Financial Services & Fintech

The Notified AIF – Malta’s Fast Track Fund

21 Oct 2017

5 min read

The following article appeared on the IBA industry publication on investment funds Volume 20 No. 1 Dated August 2017. Authors: Dr. Andrew J. Zammit & Dr. Kurt Hyzler

The Notified AIF is a new fund regime offered by Malta which allows fund promoters to set up a fund within 10 working days from application to the regulator. The application is a notification submitted to the MFSA and which is spearheaded by the investment manager of the Notified AIF. The latter must be a full-compliant AIFMD manager which will be responsible for effective the monitoring of the NAIF.

For the past decade Malta has been one of the best kept secrets in the fund industry, with a comprehensive legal framework catering for the full spectrum of fund structures and vehicles, quality service providers at competitive rates and a pro-business environment enabling managers and promoters to establish their fund structures relatively quickly. Since the Malta Financial Services Authority (MFSA) has launched the Notified Alternative Investment Fund (NAIF), Malta is further securing its position as a leading jurisdiction within the EU for fund promoters and managers.

Whilst Malta has offered an array of licenses to suit the requirements of every fund promoter, its success has historically hinged on the flexibility and cost effectiveness of the Professional Investor Fund (PIF). A fund regime comparable to the Luxembourg SIF and the Irish QIF which is best suited for small to medium-sized funds, and which is effectively an Alternative Investment Fund (AIF) with the marked difference that PIFs are not required to appoint a depositary and cannot be marketed within the EU.

Cognisant of the fact that time to market is one of the main challenges faced by fund promoters, the MFSA launched the Notified AIF which is designed to give fund managers and promoters access to the market within just 10 business days. The introduction of the Notified AIF regime is targeted at those fund promoters for whom time to market is a critical consideration in the context of the launch of a new fund.

The NAIF construct does not involve a formal license application requiring the prior approval by the MFSA, but a simple notification procedure which is essentially spearheaded by a full-AIFMD compliant fund manager. Following the completion of the notification procedure, the fund will be placed on the list of NAIFs within 10 business days and thereafter will be able to commence its operations by targeting professional investors (as defined in MiFID) and/or qualifying investors. In the interest of time expediency and in order to streamline this process, the MFSA have also issued pro forma templates of certain application documents such as the fund prospectus.

It is also interesting to note that as part of the implementation of the AIFMD, Malta was granted a specific derogation in terms of which any Malta-licensed AIF was permitted to appoint any EU credit institution based outside Malta as depositary. This derogation, which effectively lapses on the 22nd July 2017, has enabled several new depositaries to establish themselves in Malta to benefit from this new regulatory development.

The creation of the Notified AIF was rendered possible by the transposition into local laws of the AIFMD. Leveraging on the fact that the AIFMD is a manager centric Directive, the MFSA was able to eliminate the double layer of regulatory approvals and monitoring (at MFSA and manager level) by focussing on the AIFM and not on the fund. The underlying philosophy of the NAIF is that it is in fact the fund manager that is responsible for the fund and not the MFSA. In-keeping with this principle, the appointment and/or removal of the service providers and officers of the fund does not require MFSA approval but simple appointment/ removal by the AIFM, and the due diligence on such service providers is undertaken exclusively by the AIFM.

The benefits of the NAIF can be summarised as follows:

  • Speed to market;
  • Supervision through the AIFM and not the home regulator;
  • Access to other EU jurisdictions through the European passport;
  • Can be either open-ended or closed-ended.
  • May take various legal forms such as a SICAV, LP, Unit Trust;
  • Favourable tax treatment:
    • No income or company tax is imposed on funds having more than 85% of their underlying assets situated outside Malta;
    • No tax on the Net Asset Value of the fund;
    • No withholding tax on dividends paid to non-residents;
    • No taxation on capital gains on the sale of units in the fund by non-residents;
    • No stamp duty on issues or transfers of units in the fund.

The future of the NAIF structure looks bright. As managers continue to look for specific opportunities and regularly establish vehicles within the short time-frames which such opportunities exist, the NAIF promises to be a valuable solution in Malta’s wider fund offering.

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