Banks vs Payment Platforms
by 1st Step Solution LTD
2nd July 2020
Hedge funds, private equity and real estate– Malta offers all the favourite investment vehicles of high-net-worth individuals and families, while the EU member state allows investors to protect their assets through the establishment of trusts or foundations.
Malta’s strengths as a wealth management centre lie in its holistic offering that caters for a wide spectrum of needs, including succession planning, investment advisory, corporate structuring, investment banking and even lifestyle administration.
The Malta trust, combining all the features of the Anglo-Saxon trust concept within a civil law framework, has quickly become the preferred vehicle for professionals and high-net-worth individuals seeking an effective and trustworthy solution to wealth management issues. Trusts have been set up in Malta to safeguard everything from heirlooms to stocks, bonds, art and real estate. Recently, the island modernised its trust law to bring it in line with international trends and rival trust jurisdictions, ensuring that Malta remains one of the ‘go-to’ names for those in search of wealth management solutions. Private bankers and asset managers cater to all levels of wealth from the mass affluent to the ultra-high-net-worth individual. A wide range of investment vehicles is available – from simple trusts and company structures for families, to high value and more complex set-ups involving trusts, companies, investment funds and foundations for affluent clients.
Contents include: Private Banking; Investment Funds; The Malta Company; Trusts & Foundations; Yacht Registration; Aircraft Registration; Cryptocurrencies; Doing Business in Malta, and more!
A choice of trust jurisdiction will inevitably be the result of the careful consideration of a number of factors ranging from the regulatory framework, the expertise of service providers, costs and the judicial system. Since the inception of the concept of trusts way back in 1984, Malta has gone a long way in establishing itself as a trust jurisdiction worthy of serious consideration and has introduced new amendments to its trust law in 2014. The updated law brings Malta in line with international developments and, more importantly, saw the introduction of the Private Trust Company (PTC), which offers interesting opportunities to HNWIs and families who favour tailor-made trustees solutions.
What better way to show its commitment to the trust institute than introducing a comprehensive regulatory and legal framework for trusts and trustees as well as introducing the concept of trust in its Civil Code and making it available to the domestic market?
Since the introduction of trusts to Maltese residents in 2004, the domestic trust industry and practice has grown considerably.
Maltese law caters for all the main types of trust normally found in traditional common law jurisdictions such as:
Malta is one of the few jurisdictions that cater for both trusts and foundations While trusts are peculiar to systems of law based on common law and are not generally found in civil law countries, Malta, a civil law country, is an exception to this rule.
The country hosts international top-tier firms as well as various boutique firms, both local and foreign, that assist with the establishment and administration of trusts and foundations in Malta.
Protecting and enhancing the value of assets is increasingly important amidst the ongoing market volatility, and Malta trusts and foundations are an ideal financial instrument for those seeking solutions to their wealth management requirements.
The Continuation of Companies Regulations issued under the Companies Act, 1995 provide existing trust companies with a particularly attractive incentive to apply to be registered as being continued in Malta, hence allowing a company to re-domicile without the need of dissolution in its jurisdiction of incorporation and be re-incorporated in the jurisdiction of choice (in this case, Malta).
Re-domiciliation allows continuation of legal personality from one jurisdiction to another, thereby eliminating the need to transfer all the trust business and trust assets to a new entity in the chosen jurisdiction.
Conversely, a trust company set up in Malta can always have the option of continuing outside of Malta.
A foreign trust company may wish to remain domiciled in its jurisdiction of incorporation but set up a branch in Malta.
A company which has been issued with a license to act as trustee by the relevant regulatory authority in its home jurisdiction can obtain the necessary authorisation to operate in Malta in a very quick and straightforward manner by following a ‘fast-track’ system. The company must simply give notice in writing to the Malta Financial Services Authority (MFSA) of its intention to act as a trustee in Malta at least 45 days prior to commencing its activities in Malta and ensure it has received confirmation that the MFSA does not object thereto.
A foreign licensed trustee may therefore take advantage of its regulatory status in its own jurisdiction to simplify and accelerate the process by setting up a branch, thereby also eliminating the cost and effort that would usually be required for a full application.
A company wishing to remain domiciled in its jurisdiction of incorporation may desire a stronger presence in Malta than a branch may offer, in which case the company may set up a subsidiary in Malta and apply to the MFSA for authorisation to act as a trustee.
