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Taxation of Investment Committee Members’ fees

Taxation of Investment Committee Members’ fees

In the case of a self-managed Fund, the Investment Services Committee appointed by the Fund’s Board of Directors can delegate the day-to-day investment management of the fund assets to one or more portfolio managers. However, it is imperative that the committee itself holds meetings at least on a quarterly basis and furthermore, the majority of the meetings must be physically held in Malta.

In relation to IC members’ fees, the Malta Inland Revenue Department has recently clarified that non-resident investment committee (IC) members of Maltese funds are subject to tax on the portion of remuneration they receive that is attributable to management services that are physically performed in Malta.

The Maltese Inland Revenue Department has therefore clarified that remuneration for the provision of advice as IC member should be regarded as payment for services rendered. Consequently, non-resident IC members should be taxable in Malta on the portion of the remuneration they receive that is attributable to the services that are physically performed in Malta.  This means that in the case where the IC members are persons who are not resident in Malta, they are taxable on the part of the remuneration as is deemed to arise in Malta (subject to the application of a double taxation agreement). Due to the complexity of making that determination, the tax authorities have determined that the portion of the remuneration that should be attributable to the portion of the services that are physically performed in Malta is to be computed on an annual basis as the higher of:

  1. the actual number of days of presence in Malta in a given calendar year; and
  2. 1/12th of the IC member’s compensation as such for a given calendar year.

Any taxable income will be chargeable to tax in Malta at the progressive non-resident tax rates (or such other rates that may be applicable under the Income Tax Act).

VAT
Services in relation to the management of an investment scheme are exempt from VAT in Malta if the services are specific to, and essential for, the core activity of the scheme. As a general rule, the exemption applies to services supplied to a fund by external fund managers.

The basis for the VAT exemption concerns the services, rather than the status or type of person supplying them. Based on principles established in judgments of the European Court of Justice, the VAT exemption may also apply to services provided by investment committee members if the fund for which the services are being provided is a qualifying fund for purposes of the VAT exemption and that all other conditions for the exemption are satisfied.

By EMD Advocates

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