Private Collective Investment Schemes

Characteristics

A Private Scheme is not subject to a licence in terms of the Investment Services Act (the “Act”) in order to provide investment services in or from Malta or to use Malta as a ‘base’ for this reason, but shall instead be subject to recognition by the Authority.

The Authority will only grant recognition (i) if it is satisfied that the Private Scheme complies in all respects with the provisions of the Act, Investment Services Act (Recognition of Private Collective Investment Schemes) Regulations and the Rules/ Guidelines issued it under the authority of the Act; and (ii) if the directors and other officers and participants of the scheme are fit and proper persons to carry out the functions required of them in connection with the Scheme. The identity of the ultimate beneficial owners must be made known to the Malta Financial Services Authority. The “fit and proper” test is one which an Applicant and a Recognised Private Scheme must satisfy on a continuing basis.

The Authority will limit its due diligence procedures to determining the integrity of the persons concerned and unlike in the case of licensed schemes, the Authority will not assess the competence of the persons responsible for managing the Scheme, and will not subject the Private Scheme to any investment or borrowing restrictions or other conditions other than those which may be specified in the recognition certificate issued by the Authority. A scheme’s ‘private’ status shall not be automatically operative but shall be subject to a recognition in writing issued by the Authority.

Any recognition granted in terms of these regulations shall not be deemed to be a licence for the purpose of articles 2 and 12 of the Income Tax Act, meaning that the special income tax rules applicable to other types of schemes do not apply. Therefore Private Schemes do not enjoy the exemption from tax applicable in respect of the income of a collective investment scheme (Art 12 ITA).

A recognised Private Scheme need not appoint an external manager and cannot be listed on the Malta Stock Exchange.

Requirements

In order to be recognised as ‘Private’ a collective investment scheme must:

• limit the total number of participants to fifteen persons;
• the participants must be close friends or relatives of the promoters;
• the Authority must be satisfied that the scheme is essentially private in nature and purpose; and
• the scheme must not qualify as a professional investor fund in terms of guidelines issued for this purpose by the Authority.

One of the participants in a Private Collective Investment Scheme (a “Private Scheme”) may be a body corporate, subject to the following restrictions, requirements and conditions:

• taking into account the ultimate individual beneficial owners of such company, the maximum number of 15 participants is still satisfied;
• the company’s ultimate individual beneficial owners are close friends or relatives of the promoters;
• the company is in no manner involved in the management or administration of the scheme and its connection with the scheme is merely that of investor.