Establishing a QROPS in Malta

Chetcuti Cauchi | 31 May 2017

Establishing a QROPS in Malta


In the last few years, Malta has increasingly become the jurisdiction of choice for a number of financial services operators who look at Malta as the ideal platform from where to target their European clients. Malta’s success can be largely attributed to the manner in which the industry is regulated - a prudential but flexible approach, whereby the industry is highly regulated but at the same time allowing room for adaptability and innovation. Moreover, Malta’s tax regime is very stable and thus provides the desired certainty, especially through its 50+ double taxation treaties.

The jurisdiction is committed to support the financial services industry and to look into ways how new applications and solutions can be devised in order to continue expanding this important economic sector. Among the latest introductions, one relates to the establishment of new retirement schemes and funds. In fact, retirement schemes which are established in Malta and which are regulated by the Malta Financial Services Authority (the “MFSA”) may now be recognised by Her Majesty’s Revenue and Customs (the “HMRC”) in the U.K. as Qualifying Recognised Overseas Pension Schemes (“QROPS”).


Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision, also referred to as the “Pensions Directive” provides primarily for the establishment of cross-border occupational pension schemes in Member States, subject to a minimum standard framework for the regulation and supervision of such schemes that must be applied in each Member State.

The principal legislation that affects such schemes in Malta is the Investment Services Act and the Special Funds (Regulation) Act. These Acts establish the regulatory framework for the licensing of retirement schemes. In order to get QROPS status, one needs to set up a retirement scheme under the Special Funds (Regulation) Act of 2002.

Malta retirement schemes

The legal definition

Retirement schemes are schemes or arrangements under which payments are made to beneficiaries for the principal purpose of providing retirement benefits. These schemes may only accept money or other consideration from contributors upon registration under the Special Funds (Regulation) Act (hereinafter referred to as the Act). The term ‘contributor’ refers to an individual whose contributions are made to the retirement scheme solely or partly by the individual concerned for the benefit of that same individual or the employer in the case of schemes whereby contributions are made solely or partly by an employer for the benefit of employees.

A retirement scheme may be established as a closed scheme, whose membership is limited to a single employer or a group of related employers. Otherwise it may be set up as an open scheme, whose membership is open for any employer and is only dependent on acceptance by the scheme‟s administrator.

A scheme or arrangement does not constitute a scheme under the Act if it provides for:

  • the payment of retirement benefits to five or fewer beneficiaries[1]; or
  • solely the payment of proceeds from the surrender or maturity of a long term contract of insurance effected by an insurance company authorised under the Insurance Business Act[2]; or
  • the commencement of payment of retirement benefits to a beneficiary on a date that is earlier than that on which such beneficiary has attained the age of fifty, or later than that on which the beneficiary attains the age of seventy, except in those cases where the scheme or arrangement provides that:
    • the payment is made by reason of the permanent invalidity or death of a beneficiary; or
    • the payment is made by means of a cash lump sum to the beneficiary without the necessity of the beneficiary’s consent in such amount as the MFSA may prescribe in the event that the beneficiary is no longer employed by the contributor of the scheme or arrangement.

Such schemes that do not constitute ‘schemes’ for the purpose of the Act do not fall to be regulated by it – however this does not mean that they are not  regulated at all. In fact, in such cases the provisions of the Investment Services Act would still apply.

Modes of Establishment

A retirement scheme may be established under Maltese Law:

  • by way of contract between the contributors and the retirement scheme administrator; or
  • as a trust constituted by a trust deed between the employer and the retirement scheme administrator providing trustee services.

Retirement schemes registered in terms of the Act and set up as a trust are regulated by the Trusts and Trustees Act, subject to a number of derogations. For instance, the provision stating that unless sooner terminated a trust is deemed to terminate upon the one-hundredth anniversary of the date on which it came into existence, does not apply to a retirement scheme registered in terms of the Act and set up as a trust.