Where the proper law of a trust is a foreign law, the Act provides that its validity, construction, effect and administration shall be governed by the foreign law concerned. The trust would thus be recognised and given effect to in Malta in accordance with The Hague Convention which has been ratified by Malta.
The Income Tax Act allows the taxability in Malta of a trust having a Maltese trustee. Furthermore, a Maltese trust can avail itself of the option of being treated as a company for income tax purposes, under the tax transparency model. Income attributable to a trust is not taxable in the hands of the trustee if it is distributed to the beneficiary.
The above is merely an indication of the advantages that Malta offers in the field of trusts. This serves to highlight the viability of the Maltese jurisdiction on various counts, be it as a base of operation for trustees (whether of foreign law or Maltese law trusts), or as a choice of trust law itself.
Ultimately, the high standards resulting from the regulation of trusts and trustees reveal a great commitment by Malta towards the trust industry. Malta is a balanced jurisdiction, open to progress whilst ensuring standards are maintained.
A family office is an entity established by a wealthy family to manage its wealth, plan for the family’s financial future, and provide other services to family members, notably tax planning but also charitable giving.
Malta has started looking at this type of structure recently with amendments to trust legislation to cater for a family trust. A trustee may be set up to act as a trustee for a family trust, in which case the trustee does not need a authorisation from MFSA but only register for this purpose.
In practice, the individual wishing to create the ‘family trust’ (i.e. the settlor) sets up a company, which will act as trustee of the family estate transferred to it under trust, for the benefit of the family members. The trustee must have its objects and activities limited to acting as trustee in relation to a specific settlor and providing administrative services in respect of a specific family trust or trusts. Moreover, it must not hold itself out as a trustee to the public, and must not act habitually as a trustee, in any case in relation to more than five settlors at a time.
Wealthy individuals are often reluctant to set up a trust because they will be hesitant to transfer their wealth to third parties trustees (even though trust deed and letter of wishes could restrict the trustee’s discretion). These amendments allow the settlor and other family members to be appointed as directors of the trustee company, and therefore participate in the management of the estate.
At least one of the directors, however, must be an ‘approved person’, essentially a person of good reputation possessing experience and qualifications in financial, fiduciary, accounting or legal services and approved by the Authority as being fit and proper to carry out the duties of a trustee, and also independent from the person setting up the ‘family trust’.
Malta’s legislation regulating trusts and trustees is heavily based on the UK and Channel Islands model and, in the provision of their services, trustees are regulated by the MFSA.
While the financial sector is becoming increasingly complex, family offices based in Malta say they can successfully navigate the new regulatory landscape because all of Malta’s financial services fall under the regulation of the single regulator, the Malta Financial Services Authority (MFSA). New and foreign companies are able to benefit from streamlined licensing procedures, lower regulatory fees and reduced bureaucracy when compared to other IFCs.
Malta’s strengths as a wealth management centre lie in the foundations of its thriving finance centre, which offers a wide range of investment vehicles including investment funds and trust companies. The country’s excellent physical and legal infrastructure has also been bolstered by seasoned professionals with a proven track record in structuring customised solutions and offering innovative approaches. The regulatory regime is widely respected, and as an EU member state with a low-risk environment, Malta offers a cosmopolitan lifestyle within easy access of most European and Mediterranean capitals.
In recent years, Malta has been experiencing a steady influx of banks specifically established to offer investment banking, private banking and wealth management services to their wealthiest clients. Specialist wealth managers are offering private wealth management, while a large number of banks provide professional financial advice and products to high net-worth, corporate and institutional clients.
Shipping has been an essential part of Malta’s economy for the millennia. In more recent years, Malta has aimed to position itself in niche areas and introduced extensive VAT incentives for the registration of yachts under the country’s flag. In addition to its maritime heritage, Malta has developed a strong legislative framework for the registration of aircraft. Private jets can now be registered under Malta’s law, which also allows the jet to be owned by a trust. In addition to providing high-net-worth families with a diversified investment portfolio and a place to live or holiday, purchasing real estate in Malta traditionally generates high returns, due to the limited land mass of the island, if one opts for re-sale.
