Unit trusts have established themselves as a flexible and efficient structure for collective investment under Maltese law. While rooted in trust law, they are commonly regulated as Collective Investment Schemes under the Investment Services Act (“ISA”), making them particularly attractive to both fund promoters and investors seeking alternatives to more rigid corporate vehicles.
What is a Unit Trust?
A unit trust is a legal arrangement in which assets are held by a trustee on behalf of investors, known as unit holders, who participate as beneficiaries in the profits generated from managing and disposing of those assets. Unlike a company, a unit trust does not have a separate legal personality. Instead, the trustee holds the legal title to the trust property, while the unit holders enjoy a beneficial interest in the trust.
The trustee is responsible for safeguarding and administering the trust’s assets in accordance with the terms of the trust deed. Investment decisions, however, are typically delegated to a fund manager, who acts within the parameters defined in the deed. This separation of custodial and investment functions is a key feature of the unit trust model and ensures transparency, accountability, and alignment with the investment objectives.
Legal and Regulatory Framework
Unit trusts in Malta are recognised under the Trusts and Trustees Act, which defines them as trusts created to facilitate participation in profits from the acquisition, holding, or disposal of assets. They must be established by a written trust deed and may be subject to additional regulation if set up as a retirement scheme or investment fund under the Retirement Pensions Act or ISA.
Depending on their structure and target investors, unit trusts may fall under one of several regulatory classifications:
- Undertakings for Collective Investment in Transferable Securities (“UCITS”) are suited for retail investors and must comply with the EU-wide UCITS Directive.
- Alternative Investment Funds (“AIFs”) are designed for professional or qualified investors and must meet the requirements of the AIFMD.
- Professional Investor Funds (“PIFs”) cater to high-net-worth individuals and institutional investors, offering greater structural flexibility with lighter regulation.
Establishing a Unit Trust
The process begins with defining the trust’s investment objectives, identifying the appropriate regulatory classification, and selecting the target investor base. Key appointments must then be made, including the trustee, fund manager, distributor, and, where required, a custodian and auditor.
The trust deed is the foundational legal document governing the unit trust. It sets out the rights and obligations of the trustee and fund manager, the procedures for issuing and redeeming units, and the investment strategy. If the unit trust is to be marketed to investors, a prospectus must also be prepared, detailing the fund structure, risk factors, fees, and other relevant information.
Regulated unit trusts must be authorised by the Malta Financial Services Authority (“MFSA”). This involves submitting the trust deed, prospectus, Key Investor Information Document (if applicable), and other supporting documents, including evidence of the licensing status of key service providers. Once the MFSA is satisfied that all regulatory requirements have been met, it will issue the necessary authorisation.
Key Advantages
One of the main benefits of a unit trust is its structural flexibility. Unlike corporate structures, unit trusts are not bound by the Companies Act and can be customised to meet specific investment needs. They also benefit from tax transparency, allowing profits to flow through to investors without being subject to additional layers of taxation at the fund level. Moreover, there is no statutory limitation on the duration of a unit trust, unless expressly provided for in the trust deed, allowing for long-term investment planning.
A Strategic Choice for Fund Structuring
With their adaptable legal framework, investor-friendly features, and alignment with EU regulatory standards, unit trusts are a compelling option for collective investment in Malta. Whether structured as UCITS, AIFs, or PIFs, they offer a commercially flexible and legally robust alternative to more traditional vehicles.
If you are considering setting up a unit trust in Malta or would like to better understand the regulatory and legal options available, our team is here to assist.
