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Introduction

Foundations are defined domestically as constituting an organisation consisting of a universality of things constituted by one or more founders whereby assets are destined either:

1. for the fulfillment of a specified purpose – such foundations being referred to as ‘purpose foundations’; or
2. for the benefit of a named person or class of persons – such foundations being referred to as ‘private foundations’.

Constitution of a Foundation

A foundation may only be constituted by virtue of a public deed inter vivos or otherwise by a will. Accordingly, a foundation cannot be created by private writing or oral arrangement. The relevant deed of foundation is further required to contain certain mandatory details including the foundation’s name, its registered address, a description of the constitutive assets with which it is formed (a minimum amount or value of €1,165 applies but is lowered to €233 if the foundation is established exclusively for a social purpose or as a non-profit making foundation) and its purposes and/or objects.

As regards the said purposes and/or objects please note that a foundation may not be established to trade or carry on commercial activities – even if the proceeds of such efforts are destined to social purposes. Notwithstanding the aforesaid, however:

1. a foundation may be endowed with commercial property or a shareholding in a profit making enterprise, a franchise, a trade mark or other asset which gives rise to income, as well as a ship as long as the organisation is only the passive owner of such assets;
2. a foundation may, subject to such authorisations as may be necessary under applicable laws, be used as a collective investment vehicle, and issue units to investors therein, for the passive holding of a common pool of assets, the management of which is delegated to a third party, including a pension or employee benefit arrangements;
3. a foundation may be used as a vehicle for the purpose of a securitisation transaction, borrow monies against the issue of bonds and do all relative and ancillary acts.

Functions of an Administrator

At any rate, the assets of a foundation would be entrusted to the administration of a designated person or persons. That person or persons (i.e. the administrators) would generally be required to procure the registration of the foundation with the Malta Registrar of Legal Persons in the manner and within the time period prescribed.

registration would, in turn, vest the foundation with a legal personality distinct and separate for all intents and purposes from that of its founders, administrators and beneficiaries

Such registration would, in turn, vest the foundation with a legal personality distinct and separate for all intents and purposes from that of its founders, administrators and beneficiaries, if any. As such, by virtue of its separate legal personality, a foundation would be fully capable of holding assets for its own benefit and of incurring obligations which it would be liable to satisfy or fulfil with all its present and future assets (a foundation would not, however, be liable for the obligations of any other person except to the extent that it expressly agrees to be so liable).

The administrators would, inter alia, also be responsible to keep records of all the foundation’s assets and liabilities and income and expenditure, to maintain possession and control of the foundation’s property, to safeguard such property and to ensure compliance with the statute thereof and any applicable laws. In particular, the administrators must ensure that the foundation’s patrimony (i.e. assets and liabilities) are kept distinct from that of its founder, administrators or any beneficiaries.

Tax Treatment

From a Malta tax perspective a foundation is treated in the same manner as a company that is ordinarily resident and domiciled in Malta … Alternatively, the administrators of a foundation may irrevocably elect to have their foundation taxed in Malta under the rules applicable to trusts

. As a result, chargeable income accruing to and/or gains realised by a foundation would be subject to tax in Malta on a worldwide basis at the flat rate of 35%. However, upon a distribution of qualifying foreign or local source income by the foundation in favour of its beneficiaries, the said beneficiaries would generally be entitled to a refund of 6/7ths of the Malta tax suffered by the foundation on the qualifying income out of which a distribution was effected (thus reducing the combined overall effective Malta tax rate to 5%).

Alternatively, the administrators of a foundation may irrevocably elect to have their foundation taxed in Malta under the rules applicable to trusts. In the circumstances, and to the extent that it is understood that none of the beneficiaries of the proposed foundation shall be persons resident in Malta and, additionally, that any assets acquired and held by the foundation shall be located outside Malta, all income and/or gains derived by the foundation would, for Malta tax purposes, be deemed to have been derived directly by the said beneficiaries (such that the foundation would be totally transparent for Malta tax purposes). In turn, such non-resident beneficiaries would not be chargeable to tax in Malta on non-Malta source income and/or gains deemed to have been derived directly by them as aforesaid.

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