Sadis & Goldberg LLP Relevance of Malta Structures for US Managers February 16, 2015 M ALTA F INANCIAL S ERVICES A UTHORITY

Steven Huttler, Partner Sadis & Goldberg LLP 2 Steven Huttler is a partner in the firm’s Financial Services and Corporate Groups. Mr. Huttler has extensive experience in corporate, finance, investment fund and securities matters, including the representation of U.S. and foreign investment funds, underwriters, and private clients in various registered public and private offerings of debt and equity securities totaling in excess of $10 billion. As part of his investment fund practice, Mr. Huttler has served as corporate counsel to many private investment funds and partnerships based in or domiciled in the United States and in international and offshore jurisdictions such as the Cayman Islands, Bermuda, the British Virgin Islands, Ireland, Luxembourg, Isle of Man, Jersey, Guernsey, Cyprus, Mauritius, United Kingdom, Austria, Russia, India and Gibraltar. Mr. Huttler's legal practice has exposed him to diverse fund clients with an exceptionally wide range of investment programs and structures, including large mutual funds and hedge fund complexes, private equity firms, real estate partnerships and funds, venture capital funds and funds focused on specialty finance assets. He has also counseled small start-up hedge funds and financial industry entrepreneurs. His practice has included structuring and establishing start-up funds and managed accounts, and structuring investment funds to benefit from U.S. double taxation treaties. He has advised management companies and fund managers on compensation structures, restructured and reorganized funds, structured, negotiated and documented fund trades, negotiated seed, joint venture and start up agreements, and advised on a range of sophisticated transactions. He has also represented financial services providers, such as brokerage firms (including proprietary trading broker-dealers), fund administration firms and third party marketing firms in structuring their operations, reorganizations to achieve tax benefits, advising on disputes with clients, and in the development of forms for their pension, investment, trading, administration and other services to investment funds, equity, debt and option traders and other clients.

When Do US Managers Consider European Structures? A.Legal: Most Prominently AIFMD B.Marketing C.Tax 3

AIFMD Requirements: 1.Local presence for Fund and Manager 2.Local presence of risk management 4

Cultural Issues Faced by US Managers With Most Non-US Structures  Control  Compare typical US structures to non-US structures 5

US Fund Structure Delaware Fund Investment Manager Key: = Limited Partnership = LLC = Individuals = Contractual relationship 6 Principals General Partner

Non-US Fund Structure Investment Manager Shareholders 7 Key: = Company = LLC = Individuals = Contractual relationship Principals Fund (Company) Board of Directors

Tax and Related Issues: Reasons why US Managers Require Offshore Funds  Offshore (and certain US investors) investors wish to be opaque to IRS filings  No Estate Tax exposure  UBTI  Leverage – Not widely understood: Offshore structures needed for tax exempt US investors more than non–US investors 8

US Tax Issues Created by Offshore Structures  US Source Income  FIRPTA  Withholding 9

Marketing Issues  Certain classes of investors have legal or cultural preference in the entity in which they invest  English vs. French/German speakers  Latin America, Caribbean and Madoff  “White Labelling Products” 10

How Malta Fits in to Needs of US Managers  Timing  Likelihood of approval (“Motivated” Regulatory Regime)  Cost (including minimum capital requirements for investment managers)  Many examples of clients who rejected European structures altogether because of these issues 11

Local Malta Tax Considerations  Unlike the Cayman Islands, BVI and the Channel Islands, Malta is not a “zero tax” jurisdiction  However, in contrast to such zero tax jurisdictions, Malta has a broad tax treaty network, including a tax treaty with the US. The Malta tax treaty with the US contains strong limitations on benefits clause (i.e., anti-treaty shopping provisions).  No Withholding Taxes. Malta generally does not impose a withholding tax on Malta-source interest, dividends and royalties paid to nonresidents of Malta. There is also no branch remittance tax.  Corporate Income Tax – A corporation that is resident in Malta is subject to income tax in Malta on its worldwide profits, with credits granted for overseas taxes. The corporation’s net income is taxed at a flat 35 percent rate. A corporation is resident in Malta if it is incorporated in Malta or if management and control of the business is carried out in Malta. Interest payments are fully deductible in calculating net income and there are no specific thin capitalization rules in the Malta tax legislation.  Individual Income Tax – Residents of Malta are subject to income tax on their worldwide income at graduated rates up to 35 percent. Nonresident individuals are not subject to Malta income tax on their non-Malta source income. 12

Malta - Challenges  Overcoming institutional resistance  Perceived issues – local experience, knowledge and responsiveness  Number of Depositaries 13

US/Malta Funds Collaboration in the Short Term Future: Takeaways  Middle Market Funds  Need to combat widespread or willful ignorance by US participants in “reverse solicitation”  Larger fund managers with EU needs combined with need for speed to market 14

Sadis & Goldberg LLP If you have questions, please contact: Steven Huttler Sadis & Goldberg LLP 551 Fifth Avenue, 21 st Floor New York, NY