in no case exceed twelve months; and
  • such credit is not granted from the funds received or held for the purpose of executing a payment transaction; and
  • the own funds of the payment institution are at all times, to the satisfaction of the supervisory authority, appropriate in view of the overall amount of credit granted.

 

Licensing of PIs in Malta

The law lays down the following statutory minimum requirements which must be satisfied and fulfilled before granting a license to a company:

  • Its’ initial share capital is in accordance with the principles established by the law (see below);
  • There are at least two individuals who will effectively direct the business of the financial institution in Malta, that is, “the four eyes” principle;
  • All qualifying shareholders, controllers and all persons who will effectively direct the business of the institution are suitable persons to ensure its prudent management;
  • The authority is satisfied that the financial institution has sound and prudent management, and has robust governance arrangement;
  • The authority is satisfied that there are no close links between that company and another person/s which through any law, regulation, administrative provision or in any manner prevent the company from exercising effective supervision of the company under the provisions of the Financial Institutions Act.

PIs are required that at the time of authorisation have initial capital as follows:

Activity provided by PIMinimum initial capital requirement
(6) above€20,000
(7) above€50,000
From (1) to (5) above€125,000

In applying for a PIs license with the MFSA, the following documents must be submitted:

  • Form 1 as annexed to Financial Institutions Rule 01 –  Application for Authority to Set up a Financial Institution Operating in or from Malta;
  • Form 2 as annexed to Financial Institutions Rule 01 – Questionnaire for Qualifying Shareholders other than Individuals;
  • In terms of Financial Institutions Rule 01 – Personal Questionnaire for individuals who are or propose to be Directors, Controllers or Managers;
  • A programme of operations setting out in particular the type of activities to be undertaken;
  • Proposed level of initial capital;
  • A business plan including the structure, organisation, management systems, governance arrangements and internal control systems of the institution and a forecast budget calculation for the first three financial years;
  • A description of the procedure in place to monitor, handle and follow up a security incident and security related customer complaints, including incidents reporting mechanism;
  • A description of the process in place to file, monitor, track or restrict access to sensitive payment data;
  • A description of business continuity arrangements;
  • A description of the principles and definitions applied for the collection of statistical data on performance, transactions and fraud;
  • A security policy document;
  • A description of the internal control mechanisms;
  • A description of structural organisation;
  • Audited financial statements for the last three years, if available;
  • The identity of statutory auditors and audit firms;
  • The applicant’s legal status;
  • The address of the applicant’s head office;
  • A description of the measures taken for safeguarding payment service users’ funds.

The authority will determine an application for a licence within three months of receipt of the formal complete application and will determine whether to grant a licence without conditions, a licence subject to certain conditions, or refuse the application for a licence.

 

A typical credit card payment process

The following are the parties to the payment process when using a credit card:

PartyDescription
CardholderA consumer who uses a credit card to purchase goods and services.
MerchantA provider of goods and services who accepts credit card payments.
Payment service providerA payment gateway which is responsible to acquire data authorisation and encryption.
Acquiring bankThe bank which holds the merchant’s bank account.
Credit card brand networkThis includes brands such as VISA, Mastercard and American Express, amongst others, whose networks are used to facilitate interactions between issuers and acquirers when authorising and settling transactions.
Issuing bankThe bank which issued a credit card to the consumer on behalf of card networks.

The payment goes through the following stages:

Authorisation of a transaction
  • The cardholder uses a credit card to settle a purchasing transaction.
  • A merchant’s POS system / e-commerce website contacts the PSP who, depending on the card brand used, contacts the designated acquirer for transaction authorisation.
  • The acquirer sends the payment details to the card association.
  • The latter then sends the payment details to the issuing bank for authorisation.
Authentication of a transaction
  • The issuing bank receives the request for payment authorisation from the credit card network and validates the data received including the credit card number and CVV number, confirms availability of funds and matches the billing address of the credit card and payment files received.
  • The issuing bank approves or declines the payment transaction.
  • The response is sent back to the merchant through the same channels i.e. through the credit card network, then to the acquiring bank, PSP and finally to the merchant.
  • For successful transactions, the issuing bank blocks the purchase amount on the cardholder’s account.

