Malta's Shariah-Compliant Funds Framework

Malta's recent revamp of its Shariah-compliant investment funds framework is a strategic move to attract investors and asset managers from the Middle East and North Africa ('MENA'), including family offices from the Gulf region ('GCC') to the EU's southernmost jurisdiction.

The Malta Financial Services Authority ('MFSA') informed the industry through a circular about this update in November 2025. This update continues positioning the islands as a bridge between Europe and Sharia finance. Being EU and Eurozone currency member, Malta offers MENA investors a seamless point of entry into the EU's single financial market.

For Middle Eastern fund promoters looking to raise capital in Europe or simply to diversify their base of operations, this is a significant advantage as it gives EU access whilst complying with Shariah norms. Malta's Shariah fund framework is also beneficial for family offices wishing to set up an investment branch in an EU member state.

Outline of Malta's updated Shariah-compliant funds framework

The MFSA's revised 'Guidance Note on Shariah-Compliant Funds' clarifies how Malta's existing funds regime applies to funds adhering to Shariah finance principles.

Rather than creating a separate regulatory silo, Malta integrates Shariah-compliant funds within its standard categories of collective investment schemes such as Alternative Investment Funds, Professional Investor Funds and the entire suite of notified funds and other specialised structures such as the SLPF.

Thus, Shariah-compliant funds in Malta must comply with the general fund rules under the Investment Services Act and MFSA rules, plus the specific guidance for Shariah compliance.

Certain specialised Islamic fund strategies, for instance, Ijarah (lease-based asset funds), commodity funds, or Murabaha (cost-plus financing) funds, are by their nature less liquid or involve non-traditional assets, and thus would typically only be authorised as non-retail (professional) schemes in Malta.

This calibration ensures that higher-risk or novel Shariah strategies are offered only to sophisticated investors (professional or qualifying investors), while lower-risk Shariah funds could be offered even to retail if they meet the usual criteria.

In terms of the MFSA's rules on Shariah, the Shariah-compliant investment fund must conduct Shariah screening of prospective investments prior to acquisition and on an ongoing basis. This typically involves financial ratio screens and qualitative business activity screens to filter out non-compliant securities. The MFSA's guidance note also calls for an annual Shariah audit of the fund as part of its overall audit process. This audit, conducted by the fund's Shariah advisors, reviews the fund's activities over the year and certifies whether the fund remained in conformity with Shariah principles.

A distinctive feature of Malta's framework for Shariah funds is the requirement to appoint a Shariah Advisory Board or at least a qualified Shariah advisor:

• The Shariah Advisory Board must consist of some members who are experts in Islamic finance and jurisprudence (Shariah scholars) who serve as the fund's authoritative interpreters of مصرفية إسلامية (i.e. Islamic banking).
• It can only advise and oversee the fund's compliance with Islamic principles. For example, reviewing and approving the fund's investment policy and trade structures before launch, or issuing guidelines to ensure ongoing compliance. The MFSA delineates that the Shariah Board's role is advisory and supervisory in nature, not managerial. The Shariah scholars do not make day-to-day investment decisions or give specific investment recommendations; those remain the responsibility of the fund's investment manager.
• The Shariah Advisory Board also issues an annual Shariah compliance report explaining whether the fund operated in line with Shariah principles during the period.
• Nevertheless, the fund's directors and its licensed investment manager retain ultimate responsibility for both the financial performance and the adherence to disclosed Shariah requirements.

Malta's regulatory ethos for Shariah funds heavily emphasises disclosure and informed consent. Maltese financial regulatory rules require that a Shariah-compliant fund's Prospectus or Offering Memorandum clearly describe all the relevant Shariah governance and compliance arrangements.

Malta Tax Benefits

Malta has an extensive network of double taxation treaties including with several MENA countries, which can further reduce withholding taxes on income coming into the Maltese structure from global investments.

If for example a UAE-based family office opens a branch in Malta but manages a portfolio spanning Europe, the US, and Asia, the use of Malta's treaty network and participation exemptions streamlines the tax outcome significantly.