The Scheme Document

In order for a scheme to be registered by the MFSA, it must have a ‘scheme document’ which is to contain all the written terms and provisions prescribed in the exhaustive list provided by the Act, namely:

  • a provision stating that the principal purpose of the scheme is to provide retirement benefits;
  • a provision stating that all contributions to the scheme may be invested exclusively in one or more retirement funds, except for ancillary cash;
  • a provision stating that the scheme is designed and operated for the  exclusive benefit of the beneficiaries specified in such scheme;
  • information as to the specific means to be used to identify all current, and future contributors of the scheme
  • information as to the specific means to be used to identify all current and future beneficiaries of the scheme;
  • information as to the specific means to be used to determine the amount of the respective retirement benefits, and the timing of payment of such retirement benefits;
  • particulars of the initial retirement scheme administrator appointed to carry out the administrative requirements of the scheme;
  • the rules or other criteria governing the valuation of assets and liabilities attributable to the scheme and the timing of such valuations;
  • the rules governing admissible costs and expenses payable out of the scheme;
  • the method of appointment, removal, and replacement of the retirement scheme administrator and, where applicable of the asset manager, auditor, actuary or any other party to the scheme;
  • the rules governing the surrender, termination or forfeiture of a retirement benefit;
  • the applicable rules in the event of an inability or failure by a contributor to fulfil its obligations;
  • the rules governing amendments to the scheme document;
  • the circumstances, other than those established by law, which lead to the winding up of the scheme and
  • a specific provision stating that, unless otherwise prescribed under this Act there exists no statutory provision for compensation in the case where a scheme or retirement fund is unable to satisfy the liabilities attributed to it, and the registration of the scheme or retirement fund is not an endorsement by the MFSA of the scheme’s or the retirement fund’s financial performance.

The main players

The retirement scheme administrator

A retirement scheme administrator needs to be registered with the MFSA under the Act. Its business is to be run by at least two individuals resident in Malta and the retirement scheme administrator must maintain net tangible assets at least to the tune of €116,468.67. In the case of a company whose head office is outside Malta, it must be established in a country which in the opinion of the MFSA is subject to an adequate level of regulatory supervision. The activities of the scheme administrator are to be ordinarily limited to retirement benefits-related operations and activities arising therefrom. However, the MFSA may on a case-by-case basis allow a scheme administrator to be involved in other related activities, provided that these do not create any conflict of interest with the administrator’s duties and do not expose it to undue risks.

The MFSA may also, on a case-by-case basis exempt a person from the need to register under the Act and provide for the automatic registration of the retirement scheme administrator if such person is already licensed under the Investment Services Act in respect of ‘normal’ funds. This obviously helps in avoiding duplication in registration requirements and serves to expedite the whole licensing process.

In the case of a retirement scheme established as a trust, trustee services may be provided by the retirement scheme administrator. In fact, a person registered under the Act as a retirement scheme administrator may apply to the MFSA in order to offer trustee services to retirement schemes. A person registered in terms of the Act to act as a trustee to retirement schemes does not require further authorisation in terms of the Trusts and Trustees Act, provided that such trustee services are limited to retirement schemes. Again, this serves the purpose of reducing a potential duplicate licensing requirement. The law allows any other person as may be approved by the MFSA to provide trust services to the retirement scheme. The latter refers to the possibility of appointing a third party trustee to the scheme. Trusteeship is a licensable activity in Malta, and thus, the trustee of a retirement scheme will either need to obtain a full trustee licence, or a licence which would limit the allowable activity of the trustee to the administration of the retirement scheme.

A retirement scheme administrator is responsible for performing the day to day duties related to the operation of the retirement scheme. Moreover, he is responsible for

