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Setting up of an investment services company in Malta

Background

Malta’s high standards of regulatory oversight and processes have been a key advantage for

reputable funds. The Maltese regulatory framework in the financial services sector is one of

the most comprehensive and attractive for the setting-up, licensing and marketing of credit

institutions, financial institutions, insurance companies, collective investment schemes and

institutional funds as well as for investment services providers.

Several important factors make Malta an ideal jurisdiction to domicile and operate such

financial services activities:

• Malta’s status as a full member of the European Union;

• Malta’s EU compliant legislation;

• Malta’ status as an onshore jurisdiction and member of onshore and global

consultative, regulatory and enforcement bodies, including the International

Monetary Fund (‘IMF’), the Council of Europe, International Organisation of

Securities Commission (‘IOSCO’), and the Committee of European Securities

Regulators (‘CESR’);

• The Malta Financial Services Authority (the ‘MFSA’), in its capacity as the Maltese

financial services single regulator, is flexible, accessible and proactive but at the

same time meticulous in considering and determining applications for the licensing

of funds;

• Malta’s comprehensive legislative framework for the taxation as well as Malta’s

extensive range of double taxation treaties include agreements with all EU member

states.

• The presence on the Island of international financial services providers and a skilled

work force with considerable experience and knowledge in the sector;

• Use of the English language in official communications, forms and documentation as

well as in drafting financial services legislation, regulations and guidelines.

All this has contributed to Malta’s success in establishing and consolidating itself as an

onshore financial services centre which now enjoys the presence of an always increasing

number of international banks, insurers and fund managers.

 

Legal and Regulatory Framework

The Investment Services Act, Chapter 370 of the Laws of Malta (‘ISA’), establishes the

regulatory framework for the provision of investment services. The primary purpose

of the ISA is to provide comprehensive investment services regulations to regulate the

provision of investment services and adequate investor protection. The ISA provides for the

appointment of a competent authority responsible to administer the provisions of the ISA,

particularly as regards licensing, regulation and supervision of investment services.

The Malta Financial Services Authority (‘MFSA’) has been appointed as the competent

authority to supervise and regulate the investment services sector with inter alia powers of

granting investment services licences. The MFSA has also issued Investment Services Rules

with the purpose of inter alia transposing and implementing the MiFID Framework Directive

and MiFID Implementing Directive regulating the conduct of business by investment services

licence holders.

 

Requirement of an investment services licence

The ISA prohibits:

(a) Any person from providing, or holding himself out as providing, an investment

service in or from within Malta unless he is in possession of a valid investment

services licence.

(b) Anybody corporate, unincorporated body or association formed in accordance with

or existing under the Laws of Malta, from providing or holding itself out as providing

an investment service in or from within a country, territory or other place outside

Malta unless it is in possession of a valid investment services licence.

 

Licence Categories

Category 1a: License holders authorised to receive and transmit orders

in relation to one or more instruments and / or provide

investment advice and / or place instruments without a firm

commitment basis but not to hold or control clients’ money or

customers’ assets. This Category does not include managers of

collective investment schemes.

Category 1b: License holders authorised to receive and transmit orders,

and / or provide investment advice in relation to one or

more instrument and / or place instruments without a firm

commitment basis solely for professional clients and / or

eligible counterparties, but not to hold or control clients’

money or customers’ assets.

Category 2: License holders authorised to provide any investment service

and to hold or control clients’ money or customers’ assets, but

not to operate a multilateral trading facility or deal for their

own account or underwrite or place instruments on a firm

commitment basis.

Category 3: License holders authorised to provide any investment service

and to hold and control clients’ money or customers’ assets.

Category 4: License holders authorised to act as trustees or custodians of

collective investment schemes.

 

Licence Application Process

Phase One – Preparatory Phase

This phase involves inter alia the promoter meeting with representatives of the MFSA to

describe his proposal, the submission by the promoter to the MFSA of a draft application

form together with supporting documents, the review by the MFSA of such form and

documentation, and the MFSA’s decision as to which licence conditions should apply to the

promoter.

Phase Two – Pre-Licensing Phase

This phase involves the issuance by the MFSA of its ‘in principle’ approval for the issue by

the MFSA of an investment services licence, and the finalisation by the promoter of any

outstanding matters, such as incorporation of a company, submission of signed copies of

the revised application form together with supporting documents in their final format, and

any other issues raised during the application process.

Phase Three – Post-Licensing / Pre-Commencement of Business Phase

This phase involves the compliance by the promoter of any post-licensing matters prior to

formal commencement of business.

The regulatory process outlined above is typically expeditious. Once we would have all the

necessary information and documentation requested by us in order to proceed with the

said process, the relevant licence application and other ancillary documentation would be

drafted, prepared and compiled (as the case may be) and submitted to the MFSA within two

weeks. The MFSA typically provides its ‘in principle’ approval within six to eight weeks from

receipt of the abovementioned licence application.

