| 21/8/2008 |
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| Collective Investment Schemes |
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| CIS guide |
3. Prescribed and Non-Prescribed Funds2 |
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| 3.1 - Initial Classification of Funds |
The investment income provisions relating to collective investment schemes distinguish between prescribed and non-prescribed funds. This classification determines the tax treatment of the income of the collective investment schemes in relation to such funds and of the capital gains or dividends derived by the investors from their investments in such funds.
A fund of a Malta based scheme3 is classified by the Commissioner of Inland Revenue as a prescribed fund if the value of the assets situated in Malta is, on the 1st March 2001, at least 85% of the value of the total assets.
The Commissioner will base this classification on values declared by the collective investment schemes themselves. All Malta based schemes must for this purpose make a declaration to the Commissioner with respect to the value of the assets allocated to each of their existing funds. This is a simple declaration stating whether or not the value of the assets situated in Malta on the 1st March 2001 is at least 85% of the total value of the assets of that fund.
A similar declaration is to be made whenever a collective investment scheme licence is issued to a new fund of a Malta-based scheme after the 1st March, 2001. This declaration will state whether the above-mentioned percentage of 85% applies to the fund or not on the basis of plans and forecasts as to the place where their assets will be located and the expected value of their assets. New funds will be classified on the basis of this declaration.
In their declarations of values of assets, collective investment schemes must use the same valuation criteria which they adopt for the purpose of reports they submit to the Malta Financial Services Authority. The relevant value for any day is that determined at the close of business of the last preceding day.
Once a fund is classified, it will retain that classification unless and until a new classification is made.
Funds in overseas based schemes4 are always classified as non-prescribed funds and they are not required to make declarations to the Commissioner on the value of their assets.
The classification of "prescribed funds" and "non-prescribed funds" does not apply to schemes that are not licensed under the Investment Services Act. In accordance with the provisions of the Income Tax Act, income and gains from such schemes is to be declared and charged to tax at the normal applicable rates of tax.
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| 3.2 - Change in the Classification of a Fund in a Malta Based Scheme |
The classification of a fund may be changed by the Commissioner if there is a change in the proportion of the value of the Malta assets to the value of the total assets. For this purpose, the value of the assets will need to be worked out on a daily average and a thirty day hold-on period is allowed as explained below.
The average daily value of assets is the total of the value on each of a number of days divided by that number. The relevant number of days is the number of days from the date when a classification is made up to the date when that average is to be calculated, but the maximum relevant number of days is 90. If the average is to be calculated on a date when more than 90 days have passed from the date on which the last classification was made it will be worked out by reference to the values for the 90 days preceding the date of the calculation.
Changes in the average daily value of assets become relevant when the resulting ratio of Malta assets to total assets go below (in the case of a prescribed fund) or reach (in the case of a non-prescribed fund) 85%. Such a change will not produce any effect if it is reversed within twenty-nine days. But if a relevant change in the ratio is not reversed for thirty consecutive days it must be notified to the Commissioner.
Funds whose assets include both Malta assets and foreign assets are therefore required to monitor values on a daily basis. Table 1 illustrates the steps involved in determining the average daily values and the monitoring which is required in order to determine whether a notification of a change should be made.
When a change in circumstances has been notified to the Commissioner it is up to the Commissioner to decide, in his discretion, whether he will make a fresh classification. Unless and until a fresh classification is made the fund will retain the existing classification notwithstanding the change in the circumstances.
If a new classification is made, the tax treatment of the fund will change as from the date of that classification as explained in Section 4.2.
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