  • investing all contributions in accordance with the terms of the scheme document;
  • ensuring that all income and proceeds received by the scheme and that all the disbursements made are applied in accordance with the terms of the scheme document;
  • maintaining accurate records regarding the net asset value of the scheme in accordance with this Act and the scheme document;
  • ensuring that, with respect to a defined benefit retirement scheme, the scheme satisfies the technical funding requirement at each prescribed interval;
  • maintaining custody of assets;
  • maintaining accurate records regarding the scheme’s contributors and beneficiaries;
  • complying with all the scheme’s statutory and other requirements, including those affecting the disclosure of information, admissible financial transactions and the preparation of any financial audit;
  • complying with any applicable laws and regulations whether in Malta or elsewhere and the conditions of the scheme document;
  • complying with any requirements of the Income Tax Acts to qualify for tax-exemption or tax-approval;
  • arranging for all necessary accounting, actuarial or other services;
  • organising and controlling its own affairs in a responsible manner;
  • possessing adequate operational, administrative and financial procedures and controls in respect of its own business and in relation to the scheme in order to ensure compliance with regulatory conditions and to enable it to be effectively prepared to manage, reduce and mitigate the risks to which it is exposed;
  • having adequate arrangements to ensure that its staff are suitable, adequately trained and properly supervised;
  • having procedures to ensure that its staff conduct business openly, fairly, in compliance with rules and regulations, avoid conflicts of interest and avoid any undisclosed or improper benefit to staff;
  • having procedures to ensure the adequate supervision of staff;
  • maintaining adequate records of the training, experience and qualifications of staff;
  • establishing and maintain appropriate compliance procedures with a view to ensuring that the staff are aware of and comply with the rules applicable to the retirement scheme;
  • ensuring that adequate procedures for dealing with complaints are in place. Among others, this includes the setting up of a complaints register;
  • having adequate internal control procedures to protect contributors and beneficiaries, third parties and the scheme administrator itself from financial loss arising from theft, fraud, or other dishonest acts, professional misconduct or omissions;
  • keeping a record of any disciplinary action taken against staff for a breach of any regulation; and
  • making provision for the protection of contributors and beneficiaries in the event of the interruption or cessation of the whole or part of the scheme administrator 's business due to internal or external environmental factors, including technical or human failure. Among others, this entails having in place a disaster recovery and business continuity plan which is in writing, and which is regularly tested and updated.

The retirement scheme administrator also assumes a very important reporting function. In fact, it is required to report to the MFSA in cases of:

  • payments owed to the scheme which are not made in time and which are not received within 30 days of their due date;
  • any breach of the conditions of registration or of any applicable law, rule or guideline as soon as it becomes aware of the breach;
  • a change in the scheme administrator’s name or business name at least one month in advance of the change being made;
  • a change of address, at least one month in advance;
  • the scheme administrator ceasing or being about to cease to act as administrator of the scheme, the reasons for such cessation and any circumstances connected therewith which in its opinion significantly affects the interests of the scheme’s beneficiaries or prospective beneficiaries;
  • the cessation of any appointment of an asset manager, auditor or actuary of the scheme, the reasons therefor and any circumstances connected therewith which in its opinion significantly affects the interests of the scheme’s beneficiaries or prospective beneficiaries;
  • the departure of a director or manager within 14 days of the departure – in such case, the scheme administrator is required to request the director or manager to confirm to MFSA that their departure had no regulatory implications or to provide relevant details, as appropriate;
  • a change in the list of authorised signatories as soon as the change is made;
  • a change in the ultimate beneficial ownership of any party directly or indirectly controlling 10%  or more of the scheme administrator’s voting share capital on becoming aware of the situation;
  • the provision of a related company loan, within 15 days of making the loan;
  • any proposed material change to the scheme document or particulars on becoming aware of the proposal);
  • any proposed material change to the scheme administrator’s business at least one month before the change is to take effect;
  • any evidence of fraud or dishonesty by a member of the administrator’s staff or anyone connected with the operation of the scheme immediately upon becoming aware thereof;
  • a decision to make a material claim on any insurance policy held in relation to the administrator’s business as soon as the decision is taken;
  • any actual or intended legal proceedings of a material nature by or against the administrator or relating to the scheme which might adversely impact on the operation of the scheme or its compliance with the scheme document or the relevant laws upon becoming aware of the same;
  • any material changes in the information supplied by the scheme administrator to the MFSA upon becoming aware of the same;
  • in relation to each scheme for which the scheme administrator acts as administrator, a change in the investment policy of that scheme;
  • any other material information concerning the scheme administrator, its business or staff and any scheme in relation to which it acts as administrator - immediately upon becoming aware of the matter.

