Amendments to the VAT exemption on management services of investment schemes
Amendments to the VAT exemption
With effect from 22nd November 2016, supplies of services consisting of management of securitisation vehicles and authorised reinsurance special purpose vehicles are exempt from VAT without credit in Malta.
VAT Alert 03/2016
Legal Notice 383 of 2016
With effect from 22nd November 2016, supplies of services consisting of management of securitisation vehicles and authorised reinsurance special purpose vehicles are exempt from VAT without credit in Malta. Such exemption has been brought into force through Legal Notice 383 issued on the said date, which extends the definition of ‘investment schemes’ as provided for in item 3(6) of Part Two of the Fifth Schedule to the Value Added Tax Act to cover securitisation vehicles (SVs) as defined under the
Securitisation Act and authorised reinsurance special purpose vehicles
(ARSPVs) as defined in the Re-Insurance Special Purpose Vehicle Regulations.
Prior to the amendment the exemption was only applicable to management of collective investment schemes (CISs) as defined under the Investment Services Act and retirement schemes (RSs) as defined under the Special Funds (Regulation) Act, now the Retirement Pensions Act.
With the new amendment, the VAT treatment of management services of the said four vehicles (CISs, RSs, SVs and ARSPVs) has been harmonised. The exemption has remained subject to the condition that the services are ‘specific to and essential for the core activity of the scheme’. Such condition is generally interpreted as capable of including management services provided by an investment manager, additional core activities like administration and investment advisory services and outsourced activities that meet the said criteria.
SVs generally refer to vehicles set up in any form that acquire assets from, assume risks from or grant loans/facilities to an originator, whereby such transactions would be financed, in whole or in part, through the issue of financial instruments. In this manner, securitisation transactions allow an originator to convert receivables and other assets into tradable securities via a vehicle. Securitisation of insurance/ re-insurance risks is performed through dedicated vehicles, known as ARSPVs.
With the said VAT amendment, SVs and ARSPVs need not pay/ account for and potentially suffer Maltese VAT on the receipt of qualifying management services. In turn, Maltese investment managers and other suppliers of qualifying management services to such entities are no longer required to charge 18% Maltese VAT on their services. However, due to the fact that the exemption is one ‘without credit’, such suppliers are not entitled to recover input VAT on expenses incurred in the furtherance of their management services. Given that the exemption is generally equally applicable to outsourced activities that satisfy the condition of being specific and essential to the core activity of the scheme, no VAT should be incurred by
Maltese managers delegating such specific and core functions when the delegated functions are for the direct needs of qualifying investment schemes.
Since the introduction of the Securitisation Act in 2006, Malta is reportedly the fastest growing securitisation jurisdiction within Europe. The introduction of the Re-Insurance Special Purpose Vehicle Regulations earlier on this year have stepped up the efforts to support the trend. In this context, and considering that it is common for SVs and ARSPVs to delegate the responsibility for their day to day management and administration to third parties, it is expected that the new VAT changes will increase Malta’s attractiveness as a securitisation jurisdiction. The VAT changes clearly establish and imply that SVs and ARSPVs do not need to pay or account for VAT in Malta on what can be a major cost to them – the management and other core and specific activities. As a corollary, the VAT compliance obligations of such SVs and ARSPVs, particularly of those who receive management services from outside Malta, will reduce. On the part of the Maltese managers and suppliers of qualifying services, albeit the exemption is one without credit, the exemption has matched the VAT treatment with that covering management of CISs and RSs, potentially reducing their complexities of partial recovery.
For further insight on Securitisation in Malta, you may wish to refer to our Malta Securitisation Factsheet.
If you would like to know more about this VAT development and how it might affect your business, or indeed to discuss any other tax matter, please get in touch on firstname.lastname@example.org
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