The taxation of collective investment schemes (hereinafter referred to as “CIS”) is in Malta is regulated by the applicable provisions of the Income Tax Act (Chapter 123, Laws of Malta), the Collective Investment Scheme (Investment Income) Regulations (LN 55 lf 2001) and by the Collective Investment Scheme Guidelines issued by the Malta Inland Revenue Department.

The provisions of Maltese tax legislation relating to the taxation of CIS are intended to create a fiscal framework that supports the development of the fund industry in Malta at the domestic and international levels.

Prescribed and non-prescribed funds

The tax regime applicable to CIS is generally based on the classification of funds into:

– Prescribed funds – funds of a CIS that are incorporated in Malta where the value of the assets situated in Malta allocated to such funds for the purpose of their operations are, or are expected to be at least 85% of the value of the total assets; and

Non-prescribed funds – funds that do not satisfy the aforementioned conditions, that is, non-resident funds and resident funds that are not prescribed.

Prescribed funds

In the case of a prescribed fund, all income is exempt from tax other than:

– Income from immovable property situated in Malta, which is subject to tax at the standard corporate rate of tax of 35%.

– Any interest, discounts, or premiums earned on Maltese government stocks or bonds, bonds issued by listed companies and investment income payable by corporate entities, which are subject to 10 % withholding tax.

– Bank interest income, which is subject to a 15 % withholding tax.

Non-prescribed funds

A full tax exemption applies on gains or profits accruing to a non-prescribed fund except for income from immovable property situated in Malta, which is subject to tax at the standard corporate rate of tax of 35%.

Taxation of dividends, interest and capital gains

 – No tax is levied on dividends and interest payments made to non-residents;

– Non-resident unit holders are not subject to withholding tax upon the disposal of units in any fund;

– A final 15 % withholding tax is levied by the prescribed and non-prescribed fund when Maltese residents receive a distribution from the fund’s foreign sourced income;

– A distribution of profits which would not have been taxed at the fund level is subject to a final 15 % withholding tax by a prescribed and non-prescribed fund when paid to resident individuals and other persons which are not companies;

– Capital gains arising on the disposal of units held in a non-prescribed fund which is resident in Malta and payable to Maltese resident individuals and companies are subject to a final 15% withholding tax unless investors opt to receive the gross amount.

Other relevant Maltese tax implications

– Malta has entered into Double Taxation Treaties based on the OECD model with roughly 60 countries;

– No Malta VAT is chargeable by the fund to investors on subscription to shares/units in the fund;

– Fund management and administration services are exempt from VAT in Malta;

– If the fund management company is owned by non-residents, the effective rate of Malta tax is 5 percent after receipt of a partial refund of the tax paid by the hedge fund manager/advisor due on a dividend distribution of its profits to such non-resident shareholders.