The authorisation and authentication process takes between two and three seconds.

Clearing and settlement
  • The merchant sends the approved authorisations on a daily basis in one batch to the PSP.
  • The latter directs information in batches to the credit card networks for settlement who in turn sends each of the approved transactions to the relevant issuing banks.
  • The issuing bank transfers the funds to the credit card network and the payment goes through the same channels with each party deducting a charge until the merchant’s account is credited by the acquiring bank.
  • Eventually the cardholder settles the bill with the issuing bank.

The settlement process can take anywhere from 24 hours up to 3 days.

 

Passporting rights for PIs

Through the implementation of the European Passport Rights for Credit Institutions Regulations, a financial institution licenced or holding equivalent authorisation in another Member State or EEA State as a payment institution, may provide the activities for which it has been authorised either through the establishment of a branch or the freedom to provide services, including by engaging an agent.  The law prescribes the communication requirements for PIs that would like to passport the provision of services in Malta.

 

Fees

An application fee of €3,500 is also required upon submission of the aforementioned application.  Financial institutions licensed under the Act must also pay an annual supervision fee of 0.02% of its total assets as reported at the end of the year immediately before the year in which the fee is payable. This must not be less than €2,500.

 

Taxation

Financial Institutions are subject to the general rules of taxation in Malta.  Shareholders may avail themselves from the full imputation tax system and therefore when in receipt of dividends they are entitled to a tax credit which is equal to the tax paid by the distributing company on the profits out of which the dividends are paid.  Shareholders may also be entitled to tax refunds upon the distribution of taxed profits. Moreover, Malta has a wide network of double taxation agreements in place. Other benefits emanating from the Maltese tax system include the ‘participation exemption’ on profits derived from participating equity holdings and no capital gains on transfer of shares in a non-property company held by non-resident shareholders.  For further details on the Maltese taxation system, please refer to Corporate Taxation.

How can we help you?

Avanzia Taxand is a corporate service provider registered with the Malta Financial Services Authority and we may assist in the application process with the MFSA, the drafting of documentation in connection with the legal set-up as well as some of the ongoing compliance requirements and filing obligations particularly those related to secretarial and taxation.

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Yacht Registration

Malta has a long maritime tradition and it has established itself as one of the leading maritime hubs and service centres.  The Island has several yacht marinas and offers a whole range of maritime services and facilities. Malta has also developed a very strong legal and regulatory platform and Malta’s shipping register is the EU largest and one of the largest in the world.

All types of vessels, both pleasure yachts and commercial ships, including vessels under construction, may be registered under the Malta flag.  If the owner is not a Maltese resident person or an EU citizen, we may act as a resident agent.

Vessels older than 10 years are subject to additional scrutiny by Transport Malta.  Vessels older than 10 years are subject to an inspection from an authorised flag State inspector whilst vessels older than 15 years are required to undergo an authorised flag State inspection prior to provisional registration.  It is customary for Transport Malta not to accept registration of trading vessels of 25 years and over although in certain circumstances this may be considered.

A vessel / yacht is first registered provisionally under the Malta flag for six months during which period all documentation must be finalised.  It is possible to request an extension of the provisional registration should this be required.

The requirements for provisional registration are:

  • Application for registration by the owner or an authorised representative, including, an application for change of name of yacht, if required;
  • Proof of qualification to own a Maltese vessel.   If the owner is a Maltese company, we will provide all the required documentation, however, if the owner is a foreign corporate entity, we would require a declaration appointing us as resident agent, certified copies of the certificate of incorporation, statute and good standing certificate.  All documents must be notarised and apostilled. We also require a signed legal opinion confirming that the records of the entity have been examined and giving details on the directors and holders of office and of the persons authorized to represent the entity and to bind it with their signature and to appoint a registered agent.
  • Declaration of ownership made in front of the Registrar and signed by the owner or an authorised representative.
  • A copy of the current ship’s International Tonnage Certificate (in case of ships over 24 metres);
  • Evidence of seaworthiness;
  • Payment of the initial registration fees;
  • Application for radio licence.

