"Malta provides an outstanding opportunity for private equity and venture capital managers. It has a flexible LP structure, an extensive network of double tax treaties, a favourable local tax regime and experienced service providers who can provide a cost-effective solution," comments Felicity Cole (pictured), Head of the Funds Department at Maltese law firm, Mamo TCV Advocates.
Of particular importance says Cole, are recent changes made to the Maltese Companies Act, which governs limited partnerships, including changes which set out the extent to which limited partners can participate in the management of the partnership without losing their limited liability. This is important in the context of investment committees. In many other jurisdictions the law is less clear than it is in Malta, and for large institutional investors, inclusion on the investment committee is imperative.
Maltese law also clarifies that an LP is able to sit on the board of the GP without losing its limited liability. "This can be important for investment management companies who might have subsidiaries as limited partners and also want representation on the board of the GP," adds Cole.
Another benefit to private equity managers is that a Maltese limited partnership has a separate legal personality. This is advantageous when the partnership is looking to get financing, for example.
The recent introduction of the Maltese loan fund regime in 2014 brings a further advantage to the private equity space in Malta. It provides a framework within which Maltese funds can provide finance to unlisted companies and SMEs and acquire portfolios of loans, and several loan funds have already been set up.
Malta also has an extensive tax treaty network with 69 tax treaties in force while Luxembourg, so often the go-to choice for PERE managers, has 74 tax treaties in place; a few countries in Southeast Asia and Central Asia, such as Kazakhstan, being the principal differences.
Some of the important countries with which Malta has tax treaties in place include: South Africa, India, Mexico, Israel and the Middle East, including Morocco, Qatar, UAE, Turkey and Bahrain.
Malta's tax environment is attractive, both for funds and management companies. Malta's holding company tax regime works particularly well for funds which take advantage of Malta's tax treaty network to invest in a third country through a Maltese holding company.
For example, say a private equity manager invests in a portfolio company in Morocco.
When the Moroccan company remits either income or gains to the Maltese holding company, provided the Moroccan company qualifies as a "participating holding of the Maltese holding company, there will be no Maltese tax on the income or gains. "In addition, there are no withholding taxes when the Malta holding company distributes to its shareholders," explains Cole.
Malta's membership of the EU means that the Parent-Subsidiary Directive and the Interest & Royalties Directive offer further opportunities for tax planning.
There are many advantages to private equity managers who choose Malta but in Cole's view, the tax treaty network is a key point, given that structuring a private equity fund is largely tax-driven: "Private equity managers should be aware of how much of an overlap there is with regards to the jurisdictions with which Luxembourg and Malta have tax treaties. However, it is a more cost-effective and quicker process to set up funds in Malta."