It is the duty of the contributors of the scheme to appoint a retirement scheme administrator. Moreover, the contributors may also exercise the power to remove the retirement scheme administrator. Where the post of scheme administrator becomes vacant, the contributors of the scheme are bound to appoint a replacement within 14 days, in default of which, one of the contributors may apply to the MFSA so that the latter proceeds with appointing a replacement. Pending such appointment, any officer of the scheme authorized generally or specifically in that behalf by the contributors will carry out the functions of the retirement scheme administrator.

The retirement scheme administrator may, subject to the provisions of the scheme document, appoint an asset manager to advise on or manage the investment of all or any of the retirement scheme’s assets. Otherwise, it may elect to undertake such functions itself, subject to the obtainment of the requisite registration. It may also appoint a sub-administrator.

Notwithstanding his extensive powers of delegation, the retirement scheme administrator retains the legal responsibility for the overall administration and operation of the scheme. This responsibility also extends to the custody and investment management of the scheme’s assets, regardless of the fact that any such functions have been delegated to third parties. In any case, whenever any activity is delegated to other service providers, adequate monitoring arrangements are to be put in place in order to ensure that the appointed third parties are carrying out the functions in compliance to the prescribed legal requirements. Moreover, the outsourced function cannot be further outsourced, unless any such further outsourcing relates to the custodial function.

The asset manager

In the case where the retirement scheme administrator has delegated the management of the investment of all or any of the retirement scheme’s assets, an asset manager is appointed as well. This is especially the case in those instances where the retirement scheme administrator does not have the relevant expertise in-house.

An asset manager based in Malta is required to be licensed to act as such under the Act if it is in possession of an appropriate investment services licence under the Investment Services Act, 1994 for investment management services of the type to be provided to the scheme in question. Alternatively, a company authorised to carry on long-term business under the Insurance Business Act, 1998 in class VII –‘pension fund management’ will be eligible to be licensed as a retirement scheme asset manager under the Act. For the avoidance of doubt, in the latter case, such a company would not require an Investment Services Licence under the Investment Services Act.

The MFSA may accept overseas-based asset managers not licensed under the Investment Services Act or not authorised under the Insurance Business Act, 1998, if the applicant can demonstrate to the MFSA that it is subject to an adequate level of regulation. The MFSA must also be satisfied as to the reputation and the suitability of the asset manager in relation to the services it is proposing to provide to the scheme in question. In general, it will be expected that the permissible activities of the entity in terms of its overseas regulated status, includes the provision of portfolio management services in relation to instruments of the nature to which the retirement fund or scheme as applicable, will be investing in. An overseas-based person who is established in another Member State and is duly authorized to carry out portfolio investment management, in accordance with Directives 85/611/EEC, 93/22/EEC, 2000/12/EC or 2002/83/EC is exempt from the registration requirement.

An asset manager is bound to comply with the directions given by the scheme administrator, being directions designed to ensure that the scheme is properly managed and administered in accordance with its scheme document, and the applicable laws. A majority by value of contributions to date within the scheme of the contributor of the scheme may at any time replace the retirement scheme manager with a new one.

Other players

A retirement scheme is also required to have an auditor, and in the case of a defined benefit retirement scheme (or any other scheme providing cover against biometric or investment risks), also an actuary. Another party who could potentially be involved in the structure of a retirement scheme is the trustee, in case where the trustee and the retirement scheme administrator are separate entities. Moreover, the retirement scheme administrator may, subject to the provisions of the scheme document and to the MFSA’s prior approval, appoint a third party entity to carry out the back-office administration duties.

The MFSA may also, in certain circumstances, require the retirement scheme to appoint a depositary in order to protect the interests of beneficiaries. A typical case is that where a retirement scheme does not invest its members’ contributions in a retirement fund (as defined in the Special Funds (Regulation) Act), and at the same time it does not engage the services of an asset manager.  The depositary will be entrusted with the safekeeping of the assets of the scheme, and to monitor the retirement scheme administrator in the undertaking of their duties.

