Securitisation

Securitisation allows the conversation of an illiquid asset to cash and provides an efficient access to capital markets. The regulatory regime set forth by the Securitisation Act, Chapter 484 of the Laws of Malta has seen the number of securitisation vehicles in Malta rise dramatically. What are the main features of the securitization framework in […]

Written By Stephen Balzan

On October 19, 2017
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Securitisation allows the conversation of an illiquid asset to cash and provides an efficient access to capital markets. The regulatory regime set forth by the Securitisation Act, Chapter 484 of the Laws of Malta has seen the number of securitisation vehicles in Malta rise dramatically.

What are the main features of the securitization framework in Malta?

Separate Vehicle – Bankruptcy Remoteness

No proceedings taken in relation to the originator (including any dissolution and winding-up proceedings and any proceedings affecting creditors’ rights generally) have any effect on: (a) the securitisation vehicle; (b) any securitisation assets acquired or risks assumed by the securitisation vehicle, as well as any cash-flow or other asset of the securitised vehicle and (c) any payments due by the underlying debtors in connection with the securitised assets.

Transfer

A transfer of securitisation assets from an originator to a securitization vehicle is valid and enforceable in accordance with its terms and shall not be subject to re-characterisation for any reason whatsoever.

Ranking of Claims

Unless otherwise specifically provided in the terms of issue of securities: (a) holders of securities issued by a securitisation vehicle shall have a privilege over the securitisation assets and such privilege shall rank prior to all other claims at law, except for other securitisation creditors who enjoy a prior ranking granted to them with the consent or knowledge of the said holders.

Limited Recourse

Save for instances of fraud, no person other than a securitisation creditor shall have the right to demand the issuance or enforcement of any precautionary act or warrant against the securitisation vehicle.

No restriction on Assets

Any asset, whether existing or future, whether movable or immovable, and whether tangible or intangible, and where the context so allows, includes risks can be a securitisation asset.

What is the tax treatment?

Tax rules introduced to achieve tax neutrality in Malta can be summarized as follows:

Income tax applicable to the securitization vehicle – Due on worldwide income. Allowable deductions include (a) sum paid for the transfer of the securitization asset, (b) premiums, interests or discounts in relation to instruments issued or funds borrowed and (c) day-to-day administration costs. If any taxable income remains present at the level of the securitization vehicle, an amount equal to such remaining income can be deducted to ensure that there is no taxable income. Possibility to avail itself of extensive double taxation treaty network.VAT applicable to the securitization vehicle – The Malta VAT law provides for a vat exemption in relation to shares and securities in general.Income tax applicable to the originator on transfer of the securitization assets – No Malta tax liability will be due provided the originator is not resident in Malta.

Stamp duty applicable to the investors on acquisition of shares and securities – Maltese laws provide for an exemption from stamp duty on a transfer of a security issued by a securitization vehicle.

Income tax applicable to the investors on sale of shares and securities – Maltese laws provide for an exemption from tax on capital gains derived from the transfer of a security issued by the securitisation vehicle by non-Maltese residents.

Is a license required?

A private securitisation vehicle does not require authorisation and licensing approval from the MFSA but must merely notify the MFSA before it commences business. If a securitisation vehicle intends to issue financial instruments to the public on a continuous basis, a specific license would be required.

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

Disclaimer: This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.