This content is from: Local Insights

Ucits funds

Malta implemented the Ucits III regime immediately upon accession to the European Union on May 1 2004. After a slow start, there is an increasing interest from fund managers to choose Malta as the domicile for their Ucits-compliant funds. In line with the current interpretation of the Ucits Directive, the preferred methodology entails the utilization of self-managed funds and delegation arrangements. Self-managed funds formed as corporate entities (usually a SICAV) are managed by the board of directors, which can in turn delegate a number of management functions to an external management company which is authorised in any EU Member State and recognised in Malta.

At licensing stage the board is expected to clearly indicate the proposed delegation arrangements. Current practice suggests that the Board must have at least one but preferably two local directors who satisfy the "fit and proper" competence criteria and must meet periodically in Malta. The Board should also retain the ultimate supervision of the risk management process through regular reporting to and from the management company, and be involved in setting the fund's policies.

Amongst the foremost reasons to choose Malta as the base for a Ucits fund is the MFSA's growing reputation as a serious yet flexible regulator and the cheaper set-up and listing costs. As regards taxation, especially since a Ucits must be available in its home member state and cannot only be sold cross border, Malta imposes no tax on a Ucits' income or capital gains and investors are not taxed unless they are resident in Malta – in which case there is a straightforward withholding tax of 15% on income and realised capital gains. This compares favourably with the more established fund domiciles, which impose either a tax on the Ucits' net asset value or on investors' income and capital gains at personal tax rates, or a combination of both.

Dr Frank Chetcuti Dimech

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