Scheme Particulars and Investment Restrictions

The scheme administrator is required to prepare a document called the ‘Scheme Particulars’. The function of this document is to explain in sufficient detail the characteristics of the scheme for the benefit of its contributors and beneficiaries. The information contained in the document is to be such as to allow these interested parties to make an informed judgement as to the nature of the scheme, especially by including information pertinent to the investment policy and any investment restrictions. The scheme particulars are to be maintained and revised at least every three years or more frequently where the circumstances so require.

Interestingly, the contents of the scheme document must contain a statement that in circumstances where a contributor terminates his/her employment to take up employment in a foreign country where there are no occupational retirement schemes, that individual will have the possibility to continue providing contributions himself to the local retirement scheme. Naturally, this is subject to the provision that the individual will additionally be obliged to provide himself for the contributions previously payable by his past employer from whom such individual would have terminated employment. This provision seems to be only applicable in those cases where the individual takes up employment abroad.

A retirement scheme is required to follow the “prudent man principle” when effecting its investments. This entails a number of investment restrictions which are aimed towards ensuring a sufficient diversification of investments. Although there exist no limitations as to the category of assets that a retirement scheme may opt to invest in, it may not invest more than 5% of its assets in contributor-related investments. These investments are defined as including:

  • instruments that are issued by the contributor or an affiliate;
  • immovable property used, occupied or held under any title by the said persons, or
  • loans made to the said persons.

In general, the following investment parameters needs to be respected by a retirement scheme:

  • the assets of the scheme are to be predominantly invested in regulated markets - not more than 10% of the assets can be invested in securities which are not traded in or dealt on a market which:
    • is regulated, operates regularly, is recognised and is open to the public;
    • has adequate liquidity and adequate arrangements in respect of the transmission of income and capital;
  • the assets of the scheme can be invested in derivative instruments only insofar as they contribute to a reduction of investment risks or facilitate efficient portfolio management;
  • excessive risk exposure to a single counterparty and to other derivative operations must be avoided;
  • the scheme must not be leveraged or geared in any manner through the use of futures, options or other derivatives;
  • the assets of the scheme must be properly diversified in such a way as to avoid excessive exposure to any particular asset, issuer or group of undertakings;
  • not more than 10% of assets may be invested in securities issued by the same body;
  • not more than 10% of the assets may be kept on deposit with any one body. This limit may be increased to 30% in respect of money deposited with a bank licensed under the Banking Act of Malta, 1994, or with a bank outside Malta where this is established and regulated in EU/ EEA member states;
  • the scheme cannot hold more than 10% of any class of security issued by any single issuer – the MFSA can be flexible in the application of this restriction in the case of government bonds;
  • the scheme may borrow as long as the borrowings do not exceed 10 % of the value of the scheme and provided such borrowing is temporary and for liquidity purposes;
  • a scheme may not grant loans or act as guarantor on behalf of a third party, without prejudice to the right of the scheme to acquire debt securities;
  • the scheme may acquire the units of retirement funds or other collective investment schemes adequately regulated subject to the following conditions:
    • where a scheme invests in the units of another scheme (managed or advised by the same management company or advisor or by an associate of the scheme’s asset manager or advisor, arrangements must be made to eliminate more than one set of charges on acquisition or disposal and more than one set of management and/or advisory charges.
    • where commission is received by the management company of the scheme by virtue of an investment in the units of another scheme, the commission is to be paid into the property of the scheme;
    • the underlying scheme which is not a retirement fund, must be properly diversified and predominantly invested in regulated markets.
    • the scheme may not invest in a feeder fund or, without MFSA approval, in a fund of funds;
    • not more than 20% of the scheme’s assets may be invested in total in any one collective investment scheme.

