Malta VAT rule change increases reinsurance SPV efficiency

by Artemis on December 5, 2016

An amendment to Malta’s laws that extends a value added tax (VAT) exemption to include authorised reinsurance special purpose vehicles (RSPV’s) set up in Malta will help to ensure the islands insurance-linked securities (ILS) framework is as attractive as possible to potential registrants of such vehicles.

Efficiency is key in the ILS market and Malta has recognised this fact through an amendment to its taxation laws in order to ensure that management services provided to RSPV’s are exempt from VAT.

Malta launched its ambitions to become a domicile for the ILS and cat bond sector in 2013, before finalising and bringing into law its regulations governing the formation and domicile of Reinsurance Special Purpose Vehicles (RSPV) at the start of 2014.

The island domicile then followed up with a regulations for ‘Securitisation Cell Companies’ (SCC) as Malta looked to establish a flexible range of options for reinsurance, catastrophe bonds and insurance-linked securities (ILS), as well as other forms of securitisation.

The amendment was published in a legal notice recently and extends the reach of a VAT exemption that benefits certain investment vehicles to include securitisation vehicles as well. The exemption is for management services rendered to these securitisation structures.

The amendment explicitly includes reinsurance special purpose vehicle (RSPV) as one of the securitisation vehicles exempted.

Matthew Bianchi, a Partner at Maltese law firm Ganado Advocates, explained to Artemis; “This amendment to the Value Added Tax Act is a significant and welcome change to the local securitisation framework as it ensures that management and advisory (including insurance management) services rendered to a Maltese reinsurance special purpose vehicles (and securitisation vehicles generally) will be exempt from VAT, in keeping with the overall tax efficiency required of ILS and other securitisation structures.”

Deloitte Malta also explained; “The amendment will be welcome news to securitisation vehicles and authorised reinsurance special purpose vehicles established in Malta which acquire management services. Prior to the amendment, such services were not covered by the VAT exemption, thus often resulting in an irrecoverable VAT cost for such vehicles.”

But where VAT is concerned there is always the other side of a service arrangement to consider as well.

“Managers providing their services to securitisation vehicles or to authorised reinsurance special purpose vehicles will likely be impacted as well. Since their services will now classify as VAT exempt (without credit), their right to recover VAT incurred on their expenses will be significantly curtailed,” Deloitte continued.

In essence, with VAT an 18% rate for such services to financial structures, a reinsurance special purpose vehicle domiciled in Malta would see an equivalent reduction in its management costs.

This helps to bring the costs of establishing and operating an RSPV for collateralised reinsurance or ILS purposes further into line with the costs seen elsewhere.

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