 

Licence Fees

An application fee is payable on submission of an application for an investment services

licence and is not refundable. Investment services licence holders are also required to pay a

licence issue fee, and an annual supervisory fee. The applicable fees are currently as follows:

Investment          Application Fee          Licence Issue Fee          Annual Supervisory Fee

Licence

Category 1A:        €750                         €1,300                         €1,300 (up to €50,000 in revenue)

                                                                                             plus €250 per every other €50,000

                                                                                             in revenue (up to a maximum of

                                                                                             €1,000,000 in revenue) or part thereof

 

Category 1B:       €750                          €1,800                         €1,800 (up to €50,000 in revenue)

                                                                                             plus €250 per every other €50,000

                                                                                             in revenue (up to a maximum of

                                                                                             €1,000,000 in revenue) or part thereof

 

Category 2:        €1,500                        €3,000                         €3,000 (up to €250,000 in revenue)

                                                                                             plus €350 per every other €250,000

                                                                                             in revenue (up to a maximum of

                                                                                             €5,000,000 in revenue) or part thereof

 

Category 3:        €2,000                        €4,000                          €4,000 (up to €250,000 in revenue)

                                                                                              plus €350 per every other €250,000

                                                                                              in revenue (up to a maximum of

                                                                                              €5,000,000 in revenue)or part thereof

 

Category 4:        €4,000                        €10,000                        €10,000

 

Corporate Structure

 

Corporate Structure

A limited liability company is typically registered and incorporated in Malta in terms of the

Companies Act, Chapter 386 of the Laws of Malta (‘CA’), for the purposes of the conduct of

any licensable activity under the ISA.

A limited liability company may be registered and incorporated as aforesaid either as a

private limited liability company or as a public limited liability company. The registration of

a limited liability company would typically be finalised during Phase Two of the investment

services licence application process outlined in Section 3 hereof.

 

Share Capital

The share capital of a limited liability company may be denominated in any currency. The

minimum issued share capital of a private limited liability company is €1,165, whilst the

minimum issued share capital of a public limited liability company is €46,600. At least 20%

of the issued share capital of a private limited liability company must be paid up at the time

of incorporation and deposited in a bank account in Malta. In the case of a public limited

liability company, at least 25% of its issued share capital must be paid up and deposited as

aforesaid.

Notwithstanding the aforesaid, the Investment Services Rules establish minimum initial

capital requirements in respect of the different categories of investment services licence

holders, as follows:

 

Licence Holder Category                                      Minimum Initial Capital

Category 1A                                                          €50,000

Category lB — with professional indemnity insurance €20,000

Category lB — without professional indemnity           €50,000

insurance

Category 2                                                            €125,000

Category 3                                                            €730,000

Category 4                                                            €125,000

 

A private limited liability company must have at least 1 director, whilst a public limited

liability company must have at least 2 directors. Generally, a corporate entity may act as

director of a company. It is not necessary to have Maltese directors, although having a

director resident in Malta is a licensing requirement that is typically imposed by the MFSA

on an investment services provider (as well as having an MLRO and compliance officer). A

company must also have a company secretary.

The official company registration fee due to the Malta Registrar of Companies is calculated

in accordance with the authorized share capital of the company, ranging from a minimum

registration fee of €245 where the authorised share capital does not exceed €1,500, up to a

maximum fee of €2,250 where the authorized share capital exceeds €2,500,000.

A registration fee due to the Malta Registrar of Companies is payable every year upon

the submission of the statutory company return showing details about the company, its

shareholders and its directors. The annual registration fee is also calculated in accordance

with the authorized share capital of the company, ranging from a minimum fee of €100 (for

companies with an authorised share capital of up to €1,500) up to a maximum fee of €1,400

(where the authorised share capital exceeds €2,500,000).

 

Taxation

The fiscal benefits of setting up a limited liability company in Malta may be considerable.

Although a Maltese limited liability company is subject to tax on its profits at the rate of

thirty five per cent (35%), its non-resident shareholders may, upon a distribution of profits

by such company to its shareholders, claim a refund of part of the tax paid by the Company

on such profits.

Malta’s tax system has been one of the key contributors to it maturing into the financial

and international business centre that it is today. The taxation system is a fully integrated

imputation system which completely avoids the economic double taxation of corporate

profits by imputing onto shareholders the underlying corporate tax attaching to dividends.

As part of this system the shareholder is entitled to claim a tax refund of the 35% corporate

tax borne on distributed profits. The default tax refund is 6/7ths of the tax charge borne on

the distributed profits before deducting any credits in respect of any foreign taxes.

Fund management companies are also subject to Malta’s full imputation tax system,

wherein tax paid by a company in Malta is, on the distribution of a final dividend, imputed

to the shareholder as a tax credit against the shareholders’ tax liability. A shareholder

will, upon a distribution of the dividend, be entitled to a refund in part or in full of any

advance tax levied on the distributing company. The default refund applicable to a fund

management company in respect of active trading income, is a refund of 6/7ths.

 

Passporting

Investment companies wishing to passport by way of freedom to provide services provisions

or by the establishment of a branch in another EU jurisdiction need to observe a number of

notification procedures:

The MFSA must be provided with:

• A written statement with the firm’s intention to provide services or establish a

branch in an EU or EEA territory, specifying which territory

• A program of operations setting out the services to be offered

• The address of the proposed branch from which documents may be obtained

• The proposed organizational structure and persons responsible for the management

of the office

• Other clarifications that may be required by the MFSA

The MFSA will then furnish the foreign regulator with a consent notice within three months

of receiving all documentation from the firm

If the MFSA decides to refuse the issue of a consent notice, the firm shall be notified

accordingly within a maximum of two months. This refusal may be appealed in tribunal. The

company may not commence business abroad unless:

• The foreign regulator has approved the go-ahead, or

• Two months have elapsed from the date of transmission of information from the

MFSA to the European regulatory authority

Where a Maltese investment company wishes to provide services in the EU or any EEA State

without establishing a branch, the MFSA will need to be provided with:

• A list of services it wishes to provide.

• A program of operations

• The Member Sate or EEA State in which it intends to operate