Avoiding conflicts of interest

A retirement scheme administrator must act in the best interests of the scheme and may not use the assets of the scheme for its own or other purposes. The retirement scheme administrator is duty bound to immediately declare to the contributors of the scheme or their appointed representative the nature of any direct or indirect interest in any transaction or proposed transaction affecting the scheme and to treat all interested parties fairly. Any directors of the scheme administrator who has a conflict of interest is bound to declare this during the first board meeting held after he becomes aware of such conflict. As a matter of principle, he should also refrain from participating in any discussion on the matter of which he has the conflict of interest – unless it is decoded otherwise by the other members of the board. In any case, he will not be allowed to vote.

A retirement scheme administrator is required to be a separate person independent from the retirement fund administrator. The directors of a retirement fund are required to be independent from the retirement scheme and from the retirement fund administrator. In those cases where a contributor to a scheme is a business concern, the directors of the retirement scheme are also required to be independent from such contributor. Moreover, the retirement scheme administrator is to be a separate person from and independent of the contributor of any retirement scheme which invests in the retirement scheme for which it acts as administrator. While such independence does not preclude a contributor from being represented on the scheme administrator’s board of directors, there must be a majority of directors on the board who are independent of any contributor.

Asset managers also need to be taken into account in maintaining a certain level of independence - in fact, any asset manager appointed to the retirement scheme and the retirement fund administrator are required to be separate persons independent of each other. Moreover, where the contributor to a retirement scheme is a business concern, then the asset manager is required to be a separate person and independent of such contributor. Finally, a person cannot be a director on a retirement fund or on an asset manager and at the same time hold a similar position with the retirement fund administrator or the retirement fund custodian as applicable.

As one can appreciate, the complexity of the above rules is rendered necessary in view of the desirability of having an industry that is built on solid grounds and that enjoys a very high degree of reputability in the eyes of whoever wishes to invest or participate in such schemes. Depending on the particular circumstances of the case, it may also be possible for the MFSA to relax some of these rules, provided that the welfare of the investors is still safeguarded and the retirement scheme or the retirement fund would still operate in a fair and efficient manner.

Acquiring a QROPS status

After being licensed, a Maltese retirement scheme will be able to apply for recognition as a QROPS with Her Majesty’s Revenue & Customs. In practise, the retirement scheme administrator will be required to fill in an official form which is sent to HMRC. The application is considered on a case-by-case basis. In case of a favourable decision, a letter of acceptance is sent to the scheme stating that it has now obtained QROPS status and there will be the issue of a unique QROPS reference number.

Certain reporting requirements arise in the case of payments made in respect of beneficiaries who are:

  • resident in the UK when the payment is made (or is treated as made), or
  • not UK residents at the time the payment is made, but have been resident in the past five tax years from the time the payment is made.

This process has been possible for the past few years, and Malta has witnessed an increased interest in the jurisdiction. To date, an appreciable number of schemes have been through the process and acquired QROPS status.

The advantages

A UK resident who has built up a pension fund within a scheme approved by HMRC or who has built up benefits in an HMRC approved UK Pension Scheme and who lives overseas as an expatriate may transfer existing pension provisions into a QROPS. The end result will be more tax efficient than in the case where the pension provisions are transferred into a scheme that does not qualify as a QROPS. In the latter case, the UK authorities impose an unauthorised payment and scheme sanction charge of up to 55% of the amount transferred – a prohibitive percentage in the majority of cases. Moreover, the administrator of the UK registered pension scheme will incur a penalty of up to 15% of the amount that is transferred to the non-QROPS.


The Special Funds (Regulation) Act has proved to be a very good tool in rendering retirement schemes QROPS-compliant. Further amendments that are currently being discussed are expected to instil greater flexibility into the legal regime and thus be more attractive the promoters wishing to set up such structures in Malta. This together with the importance given by the MFSA to high regulatory standards are bound to make Malta an ideal QROPS jurisdiction.



[1] Such scheme may by written notice to the MFSA opt in, and elect to be considered a ‘scheme’ for purposes of the Act.

[2] Such scheme may by written notice to the MFSA opt in, and elect to be considered a ‘scheme’ for purposes of the Act.


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