How wide is the net cast by the revamped Company Service Provider (CSP) regime? II

How wide is the net cast by the revamped Company Service Provider (CSP) regime? A two-part look into what it is to be a person “operating in or from Malta” who acts or is “holding oneself out” as acting as a CSP “by way of business”.

Part 2: What is meant when a person acts as a CSP “by way of business”?

In terms of the Company Services Providers Act, Chapter 529 of the Laws of Malta (as amended on 16th March 2021, the “CSP Act”), unless otherwise exempt in terms of the CSP Act or the exemption regulations published thereunder, any person operating in or from Malta who acts or holds himself out as acting as a company service provider by way of its business, shall apply for authorisation with the Authority in terms of this Act.

In part 1 of this two-part analysis, we looked at what constitutes “operating in or from Malta” and “holding oneself out” as acting as a CSP when considering whether a person requires authorisation under the CSP Act . This 2nd instalment delves into the meaning of “by way of business”.

The CSP Rulebook indicatively provides several criteria which could lead to a determination that CSP services are being provided by way of business. It first provides the following 3 criteria as indicative that one is acting “by way of business”:

when one holds himself out as providing company services inter alia by soliciting the services on offer to members of the public (see Part 1 for the meaning of holding oneself out); or

when one provides company services on a regular or habitual basis; and

when one is being directly or indirectly in receipt of remuneration or other benefits for providing company services.

While the first two criteria are not cumulative, the CSP Rulebook seems to indicate that the third, i.e. being remunerated in any manner or form for providing company services, is a compulsory element that needs to be present when one is acting “by way of business”. In addition, the said remuneration does not have to directly originate from the entity to whom the company services are being provided but the criterion is still triggered if the remuneration is indirect e.g. through another group entity. Accordingly, the subsistence of one of the first two criteria coupled with the third indicates a ‘by way of business activity which may be subject to requiring authorisation under the Act.

The ‘Guidance on the Application of the CSP Act’ published by the MFSA (the “Guidance Note”) emphasises that the initial focus with respect to a “by way of business” determination should be on whether a service is being rendered on a habitual and regular basis such that the provision of one service is not deemed to be regular and habitual.

The CSP Rulebook also provides an indicative list of further elements which, albeit non-exhaustive, serve as indicators that a person is providing company services “by way of business” and the more that are triggered, the stronger the indication is. The list includes the following:

the remuneration received for providing such services, be it in terms of amount and proportion to the total income of the person, is deemed significant;

  • the individual is receiving significant non-financial benefits or benefits in kind;
  • the amount of time employed by the person to fulfil the profession of a CSP is deemed significant;
  • the person has no other form of employment;
  • the person solicits more than one type of company service;
  • the person has business relationships through which regular appointments are undertaken;
  • the person’s turnover of engagements is deemed significant;
  • the individual is claiming business expenses concerning the provision of company services within his own tax return.

The Guidance Note also indicates that the MFSA will look at the various factors holistically and therefore the determination will depend on a case-specific assessment of the facts and the business model being considered. The Guidance Note and the MFSA’s Frequently Asked Questions documents (“FAQs”) however still attempt to provide further guidance through the use of examples while also emphasising the factual, case-specific assessment that should be made for each situation.

Some useful indications emerging from the examples are worth noting as follows (bearing in mind that all factors should be considered holistically):

  1. The provision of directorship or company secretarial services to one company (where this is not a temporary situation and/or the person concerned is not soliciting further appointments from the public is not deemed to be by way of business and no authorisation is required (this also applies where the director or company secretary provides services to one oversea company operating in or from Malta or group of companies.
  2. A director or company secretary whose appointment is with a company with whom a contract of employment is in place no authorisation is required.
  3. Where warranted professionals provide CSP services in a manner incidental to their principal professional activities not being CSP activities, they are not required to be providing CSP services by way of business and are such, not subject to CSP authorisation by the MFSA. Primary indicators that a professional would be providing CSP services in an incidental manner are, inter alia, that the provision of CSP services is not the focal part of their professional services, is not regular and habitual or against remuneration.

The MFSA has stressed the importance of factual, case-specific analysis and has emphasised the importance of seeking legal advice or turning to the MFSA in case of doubt…

Join us on 19th March 2021 at 16.30 for our panel discussion on the revised CSP regime. Click here to register.

Should you need any advice on these matters please contact Annalise Papa.