Venture capital, private equity and hedge funds require tax-transparent structures that allow investors and fund managers to reap the full benefits of their investments with no local tax exposure. Malta introduced a special kind of limited partnership (LP) in 2003. It is a partnership en commandite with a separate legal personality. It therefore benefits from the established body of law and case law that has developed over many years. It must be licensed as a collective investment scheme, the capital can be divided into shares, and both the limited partners and the general partners can be limited liability companies formed in any jurisdiction.
Usually the structure would involve an LP without capital divided into shares, licensed under the PIF (professional investor fund) regime, with the fund manager constituted as a Maltese limited liability company acting as the LP's general partner.
The LP itself, by virtue of its licence as a collective investment scheme, is not subject to any income tax or tax on capital gains. An LP with capital that is not divided into shares may be designed to ensure that an eventual distribution of capital gains realized upon disposal of investments by the LP to the limited partners and to the general partners will not be subject to any local tax.
The fund management company can be constituted as an international trading company (ITC), allowing it the beneficial tax treatment associated with such a structure. Expatriate managerial employees of the fund management company are exempt from social security payments and customs duty upon importation of personal belongings. The provision of management services to licensed collective investment schemes is also exempt (without credit) for value-added tax purposes.
Frank Chetcuti Dimech