Investment Funds

Malta offers two main corporate fund structures: investment companies with variable share capital (SICAVs) and investment companies with fixed share capital (INVCOs). SICAVs, modelled on Luxembourg structures of the same name, are highly flexible, allowing for a broad range of investment strategies across various asset types, including securities and both movable and immovable property. INVCOs, on the other hand, are more restricted, focusing primarily on securities and bound by specific requirements regarding holdings, profit distribution and income retention.

Both SICAVs and INVCOs can be established as umbrella or multi-fund companies, where share capital is divided into distinct sub-funds. Each sub-fund’s assets and liabilities are ring-fenced, ensuring that returns depend solely on its individual performance, independent of other sub-funds within the same umbrella.

It is also possible to set up companies with multiple share classes, enabling tailored structures that support diverse investment objectives and business models. For example, a fund can have one sub-fund following a high-risk strategy with two classes having different fee structures, and another sub-fund following a low-risk strategy with various classes having their net asset values calculated with different frequencies. The flexibility afforded is such that different sub-funds could have different managers following very different strategies.

Limited partnerships, or partnerships en commandite, are popular among private equity and venture capital investors in Malta. These partnerships limit the liability of limited partners to their initial investment, while a limited liability company often acts as the general partner to strengthen the fund’s local substance. They offer flexibility similar to that of investment companies, allowing for variable or fixed share capital, different classes of shares, fractional shares, and even sub-funds denominated in various currencies. Each sub-fund’s assets and liabilities can be segregated from others within the partnership.

The tax treatment of these partnerships aligns with that of companies, and if capital is not divided into shares, the partnership is tax-transparent. In such cases, income and gains are taxed based on the partners’ tax status and residence, meaning non-resident, non-domiciled partners only pay tax on Maltese-sourced income. While this transparency may be beneficial, the more attractive features of Malta’s tax system, like the refund mechanism, apply primarily to companies. Consequently, limited partnerships may elect to be treated as companies, enabling partners to benefit from Malta’s favourable tax regime.

Trusts are another common legal vehicle for collective investment schemes and are subject to fewer restrictions than companies. They can also be structured to be tax-transparent, which may be particularly attractive in certain cases, such as when underlying assets held by the unit trust are subject to high withholding taxes in the country of issue.

Common contractual funds, or mutual funds, do not have a separate legal personality and therefore require a custodian in whose name the assets are to be held. Maltese mutual funds typically establish a company to act as a special investment vehicle, holding assets on behalf of the fund and shielding these assets from creditors’ claims.

Incorporated Cell Companies (ICCs) are an innovative legal structure with numerous advantages for fund promoters. First implemented in the insurance sector, this structure proved flexible and robust enough to be extended to the fund sector. ICCs materially expand the range of uses by enhancing the segregation of assets between each cell. For example, a SICAV structured as an ICC may designate each sub-fund as an Incorporated Cell (IC), granting each one separate legal and juridical personality, thus enabling it to transact in its own name.

Another type of ICC that has proven particularly popular among small managers and startup funds is the Recognised Incorporated Cell Company (RICC). This is a limited liability company providing purely administrative services to incorporated cells within the cluster. The RICC can therefore accommodate a platform model comprising an ICC providing, for example, contractual and startup support to any number of ICs. This relationship does not mean that ICs are subsidiaries of the RICC; each IC, having separate legal personality, needs to be duly licensed as a collective investment scheme.

The EU’s UCITS Directive allows qualified funds to be marketed freely across Europe under a unified regulatory framework, with around 20 per cent of Malta-registered funds falling under the UCITS framework and benefitting from its well-regarded protections for investors. The UCITS model is internationally respected, often chosen by non-EU fund managers seeking access to the bloc’s capital markets.

Malta-based UCITS enjoy significant tax advantages: they are exempt from Maltese income tax if more than 85 per cent of their underlying assets are held abroad, face no tax on net asset value or capital gains for non-Maltese investors and incur no withholding tax on dividends or stamp duty on unit transfers. This tax efficiency adds to their appeal as an investment vehicle.

Alternative Investment Funds (AIFs) in Malta encompass a range of strategies, including venture capital, hedge funds, private equity, and real estate, and can apply to all asset classes. AIFs are subject to EU regulations under the Alternative Investment Fund Manager Directive (AIFMD), which covers aspects such as leverage, risk profile and liquidity restrictions, and provides EU passporting rights. This enables AIFs to be managed and marketed across Europe directly or through a local branch. For retail-focused AIFs (RAIFs), the AIFMD imposes additional investment and borrowing guidelines.

Malta’s Notified AIF (NAIF) structure is tailored for speed, allowing market entry in as little as 10 days. Although NAIF managers remain bound by AIFMD regulations, they assume full responsibility for due diligence, bypassing MFSA authorisation or supervision. This makes NAIFs exclusive to professional or qualifying investors. Since 2019, NAIFs have gained considerable traction, with the number of registered NAIFs nearly doubling.

Venture capital, hedge funds, private equity funds, real estate funds, and any other investment strategies across all asset classes can be structured as AIFs. They are subject to restrictions on leverage limits, fund risk profiles and portfolio liquidity, as laid down in the EU’s AIFMD. Like UCITS, AIFs benefit from passporting rights, allowing them to be managed and marketed across the EU, either directly or via a local branch. When targeted towards retail investors (Retail AIFs or RAIFs), the AIFMD imposes additional investment and borrowing provisions.

In Malta, the Professional Investor Fund (PIF) licence is widely utilised, accounting for around 40 per cent of all funds registered in the country. Known for its adaptability, the PIF is ideal for wealth managers handling private clients, as it operates under a lighter regulatory framework with no leverage or investment restrictions and no diversification requirements. This flexibility makes it suitable for investments in complex or non-traditional assets like private equity, derivatives, real estate, traded endowment plans, and virtual currencies. However, PIFs fall outside EU frameworks like UCITS and AIFMD, meaning they lack passporting rights and are instead governed by national private placement regimes across EU states.

With PIFs facing increased competition from NAIFs in recent years, the MFSA has responded by launching the Notified PIF (NPIF) in 2023. Mirroring the NAIF’s streamlined process, the NPIF allows for set-up within 10 working days. As a non-retail scheme, NPIFs only require notification to the regulator rather than full authorisation, easing entry for fund managers while maintaining regulatory standards.