Glossary of Financial Terms
The act of registering an aircraft vehicle as per the regulations of the Aircraft Registration Act (2010), which is fully compliant with EU legislation. All EU and EEA citizens/companies, as well as those with a place of residence or business in Switzerland are able to register or lease an aircraft in Malta. However, all applications must satisfy the requirements of the Airworthiness Inspectorate.
Alternative Investment Fund Managers (AIFMs)
Managers of Alternative Investment Funds (AIFMs) are the main people responsible for the coordination and upholding of an invested share in an AIF. According to the Alternative Investment Fund Managers Directive (AIFMD), AIFMs are obligated to update the Malta Financial Services Authority (MFSA) with regular information pertaining to the status of their AIFs.
Alternative Investment Funds (AIFs)
An Alternative Investment Fund (AIF) is a collective investment undertaken by a number of investors following the regulations of the Investment Services Act (1994), as well as the legislation of Alternative Investment Fund Managers Directive (AIFMD) into Maltese law in July 2013, an initiative which regulates the progress and promotion of alternative funds within the EU with the intention of continually improving Malta’s fund industry.
Amortisation refers to the gradual decrease in value of an asset, often through a series of payments of debt. Amortisation is similar to ‘depreciation’, with the main exception being that it is used more frequently with regard to intangible assets.
Asset backed security
An asset-backed security (ABS) is a financial security which is composed of a collective pool of assets which is non-mortgage in nature. These underlying assets are often unable to be sold individually.
Capital employed refers to the required capital investment for the successful operation of a business. The term is used with regard to stocks and shares, rather than assets.
The total amount of money spent to acquire a long-term asset. The value of said asset may decrease with time.
Capital Gains Tax (Malta)
A tax liability that takes the form of a transaction cost, usually amounting to a flat rate of 12% on the transfer value of any property being sold. Only brokerage fees can be deducted from the selling price.
Used most commonly with regard to insurance, Captive companies are institutions set up by parent groups to provide coverage to clients when buying a product or service offered by the parent company. Therefore, it can be considered to be a form of self-insurance. With Malta being the sole EU member state with Protected Cell Company (PCC) legislation, insurance companies on the island enjoy various advantages and benefits.
The various departments that constitute a single company or institute. Such departments include, but are not limited to, Marketing, Finance, Accounting, Human Resources, and IT.
An officially recognised institution granted the ability to receive deposits, make loans, and provide checking and savings account services at a profit. Malta currently hosts 27 credit institutions, including internationally-owned ones, all of which follow the regulations of the CRD IV Package published in the Official Journal of the European Union in 2013.
Monetary and non-monetary assets that are expected to be converted into cash after a year.
A company’s monetary debts and obligations, including short term debt, accounts payable, accrued liabilities, and other debts.
Custody and Depository Services
Services that are related to the administration and security of financial instruments, including maintaining financial accounts, issuing certification documents, overseeing financial transfers, and so on. Such services have been on the increase of Malta’s Fund Industry, and all providers of such services must be approved by the Malta Financial Services Authority (MFSA).
Double taxation treaty
Conventions between two countries that prevent a resident from one territory from being taxed twice on income or gains he/she makes in another territory. Both countries divide the tax rights between them, which safeguards the interests of both governments, as well as all residents receiving income from other countries. Currently, Malta boasts such treaties with around 70 countries.
Unavoidable fees or charges that are added to a headline price after the initial stages of a purchase process.
A relatively new addition to Malta’s financial services, E-Money Institutions (EMI) are entities that are empowered to issue electronic money, as well as provide payment, operational, and ancillary services, all in relation to digital currency. Due to the island’s strong E-commerce and I-gaming industries, EMIs are a growing niche in Malta with serious proven potential.
The act of increasing revenue by selling company stock to investors. Shareholders thus receive a degree of ownership interests in the company.
European Wholesale Securities Market (EWSM)
An EU-regulated market aimed at preserving the needs of international providers of wholesale debt, Asset-backed Securities (ABSs), and derivative securities. As a joint venture between the Irish Stock Exchange (ISE) and the Malta Stock Exchange (MSE), the EWSM is a formidable international market. The EWSM is an approved EU regulated market under MiFID, as well as a Recognised Stock Exchange under the UK Income Tax Act, 2007.
