The setting up of trusts in Malta is regulated by the Trusts and Trustees Act incorporating within it the Hague Convention on Law Applicable to Trusts and on their recognition which Malta has ratified. The Trust and Trustees Act provides for the creation of trusts and authorisation and supervision of trustees. The competent authority for this purpose is the Malta Financial Services Authority (MFSA).
A trust does not constitute a separate legal person. It is the trustee who holds the property in ownership for the benefit of the beneficiaries. A trust is a mere obligation or relationship between the settlor and the trustee which may be formed by the creation of a will, by any other instrument in writing, or even by oral declaration. A trust may also come into existence by operation of the law or by judicial decision. Unless the trust is a unit trust or a trust formed for a charitable purpose, it may remain in existence only until its 100th year after which it must terminate.
A trustee is a person whether corporate or individual in whom the property is vested on trust for the beneficiaries provided all the requirements are met. Trustees are usually specifically appointed by the trust instrument in the manner so provided.
Summa Fiduciary Services Ltd is licensed to act as trustee by the Malta Financial Services Authority. Any professional or corporate trustee operating in Malta is bound to obtain authorisation from the MFSA, irrespective of the proper law of the trusts they hold or the location of the property held on trust.
We understand that our clients require trustees with high levels of skill and expertise and with an understanding of the importance of their role. We can assure you that we are well trained individuals with integrity and a commitment to providing excellent service tailored to meet individual client requirements.
The tax regime which complements trusts typically provides a look-through treatment based on the assumption that the beneficiaries are not resident in Malta and the relevant income and gains arise outside Malta. When a Malta trustee qualifies for such fiscal transparency, then all income or gains attributable to the trust would be deemed to have been derived directly by the beneficiaries of the trust.
Should a Malta trustee not qualify for fiscal transparency, then all income and gains attributable to the trust would be chargeable to tax in Malta at the flat rate of 35% when at least one of the trustees of that trust is a person resident in Malta for tax purposes.
Although foundations have always existed under Maltese law, they were never specifically regulated. A recent law, enacted in 2008, provides that the foundation must be constituted in writing, via public deed inter vivos or a public or secret will and then registered with the Office of the Registrar of Legal Persons, which is an ad hoc office set up for the specific purpose of undertaking the registration of legal persons in general. The foundation deed must include detailed provisions containing the powers, form of resolutions and signing authority of the foundation, features which make the foundation more similar to a company set up than a trust.
Once a foundation is established, a new legal person is created so it is the foundation itself which becomes the owner of the property. This is a significant variation from the trust concept as a trust does not constitute a separate legal person and it is the trustee who holds the property in ownership for the benefit of the beneficiaries. The foundation is also preferable when the founder would like to retain a degree of control over the assets.
The foundation has a board of administrators which would have broadly similar powers of administration, representation and disposition as the trustee. In both trusts as well as foundations, the law provides for the figure of the “protector”, usually nominated by the settlor/founder, that can qualify, or in some cases limit, the discretions exercised by the trustee or board of administrators. In the case of a foundation, the founder may also appoint a supervisory council. The board of administrators is accountable for the management of the foundation, but the founder may exert considerable control. The founder may directly supervise the administration and he may even be one of the administrators as well as beneficiary.
The foundation’s main aim should be to hold assets. In fact it cannot be established to trade or carry out commercial activities although it may be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, trade mark or ship as a passive owner. It is also worth noting that a trust can be converted into a foundation or vice versa and that both private trusts and private foundations have a duration limit of 100 years.
A very interesting feature is that it is lawful to establish segregated cells within a foundation to achieve particular purposes with particular assets. The segregated cell will not have separate legal personality however the assets and liabilities of the cell constitute a distinct patrimony distinct from other assets and liabilities of the foundation or other cells.
In terms of Maltese legislation, it is also possible to re-domicile a foundation in and out of Malta.
By default, a foundation is to be treated, for tax purposes, in the same manner as a company, so any rules applicable within the context of a company would equally apply within a scenario involving a foundation. A foundation shall be treated as ordinarily resident and domiciled in Malta and tax shall be payable on the profits of a foundation at the rate of 35% and it shall be payable in the same manner applicable to companies. Hence distributions of profits to beneficiaries of a foundation shall be treated as if they were dividends distributed to shareholders of a company and any transfer of a beneficial interest in a foundation by such beneficiaries shall be deemed to be a transfer of a security for all the purposes of the Income Tax Act.
The administrators may by notice in writing to the Commissioner irrevocably elect that the foundation be treated as a trust for tax purposes. Such gives rise to very beneficial private asset planning opportunities particularly where the founder and beneficiaries are not resident and domiciled in Malta, in which case no tax and duty will be payable in Malta upon settlement or on the income attributable to the foundation.