High-net-worth individuals appreciate the security that the county’s regulatory system provides and emphasise that the true value of Malta’s wealth management industry lies in the finance centre’s reputation as stable and sound. Malta offers an OECD and EU-approved fiscal framework, combined with around 70 double taxation treaties. In addition, the country’s prudential supervisory system, under which trustees and other investment service providers have to be licensed by the Malta Financial Services Authority (MFSA), gives comfort to clients by ensuring that certain regulatory standards are met. With its excellent reputation for high standards of regulation and supervision, competitive costs and a highly educated workforce, Malta is prepared to satisfy the most diverse and sophisticated customer requirements.
The competitive landscape for wealth management services has increased in recent years, making it more difficult to attract new clients and retain existing ones. In this climate, cost is becoming a decisive factor. Single family offices are usually not designed as profit-making entities themselves and, hence, they need to control the cost of their operations, while consistently low interest rates mean many wealthy individuals are looking for quality service providers with competitive fees. Many family offices are currently analysing their cost structure to restructure their operations, and Malta, with its more competitive fee and salary structure, expects to welcome more family offices in the near future.
The dynamic pensions sector is spurring on Malta’s ambition to establish itself as a key European hub for pension schemes. Multinational corporations and individuals alike are increasingly turning their focus to the island in a bid to put their benefit plans on solid ground.
Retirement schemes have become an important element of investment planning and Malta provides the ideal solution for the setup of international pension pooling vehicles for high-net-worth individuals, international workers planning for retirement or international corporations seeking to establish and administer pension schemes for their staff.
While Malta has primarily been catering to the UK market so far, other European cross-border schemes are currently being established and growth is expected. The creation of international pension plans became a possibility fairly recently, as pension provision has traditionally been considered from a purely domestic perspective. However, the increasing mobility of both people and companies has facilitated this paradigm shift.
Malta’s growth as a financial service centre created a market for UK-linked pension products, following the UK’s launch of Qualifying Recognised Overseas Pension Schemes (QROPS) in 2006 to transfer pensions to UK pensioners living overseas.
In 2009, the Malta Financial Services Authority (MFSA) procured confirmation from the British tax authorities that pension schemes established on the island, and regulated by the MFSA, are eligible for recognition as QROPS thus allowing the transfer of pension rights into the scheme without a UK tax charge. Interest in Malta as a QROPS jurisdiction has been on the increase ever since establishing the country as the main market for UK expats’ pensions.
Today, the QROP scheme is well-established, with the addition of the Qualifying Non-UK Pension Scheme (QNUPS), and Malta is now making a name for itself in relation to Institutions for Occupational Retirement Provision (IORPs). In line with the EU’s single market, these schemes can be set up in Malta to be passported to other EU and EEA member states and are ideal for pan-European companies with branches and staff in many countries. By setting up an IORPS in Malta an international company can create a cost-effective depository for its pension investment. With IORPs, the EU is trying to establish a second pillar for a pan-European pension system, and Malta is the ideal base for operators of such schemes.
Around 90 per cent of pension schemes based on the island serve the UK market, but Malta is seeing increased interest from other countries too, as international pension operators are beginning to see it as an ideal base for vehicles. The country and its regulator are determined to develop its cost-effective and beneficial regime further and to attract more multinationals, European employers, high-net-worth individuals as well as wealthy expatriates to base their pension provisions in Malta.
The private wealth sector is in the midst of digital disruption. Due to the introduction of new regulations and related cost increases, a greater focus is placed on cost effectiveness, while technology is becoming mission critical to drive customer engagement, collect data on clients and potential clients, portfolio handling as well as regulatory and tax reporting. In this climate, Malta seeks to attract fintech companies and technology-driven businesses providing wealth management solutions. Wealth management firms seeking to harness blockchain technology should also look at Malta given that the island just introduced a regulatory framework for cryptocurrencies and Distributed Ledger Technologies (DLT).
Malta offers an OECD and EU-approved fiscal framework and has concluded over 70 double taxation treaties with the most global and developed economies in the world.
Further information on the tax regime in Malta can be found here: https://cfr.gov.mt/en/Pages/Home.aspx
The content in this website is for informational purposes only. The information contained therein should not be construed as providing legal, tax, investment, financial, or other advice. Nothing contained in this website constitutes a solicitation, recommendation, endorsement, or offer by FinanceMalta.
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The PIF licence is the licence of choice for smaller funds, which would benefit from certain exemptions contained in the AIFMD.
Maltese-registered funds can be set up in a number of possible legal forms, including open-ended and closed-ended corporate entities, unit trusts, contractual funds, and limited partnerships.
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