Expat residency (Malta)
A growing community of foreigners who have some form of residency in Malta, currently estimated to amount to around 20,000 persons. Malta offers a Residence Programme for EU nationals, as well as a Global Residence Programme for non-EU nationals, which offers a flat tax rate of 15% to people who decide to purchase or rent property in Malta.
Family Business Act
A legislative measure culminated from the work of the Malta Association of Family Enterprises (MAFE) which seeks to distinguish family businesses from other types of businesses in order to give them the appropriate training, benefits, and taxation. The Family Business Act is currently unique to Malta.
FATCA (The Foreign Account Tax Compliance Act)
A US legislation launched to reduce tax evasion by citizens of the United States of America. Foreign Financial Institutions are obliged to report to the Internal Services Revenue (IRS) about their US customers. A 30% withholding tax is imposed on the US source income of any Financial Institution that fails to comply with FATCA. FATCA has been implemented in Malta since 2014.
The various economic services provided by the finance industry. Malta’s financial services are regulated by the Malta Financial Services Authority (MFSA). Some of these services are found in the form of credit institutions, banks, insurance companies, accountancy companies, and the fund industry.
Various types of non-monetary compensation, or benefits, provided to employees in addition to their salary.
Fully drawn advance
A loan of a fixed amount of money which is borrowed with the intention of repayment with interest on a predetermined schedule. Loans are generally secured via a registered mortgage over a residential or commercial property or business asset.
Malta’s fund industry hosts over 580 investment funds which have a combined net asset value of almost €10 billion. The Malta Financial Services Authority and Malta Fund Industry Association (MFIA), which regulate Malta’s funding schemes, caters to all clients of quality, ranging from smaller financial series companies and start-ups to larger entities. The MFSA offers various types of funds, including Professional Investment Funds (PIFs) and Alternative Investment Funds (AIFs). Malta’s legislation also provides for the setting up of UCITS (Undertakings for Collective Investment in Transferable Securities) and non-UCITS retail funds.
Hedge funds are alternative investments, available solely to sophisticated investors, using pooled funds that may use a number of different strategies in order to earn active return for their investors. It is important to note that while ‘hedging’ is actually the practice of attempting to reduce risk, generally the goal of most hedge funds is to maximize return on investment.
Malta regularly receives high rankings in benchmarking reports and was named ‘Most favoured domicile in Europe’ for investment funds in the Hedge Funds Review Service Provider Rankings in 2013 and 2014.
Income share agreement
An Income Share Agreement (ISA) is a financial arrangement in which an individual or organization gives a fixed loan to a recipient who agrees to repay the money via a percentage of his/her income for a fixed number of years.
The amount of tax that is deducted from one’s income according to different tax brands. Malta has a corporate income tax rate of 35%.
Incorporated Cell Companies
Incorporated Cell Companies are institutions which house within them incorporated cells. In Malta, cell owners are allowed to insure directly risks in the European Economic Association (EEA), sell insurance to third parties in EEA, and reinsure risks outside the EEA. Cells can also insure on non-admitted basis risks globally where allowed.
Malta’s Incorporated Cell Company is one of the latest investments in the island’s thriving insurance industry. The cell company and its cells may conduct business of insurance and reinsurance, including affiliated business.
Initial public offering (IPO)
Often undertaken by private companies transitioning into public ones, Initial Public Offerings (IPOs) refer to the first sale of stock by a private company to the public.
Insurance management is the act of managing, directing, and assisting insurance companies, especially those that are new to the captive insurance market. Malta has a good number of insurance management companies, including reputable international names and more boutique establishments, all of which form part of the Malta Insurance Management Association, an association aimed at ensuring the highest levels of training and conduct amongst its members.
Insurance & Reinsurance (Malta)
Insurance is a form of risk management characterised by an agreement between an Insurance company and a client in which protection from loss is exchanged for money, while reinsurance is insurance that is purchased by an insurance company from one or more other insurance companies.