The following documents are to be submitted during provisional registration:

  • A builder’s certificate in case the yacht is newly built or a bill of sale if acquired;
  • A deletion certificate or cancellation document issued by the relevant authorities where the vessel was last registered, if applicable;
  • A Certificate of Survey and a carving and marking note both signed by an approved surveyor.

Further documents will be required for commercial or larger vessels.

Once all the necessary documents are made available, a certificate confirming registration is issued by the Shipping Directorate of Transport Malta.  The certificate is valid for one year and must be renewed annually together with the payment of the annual registration fees.

 

Private yachts

The Shipping Directorate of Transport Malta considers a private registered yacht to be any pleasure yacht of 6 metres in length or more, which does not carry passengers for reward and is not engaged in trade but is used for the sole purpose of the owner.

 

Commercial yachts

Yachts in commercial use which do not carry cargo and do not carry more than 12 passengers can be registered as commercial yachts under the Commercial Yacht Code. Maltese law is very advantageous for the operation of commercial yachts.  

The following classes of yachts will be considered for commercial registration:

  • Yachts in commercial use of not less than 15 metres in length and not more than 24 metres.
  • Superyachts in commercial use of more than 24 metres in length and less than 500 gross tonnes.
  • Superyachts in commercial use of more than 24 metres in length and 500 gross tonnes and over.

A company operating a recognised commercial yacht is exempt from income tax however will be subject to tonnage tax based on the gross tonnage of the commercial yacht.

 

VAT implications

A Maltese vessel owner acting as a taxable person must be registered for VAT purposes in Malta.  Pleasure boat owners are required to register when the vessel is leased for a short-term period (charters not exceeding 90 days) or a long-term period (charters exceeding 90 days).   

 

Purchase

The purchase of the vessel should remain VAT neutral for a VAT registered vessel owner.  A vessel bought by a Maltese taxable person from another taxable person situated in another EU Member State is subject to the reverse charge mechanism and therefore no VAT is actually paid in Malta.  It is also possible for a vessel acquired from outside the EU to have the vessel imported into Malta and request a VAT deferment from the Maltese VAT Department on the understanding that the vessel will be used for commercial purposes.  

 

Lease

The place of supply of a lease of a pleasure boat to a non-taxable person (whether long term or short term) or short-term charter to a taxable person is the place where the yacht is actually put at the disposal of the customer.  This usually means that place of departure of the charter of the yacht. On the other hand, the place of supply of yachts for a long-term period to a taxable person is the place where the customer is established.

Subject to obtaining pre-approval from the VAT Department, the yacht owner may charge VAT on a portion of the lease on the understanding that only a portion of the lease is consumed within EU territorial waters.  The owner of the yacht is required to provide proof of the time the vessel would spend in the EU or, in absence of sufficient information to provide such assessment, the VAT Department may apply a predetermined percentage of the lease taking place in the EU.  Such percentages are based on the length of the yacht. The effective VAT rate will be substantially reduced. We will be able to work out the VAT savings once we have the necessary details.

 

Operational expenses

As a VAT registered taxable person, the Maltese yacht owner may claim back any VAT incurred on business related expenses in Malta as well as apply the self imposition of VAT on invoices from EU suppliers.  The yacht owner may also opt to claim back any VAT incurred in other EU Member States through the Eighth Directive subject to any conditions imposed by the Member State.

 

VAT exemption

The supply of sea vessels and provided to such vessels are exempted from VAT.  Such exemption is only granted to sea vessels used for navigation in high seas and for the carrying of passengers for commercial, industrial or fishing activities, sea vessels used for rescue or assistance at sea or for coastal fishing as well as to sea vessels used for war.  This exemption does not apply to vessels used for leisure purposes.

How can we help you?

Avanzia Taxand may act as a resident agent and we offer a one stop shop for owners wishing to register their vessel under the Malta flag.  We may set up a Maltese company to act as owner of the yacht and liaise with certified surveyors as well as the Shipping Directorate of Transport Malta in order to have the provisional registration and permanent registration.

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