Legal Forms

 

A SCC can take various forms, including that of a company, partnership or a trust and additionally each cell will require a board of directors’ resolution and the notification to the MFSA (authorisation is necessary in some cases).  It is one company structured in two parts, the core and the unlimited number of cells each having ring-fenced balance sheets.  Thus, if there are multiple projects with different risks, each project will take a different cell.

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Using Listed Asset Backed Securitization

 

Following the 2008 global financial crisis, more stringent regulations were placed on banks which in turn have resulted in restricted levels of lending, especially to SMEs, property and infrastructure development projects, factoring, receivables and commodities.  This ended up in an increase use of the debt capital markets, and particularly the asset-backed securities market.

 

An asset-backed security is a flexible tool for transforming comparatively illiquid assets into transferable securities by having the SCC Cell taking ownership and then issuing securities which can also be listed on a stock exchange.  They typically offer investors basic features such as, a fixed maturity date, fixed redemption amount and fixed or floating returns.

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Since they can be traded on a regulated market, transparency is maximised through full disclosure, including an offering document. Investors are able to know the risk and return inherent in the underlying assets and can exit by selling their investment to other market participants.

 

 

Malta Advantages

 

The main advantages of using Malta SCCs are the following:

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• Activities of a SCC can achieve tax neutrality and non-Maltese resident originators and investors can typically also achieve additional tax advantages;

• Malta’s double taxation agreements allows additional advantages on the underlying assets;

• Activities which are core and essential to the management of securitization are not subject to VAT;

• Illiquid assets can be repackaged and issued backed as listed securities;

• SCC Cells can provide credit enhancement to investors through cell shares or capital notes;

• Cellular profits can be kept inside the cell this resulting in tax deferral;

• SCC Cells provide bankruptcy remoteness;

• Securities issued by the SCC cells can be passported to qualified investors;

• SCCs are excluded from AIFMD and Issuers does not need to be licensed;

• A number of structuring possibilities are available.

 

 

Users

 

From a buy-side, typical clients will include, asset managers and small-medium size companies seeking to raise capital or refinance income generating assets in a cost-effective way.

 

From a sell-side, typical investors are family offices, financial institutions, insurance companies, pension and hedge funds seeking attractive yields for the medium to long-term.

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There are many possible forms of securitization, which on their own or also combined with the inclusion of other possible SPVs could result in a number of tax advantages, including the following:

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• Activities of a SCC can achieve tax neutrality and non-Maltese resident originators and investors can typically also achieve additional tax advantages;

• Malta’s double taxation agreements permits additional advantages on the underlying assets, particularly when held through SPVs;

• Activities which are core and essential to the management of securitization are not subject to VAT.

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Malta has specific rules on the tax treatment of securitisation vehicles to eliminate tax leakage.  Such tax neutrality can be achieved through a combination of the general provisions on deductibility of expenses under the Income Tax Act and further deductions under the Securitisation Transactions (Deductions) Rules.  The securitisation vehicle can opt to wipe out all of its chargeable income by making use of those deductions, resulting in no income tax being payable in Malta.  Thus, there are generally no Maltese tax implications for originators participating in a securitisation transaction with a Maltese securitisation vehicle as long as such originators are themselves not tax resident in Malta.

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Taxation

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Taxable income on Securitization Vehicles is calculated after deducting:

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1. All allowable expenses;

2. Any sum paid to assignor for the transfer of the asset / risk;

3. Premium, interest, discounts or borrowed funds on the acquisition of the asset / risk;

4. Day to day administration expenses of the SV;

5. Optionally, any chargeable income balance, this effectively reducing chargeable income of the SV to NIL.

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Originator:

 

The Originator will be taxable on 2 and 5 (if option 5 is taken by SV).  However if the control and management is not in Malta, income would not be considered to arise in Malta and thus there will be no tax in Malta.

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Investors:

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At Investors level:

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• If SV is a company, income distribution in respect of optional deduction under (5) above is not subject to tax in Malta;

• Interest payment to Investors is not taxed in Malta (if investors are non-residents and do not have a permanent establishment in Malta and are not controlled by residents;

• Dividends payment to Investors not taxed in Malta (if investors are as per above);

• Transfer of units by Investors are not subject to stamp duty (if >90% of business is outside Malta).

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VAT:

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Activities which are core and essential to the management of securitization are not subject to VAT.