Over the last five years Malta’s funds industry has been significantly expanding. Fund administrators and other fund professionals are already present and there is large educated labour pool.

Because of its size Malta, a small island in the Mediterranean, has a distinct advantage over some of its larger rival hedge fund jurisdictions. It is still possible to make direct contact with government, regulator and legislators in the jurisdiction without having to deal with the layers of bureaucracy that can exist in larger, more complex, financial centres.

Despite its relative small size, Malta nevertheless boasts a highly educated workforce available for the expanding financial services industry.

Malta has a large pool of educated and qualified staff and, with a population of around 400,000, is probably the third-largest financial services centre in the world. Luxembourg, with over 500,000 daily immigrants from surrounding countries, comes ahead of Malta. Dublin leads European jurisdictions with a population of 1.5 million.

Compared to other European hedge fund centres both in and outside the European Union (EU), Malta is low cost. The professional advisors including attorneys and auditors located in Malta are efficient and proactive and up to a par with, and in some cases better, than their opposite numbers in London, Dublin and Luxembourg.

As a full member of the EU as well as the eurozone, Malta is able to provide a stable economic and political environment. It is known as a well regulated jurisdiction, transposing EU laws quickly and effectively. Its fund structures are regulated to EU standards and include not just Ucits products but also professional investor funds (PIFs).

Regulation within the EU is more cohesive and stronger than that in more traditional offshore jurisdictions. However, Malta has the advantage of being a small jurisdiction, which has the leeway to be pragmatic in the way legislation and regulation is implemented.

Legislation in Malta is pragmatic and efficient while still maintaining strong and effective regulation. The Maltese regulatory authority has shown it is determined to ensure any participants in the market comply with regulations. At the same time it has demonstrated a pro-business attitude and the flexibility that can only exist in a small jurisdiction.

One of the most influential and attractive aspect of Malta as a fund domicile is the proactive, business-friendly attitude of the Malta Financial Services Authority (MFSA). It is fair to say if you have a regulatory query or any regulatory problem, the MFSA’s door is always open and it is prepared to work with you to resolve your problem.

As the market becomes polarised between the larger start-ups which are targeted at and attract institutional investors and the small and more modest start-ups, Malta is gaining traction as a favoured jurisdiction. Generally, the managers of the smaller start-ups are ex-prop desk or hedge fund traders who have gone out on their own, willingly or otherwise, following the financial debacle of 2008-09.

The seed capital in these new funds is usually restricted to the managers themselves and friends and family. Often this results in initial assets under management (AUM) of less than $10 million and often around $5 million.

The traditional source of seed capital from adventurous allocators and private high net worth or family office investors has, for the time being, at any rate, seemed to have evaporated. The willingness of the larger attorneys to set up a small fund is often limited and the cost of setting up a standalone fund can vary from $30,000 to $150,000, depending on the advisor selected, is penal in the context of the small amount of capital available.

Funds form the largest sector within the Maltese financial services industry. Hedge funds are particularly well catered for but all types of funds, including Sicavs and Ucits are available. Assets under management in funds in the country top €7.5 billion ($9.94 billion) at June 2008.

Malta’s credibility as a reliable specialist centre for funds is growing rapidly, especially after the recent launch of several high-profile complex hedge funds. These include one fund structured for a North American institution.

This particular structure was designed to combine the security of a fund vehicle with the flexibility provided by a diverse portfolio of managed accounts. A master/feeder fund was created with the master being a multi-segregated cell fund company and each segregated cell fund representing a ring-fenced account.

The ability to structure and launch such a complex fund in Malta is a testimony to the expertise of the professionals in the jurisdiction. Lawyers and other professionals in the country are experienced in dealing with various fund structures and have responded particularly well as funds begin to use more complex strategies and structures.

Malta ensures it is relatively quick to set up a fund once all the necessary information and documentation is in place. It should be possible if there are no complications for a fund to be set up within two or three weeks in Malta. This is faster than many other jurisdictions.

Malta was named as one of the top three financial centres likely to increase in importance over the next two to three years in the third edition of the Global Financial Centres Index published in February 2008. Only Dubai and Shanghai were placed above Malta in the Index. Malta was ranked sixth out of 139 countries for financial major development by the World Economic Forum’s Global Index 2010-11.

Foreign companies are flocking to Malta, too. Nearly 3,000 new companies were registered in 2009 and the Maltese Registry had over 46,000 companies listed in total.

In the current economic climate, many governments are targeting what they perceive as ‘tax havens’, which could be a major disadvantage for investors who merely want to find a tax-efficient way of managing their investments.

One advantage of Malta is that although it has low taxation (zero for funds and, effectively, zero for most non-domestically owned Maltese companies), as a member of the eurozone it is less likely to be accused of being a ‘tax haven’ of any sort. This should make Malta an attractive place to invest in the future.

Malta has over 45 double taxation treaties, including one with China. As well as negotiating the tax treaty, China and Malta have worked together on several high-level projects. Chinese companies have begun to register in Malta and the Maltese government hopes to build on this by providing new business opportunities for Chinese companies and investors.

Maltese funds are regulated by the MFSA under The Investment Services Act 1994 (and later revisions). There are several different types of collective investment schemes or funds that can be registered in Malta, each suited to different sorts of funds or levels of investment.

Collective investment schemes in Malta can be set up under a number of legal structures: a collective investment company with fixed (Invco) or variable share capital (Sicav); a unit trust; a mutual fund; or a limited partnership.

The fund itself usually takes one of two forms: either a professional investor fund (PIF) or a private scheme. Private schemes are those that have no more than 15 participants. The regulator must ascertain that the participants are all closely associated with the promoters and that the fund is essentially private in nature and purpose.

PIFs are open to ‘extraordinary investors’, ‘qualifying investors’ or ‘experienced investors’, depending on the minimum investment and net assets of the investors.

Extraordinary investors must have assets of over €7.5 million, qualifying investors over €750,000. Experienced investors must have the knowledge and experience to be able to make their own decisions regarding investment, and recognise the risks involved.

Experienced investor funds require an initial minimum investment of €15,000. However, many funds impose a minimum investment limit of €100,000 in order to avoid the more retail end of the market.

PIFs offer low set-up costs and tax-saving advantages. Funds based in Malta are exempt from income and capital gains tax. For funds where less than 85% of their assets are situated in Malta, no withholding tax is imposed on investment income.

Although Malta is still developing as a financial centre, it already has everything in place to make it an excellent base for funds. There are a variety of structures on offer, with a large pool of experienced professionals to deal with setting up and administering funds. Legislation and regulation is effective but flexible. The government has taken a pro-business stance that is supported by all political parties.