Malta has a strong Insurance and reinsurance industry which has remained prosperous even when other countries saw serious economic failure. The island’s insurance and reinsurance companies benefit from EU legislation, which provides a wide insurance licence with which to carry out business with other member states. Malta is the only full European member state to offer Protected Cell Company (PCC) legislation, allowing companies to establish a cell within a PCC and write risk through that cell.
Islamic finance refers to financial service systems that are consistent with Islamic (Sharia) law. In particular, Islamic law prohibits usury, the collection and payment of interest, and investing in businesses that are considered unlawful, or haraam - such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values. Islamic Finance is a sector which is growing at 10-15% per year, and currently at least $500 billion in assets around the world are managed in accordance with Sharia, or Islamic law. The MFSA, as an EU regulator, has issued formal guidelines on Sharia-compliant investments.
Islamic Finance Glossary
Liquidity ratios measure a company’s ability to pay off current and long-term liabilities. Liability ratios calculate a company’s current cash levels as well as the company’s ability to convert other assets into cash to pay off obligations.
Loans made from a specific source of money, generally made to smaller business development companies. Established in 2014 in Malta and regulated by the Investment Services Act, loan funds are lent either in the form of Professional Investment Funds (PIFs) or Alternative Investment Funds (AIFs) depending on the license of the Fund Manager. Financial and Credit institutions are not allowed to borrow loan funds.
An agreement between a financial/credit institution and an account holder which allows the latter to borrow more credit than he/she has in the account. An overdraft facility is often undertaken to help individuals or small businesses with short term cash flow problems.
Payment service providers that primarily originated from the EU-directed Payment Services Directive (PSD), 2010. Established with the intention of achieving and levelling a single payment market in the EU, Payment Institutions (PIs) are allowed to issue and acquire payment instruments, offer money remittance, FX services, and ancillary services. The number of Payment Institutions (PIs) licensed in Malta has seen enormous growth over the last few years, and are nationally regulated under the Financial Institutions Act. PIs are not allowed to receive deposits or other repayable funds from the public and must use funds exclusively to provide payment services.
Pension schemes (related to Malta)
A scheme/fund that offers retirement income. Malta’s pension schemes cater to both national and international clients, and offer fees that are comparatively lower than in other jurisdictions.
Private banking refers to the collection of financial services offered to individuals or entities that receive a high-net-worth income. While Maltese retail banks, such as Bank of Valletta and HSBC Malta offer professional financial advice and products to such clients, there are also various international banks in Malta, including Mediterranean Bank, which offer Swiss-style private wealth management, as well as foreign banks such as Akbank T.A.S., Sparkasse, and BAWAG.
Professional Investor Funds (PIFs)
Professional Investor Funds (PIFs) are the most common form of funds in Malta, falling within the regulations of the Investment Services Act, 1994. As collective investment schemes, they provide more flexibility than other types of funds licensed by the MFSA. Maltese PIFS are usually used for hedge fund set-ups.
Protected Cell Companies/Protected Cells
A company that may conduct business of insurance, reinsurance, and management by means of internal cells. PCCs offer various advantages to stand-alone companies, such as through a PCC an insurer who owns a protected cell may write business using the core’s capital.
QROPS (related to Malta)
Qualifying Recognised Overseas Pension Schemes (QROPS) are pension schemes that were established in 2006 that allow eligible countries to transfer pensions to UK pensioners living overseas without an additional tax-charge. The MFSA established QROPS in Malta in 2009, which helped the island establish itself as the leading market for UK expats’ pensions.
In addition to the UK market, Malta is continually working to establish similar pension agreements with other international entities.
A financial instrument created through the combination of other financial assets, which is marketed as a repackaged instrument to investors. In any form of securitisation, an originator such as a bank or an insurer, transfers an asset or liability to a Special Purpose Vehicle (SPV) – or a securitisation vehicle as termed in the Securitisation Act – which issues securities to investors who in turn fund the asset or liability transferred.
Self-managed superannuation fund
A trust structure used to manage retirement savings on behalf of a company’s members.