Furthermore, Malta's full imputation corporate tax system and refund mechanism can allow structuring opportunities (for example, operating companies in Malta effectively face around 5% tax after refunds when profits are distributed to foreign shareholders). While funds themselves are usually exempt, this corporate tax feature may be useful if the family office sets up affiliated service companies or ventures in the EU for their expansion in the single market covering more than 400 million citizens.

On the family office front, in 2025 the Maltese government introduced new fiscal incentives to draw international family office operations to Malta. For example, senior executives of family offices who relocate to Malta can benefit from a flat tax rate on their employment income (under Legal Notice 250 of 2025 of the Laws of Malta), provided they meet certain criteria such as a minimum salary and foreign domicile. This incentive explicitly targets roles like family office managers, wealth structuring specialists, and treasury management officials, recognising their importance in attracting the assets and business of wealthy families to the island. Thus, Malta is not only business-friendly but also attractive on a personal level for expatriate professionals seeking an EU base.

Cost and Operational Considerations for Shariah Family Offices

Whilst the new Shariah funds framework applies for all types of funds, for many family offices, especially those managing a single family's wealth (single-family offices) or a few families' assets (multi-family offices), operational cost and regulatory agility are important. Compared to the traditional European fund hubs (such as Luxembourg or Dublin), Malta still offers a more cost-effective domicile. The islands' professional fees and service costs are generally lower, while still maintaining English-communicated EU standards.

This means a MENA family office can establish a Maltese structure and engage local fund administrators, custodians, and legal advisors at competitive rates. Notably, service providers in Malta have developed expertise in niche funds and innovative structures. For example, Malta is known for structures like the Notified AIF (NAIF) which allow quick launch of AIFs with a licensed manager through a mere 10-day notification process. The Shariah-compliant fund framework applies to NAIFs as well, which could be advantageous if a family office wants to set up a Shariah-compliant fund swiftly for incoming investment.

Additionally, Malta permits the re-domiciliation of funds and companies: an existing fund set up elsewhere could be migrated to Malta relatively seamlessly without liquidation. This legal flexibility might appeal to a number of situations. For example, a multi-family office in Abu Dhabi that already runs an offshore fund (perhaps in the Cayman Islands or Jersey) but wishes to migrate it under the EU's regulatory umbrella for greater market access or compatibility with European norms, can now do so through Malta whilst retaining its Sharia-finance principles and track-record.

Malta's geographic and cultural positioning is also favourable as it is situated in the Mediterranean at the crossroads of Europe, North Africa, and the Near East, and it has historical ties and diplomatic links with countries in the MENA region as well as direct airlinks. English is an official language in Malta (alongside the semitic-based Maltese language), and its legal system, while based on civil law in some areas, has a strong English common-law influence and uses English for all financial services legislation.

Malta's embrace of branches of Family Offices for wealth management

The Maltese State has demonstrated a strong political will to welcome and cater to family offices and this applies to Shariah Fund initiatives too. A principal driver for MENA-based families to use Malta as a base is the fiscally efficient fund and corporate structures available.

However, some families prefer to retain their main family office in another jurisdiction where they have a stronger family presence and only operate a branch in Malta to have a base in the EU. Malta is welcoming for these types of structures too.

Maltese fund vehicles are typically tax-neutral for foreign investors. This is a significant benefit for a family office managing wealth internationally. Such family offices can consolidate investments through a Maltese fund or holding company without incurring an extra layer of tax, and then repatriate the profits to the Middle East (or elsewhere) with minimal friction.

A MENA investment manager or single/multi-family office branching into the EU through Malta will find a jurisdiction that not only accommodates its Shariah finance needs at the regulatory level but actively welcomes such business as part of its growth strategy. This convergence of legal frameworks and jurisdictional advantages makes Malta an attractive EU gateway for Shariah-compliant tax friendly wealth management inside the Eurozone.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.