The trust was fully incorporated into Maltese law by virtue of the Malta Trusts and Trustees Act, which was modelled on the Jersey trusts law and which also transposed into domestic law the provisions of the Hague Convention on the Law Applicable to Trusts and on their Recognition – ratified by Malta in 1994.
A trust may come into existence unilaterally (by means of a declaration in writing containing, inter alia, all the terms of the trust) or otherwise by oral declaration, or by an instrument in writing including by a will, by operation of law or judicial decision.
A Malta trust exists when property is transferred by the settlor to a trustee who would be required to hold, administer and (where applicable) employ and deal in the said property for the benefit of beneficiaries and/or for one or more charitable purposes in accordance with the terms of the trust and the requirements of law.
Property transferred or settled on trust as aforesaid effectively constitutes a separate fund owned by the trustee and which is distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust. Accordingly, personal creditors of the trustee are denied access and recourse against the trust fund and, furthermore, that fund would not form part of the trustee’s personal estate upon his insolvency or bankruptcy or of his estate upon his death.
Despite the said shift in legal ownership to the trustee and the ring-fencing of the trust property from the personal property of the trustee, a Malta trust is not a legal entity afforded legal personality (such as a company or a foundation). Accordingly, the trust property is managed and administered via the legal personality of the trustee.
A trust may validly exist for a maximum of 100 years (with certain exceptions) and may be created with a virtually limitless range of powers vested in and obligations incumbent upon the trustee as well as rights pertaining to the beneficiaries. Several types of trusts are accommodated under the Maltese trust law including, inter alia, discretionary trusts, fixed interest trusts, life interest trusts, contingent trusts, security trusts, trusts for certain prescribed commercial transactions (including securities offerings, collective investment schemes, employee benefit or retirement schemes or arrangements timeshare and multi-property structures).
A trust would be transparent for Malta tax purposes (such that all income and/or gains derived by the trust would, for Malta tax purposes, be deemed to have been derived directly by the beneficiaries of the trust) to the extent that none of the said beneficiaries shall be persons resident in Malta and, additionally, that any assets acquired and held by the trust shall be located outside Malta.
Maltese Foundations are regulated by the Second Schedule of the Civil Code (Chapter 16 of the Laws of Malta), which was introduced by Act XIII of 2007 to complement the detailed regulatory framework for trustee and fiduciary activities, and voluntary organisations.
A Foundation is an organisation consisting of a universality of things constituted by one or more founders whereby assets are destined either:
- For the fulfillment of a specified purpose – known as ‘purpose foundations’; or
- For the benefit of a named person or class of persons – known as ‘private foundations’.
Malta Foundations may be constituted by virtue of a public deed or by a will. The deed of foundation or foundation statute is 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.
Whilst a Maltese foundation cannot be established to trade or carry on commercial activities, it may:
- be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, a trade mark, a ship or other asset which gives rise to income;
- be used as a collective investment vehicle (subject to the applicable licensing formalities), the management of which is delegated to a third party;
- be used as a vehicle for the purpose of securitisation transactions, borrowing monies against the issue of bonds and conduct related acts.
Once the Malta foundation is duly registered with the Registrar of Legal Persons it is effectively vested with legal personality distinct and separate from that of its founders, administrators and/or beneficiaries. Accordingly, a foundation is capable of holding assets for its own benefit and of incurring obligations for which it is liable with all its assets, present and future.
The assets of a foundation must be entrusted to the administration of a designated person/s known as the “administrator/s”. Administrators of a Malta-registered private foundation must be authorised to act as such in terms of the Trusts and Trustees Act.
From a Malta tax perspective, a foundation is treated in the same manner as a company that is ordinarily resident and domiciled in Malta. This means that chargeable income accruing to and/or gains realised by a Malta 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 (thereby effectively reducing the combined overall Malta tax rate to 5%).
Alternatively, the administrators of a foundation may irrevocably elect to have the foundation taxed in Malta under the rules applicable to trusts. To the extent that none of the beneficiaries of the foundation are persons resident in Malta and that the foundation’s assets are 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 (meaning that the foundation would be totally transparent for Malta tax purposes). As 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.