The amount of a company’s equity raised by trading stock to a shareholder for cash.
The total amount of a company’s earnings composed of shares. Thus, Shareholders’ funds represent a company’s total assets, minus the consideration of liabilities.
An investment fund which meets the requirements of Sharia-law (see below). Sharia-complaint funds may be set up as UCITs funds or PIFs. However, industry experts believe that Malta’s framework for PIFs provides a more attractive environment for Sharia funds to work in.
Islam’s legal system. Sharia law is an essential consideration in Islamic finance as it prohibits usury, the collection and payment of interest, and investing in businesses that are considered unlawful, or haraam - such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values.
Stock Exchange (Malta)
For over 20 years, the Malta Stock Exchange has successfully fulfilled its role as an effective venue to raise capital finance, and has gained a reputation for being a respectable EU capital market for small cap and non-European issuers and the ‘go-to’ option for investment and business. The Exchange provides a structure for admission of financial instruments to its recognised lists which may subsequently be traded on a regulated, transparent, and orderly secondary market place.
Often referred to as ‘Islamic bonds’, Sukuk are unconventional bonds that are not debt obligations, but rather represent a beneficial ownership interest in the underlying asset or activities which generate cash flow. Sukuk are financial instruments which sit above a Sharia-compliant underlying structure which generates revenue on behalf of the holder of the instrument. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has defined sukuk as certificates of equal value representing undivided shares in the ownership of: tangible assets, usufructs and services, the assets of particular projects, or special investment activity.
Takaful (Islamic Insurance)
Takaful refers to Islamic insurance
which is structured as a charitable collective pool of funds based on social solidarity and cooperation. Takaful participants contribute equally to a fund to help protect one another against risks, whereas in the conventional insurance model, policyholders pay premiums to protect themselves. Malta possesses the right legislative instruments to set up Takaful instruments.
Tax system (Malta)
The Maltese tax system is the only remaining full imputation system in the EU. The system has been in use since 1948 and is fully approved by the EU and OECD, complying also with the EU’s non-discrimination system. Malta tax has an ideal residency status, with individuals and companies paying up to a maximum of 35% on income, with some revenues subject to tax refund for resident and non-resident shareholders. Malta also offers an extensive network of double taxation treaties.
Trading (Stock Exchange)
The Malta Stock Exchange (MSE)
is in the process of creating a new trading platform called MSE International, which will give members of the Exchange the ability to trade in international instruments that were traditionally only accessible through third parties.
This will provide access to a vast range of international securities, together with cost-effective clearing, settlement, and custody services. The initiative is at an advanced stage and is the result of the MSE’s use of the Xetra trading platform operated by Deutsche Börse in Frankfurt. This will facilitate trades in both domestic instruments and international securities, and make use of clearing and settlement processes in a cost-effective manner.
The transfer of property from a settlor to a trustee, who holds the property for the beneficiaries of the trust. Maltese law caters for all types of trusts, including discretionary, accumulation and maintenance, fixed interest, spendthrift, charitable, and unit trusts. Malta Trusts are overseen by the Private Trust Company (PTC), which culminated from the recent Trust and Trustees Act.
UCITS (Undertakings for Collective Investment in Transferable Securities) Schemes are harmonised European retail fund products that can operate throughout the EU on the basis of a single authorisation from one member state, provided that it follows certain notification procedures. UCITS offer a high degree of investor protection and are recognised by regulators worldwide. They can be marketed to both retail and institutional investors.
The money needed to establish the development of companies in their early stages. Venture capital funds are usually exchanged for equity in the companies invested in.
The measurement of the change in return capital over a period of time of a particular security.
Malta is the largest flag fleet in Europe, and as such all yachts can be registered in the name of legally-constituted corporate bodies or entities irrespective of nationality, or by European Union citizens who are limited to pleasure yachts. Malta is an especially attractive base for superyachts, which are over 24 metres in length.
The Commercial Yacht Code dictates that such vessels – which should not carry more than 12 people at once – are not subject to income tax, but that an annual tonnage fee is calculated according to the size of the vessel.