Malta Trusts
If we were to define a trust, we would say that trusts exist when a trustee acts as a proprietor who holds property with the intention of administering that property for beneficiaries. It is essentially an agreement between a trustee and a settlor; the settlor will place certain property under the trustee’s control for beneficiaries or philanthropic reasons.
For legal purposes, a trust is considered a legal relationship, not an entity. The trust doesn’t have an independent legal personality, but the property within the trust is separate from the settlor’s, beneficiaries’, and trustee’s assets. Property that can be protected in a trust include real estate, stocks, securities, bank accounts, and art, to name just a few.
Each trust has unique needs, and our tax experts, in collaboration with the partnered licensed trustees, will advise you on suitable trust structure and estate planning to ensure a discrete and tax-efficient solution. Acta Fidelia, through its licensed partners, offers specialised trustee and fiduciary services; most specifically:
- Structuring and implementation of customised Trust Structures
- Acting as Trustee
- Trust Management and Administration
- Foundations Statute - Links to the foundations page
- Foundations Registration - Links to the foundations page.
- Fiduciary Services
Our firm can help you structure your assets through trusts or foundations. The main goal with this type of structuring is to keep the assets separate, and it’s ideal for estate planning and keeping assets protected, mobile, and confidential.
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Management Accounting Services
For those who are considering establishing a trust, Malta is a favourable nation in which to do so, thanks to the Trusts and Trustees Act of 2004, which serves as the comprehensive regulatory and legal framework for monitoring trusts. The legislation is modeled after the UK’s law of trusts, which provides extensive assurance and peace of mind for international beneficiaries and settlors.
As a member of the EU, Malta maintains the Anglo-Saxon concept of a trust, and it also ratified the Hague Convention on the recognition of trusts in 1994. Under these definitions, trusts in Malta can take on different discretionary powers, depending on the trustee’s participation and the benefits granted to beneficiaries.
The life of a trust can stretch to a maximum of 125 years and can be terminated before this time should all the beneficiaries be in agreement. This anti-perpetuity rule does not apply to certain trusts (e.g., charity).
The trust deed is the instrument by which the trust is created and which contains all the terms and conditions that govern the trust; it can be in the form of a unilateral declaration (e.g., last will and testament).
Why Set Up a Trust in Malta?
Asset Protection Trusts
A new international tax landscape is being formed as more and more countries are following the latest OECD guidelines following the latest BEPS reports. In this increasingly tax regulated international environment, Acta Fidelia’s tax experts provide advice with regards to new tax structures that might include both local and overseas entities and structures.
In addition, our tax experts can review existing structures and help your organisation to comply with the new international tax regulations and that are BEPS proof. Our network of local and international highly experienced tax experts will consider all the aspects from a local, regional and international perspective but also provides tax efficient planning advices tailored on the specific commercial needs of your business.
Wealth preservation Trusts
Wealth preservation through trusts is often demonstrated with the ownership of lands or interest in a company that would not be practical or appropriate to be divided between individuals. Using a trust in this fashion enables beneficiaries to enjoy assets without physically owning them. In addition, a trust can help preserve the capital value of future assets for the use of future generations.
Inheritance and succession planning
Another use of trusts is for inheritance of future generations and succession planning. A trust can replace the need for a will with respect to the inheritance of assets placed in a trust – the reason being that the legal title of assets a settlor entrusts to a trustee does not change ownership when the settlor dies.
A trust can also be used to help widows avoid economic hardship while waiting for their deceased spouse’s estate to be settled. This is especially advantageous for bereaved relatives obtaining probate in one country on a will executed in another, as that can be a time-consuming and complex process.
Finally, trusts can preserve inheritance regardless of a country’s legal views of inheritance, due to the flexibility they offer in terms of distribution of part or all of their assets to beneficiaries who would otherwise not be entitled to benefit under the laws of their country of residence.
Tax planning
The use of trusts for legitimate tax-planning purposes in other jurisdictions is quite common. This may be useful not only for taxes payable upon the settlor’s death, but also for taxes payable during their lifetime. For example, the transfer of assets into a trust reduces a settlor’s personal wealth, which might lead to a reduced wealth tax in certain jurisdictions where the settlor might be a tax resident.
Taxation of a Malta Trust
Should the income of a trust be distributed to a beneficiary, this income is not charged tax on the trustee level. In addition, when the total income of a trust arises outside Malta and all beneficiaries are not Maltese residents, then this income is not taxed under Maltese law.
The History of Trusts
It’s a common misconception that trusts were first founded in 12th-century England. This belief stems from the acts of the knights of the crusades, who left their land in the hands of trusted individuals in case they never returned home. If that happened, the entrusted individual would have the obligation to pass the land left in their keeping to a rightful heir (beneficiary).
While this is surely an example of how trusts function, the first examples of trusts date all the way back to Roman times. Roman law exhibited the notion of trusts in the form of two types of trust-like agreements known as fideicommissum and fiducia. These two agreements featured trusts, trustees, and settlors.
Since the inception of trusts, the structure has remained largely the same. A modern-day example of a trust isn’t easy to pinpoint, as it’s an extremely flexible way to protect assets and has a wide variety of benefits and uses. With that being said, the basic concept of a trust and trust structure is that the settlor transfers assets to the trustee, and the trustee’s duty is to manage those assets for beneficiaries.
Difference between a Trust and a Foundation
While a trust is a separate legal personality, a foundation is an organisation. It is legally regarded as an autonomous entity belonging to itself. While it has the characteristics of a business or company, it operates like a trust. Under Maltese law, foundations acquire a legal personality status as soon as they are registered under the Registrar for Legal Persons. The law states that foundations cannot be created to last for more than 100 years.
How to set up a foundation in Malta
To establish a foundation, the founder must draw up a public deed through the use of a notary. The founder may still hold significant control over a foundation by supervising the acts of the administrators or participating in the administration of the foundation himself. In addition, the founder can be the top organ of the foundation.
Foundations have existed under Maltese law for a long time, but it has only been since 2008 that they are specifically regulated. Under the Malta foundations law, foundations must be established in writing through a public deed inter vivos or through either a public or secret will. The foundation deed must include specific details regarding the provisions of power, resolution forms, and signing authority of the foundation. Those characteristics make the foundation more comparable to a company than a trust.
After establishing and registering a foundation, it is considered a new legal person and the foundation itself becomes the owner of the property. This is very different from how a trust is regarded under law, as a trust is not considered a separate legal entity. The foundation is more useful when the founder would like to still maintain a degree of control over the assets owned by the foundation.
The foundation is administered by a board of administrators that has similar powers of representation and administration as the trustee. In both trusts and foundations, the law provides for the role of the “protector”, usually appointed by the settlor/founder, to oversee or qualify the powers exercised by the board of administrators or the trustee. In addition, the founder may appoint a supervisory council, exert significant control himself by directly supervising the administration, or even be one of the administrators as well the beneficiary.
Foundations and Tax
The main purpose of a foundation is to hold assets, and therefore one cannot be established to carry on commercial or trading activity. However, a foundation can hold commercial property or shares in a commercial entity of any form as passive owner.
Under Maltese tax law, foundations are treated as companies. A foundation is considered as domiciled, and ordinarily residing for tax purposes in Malta. All profits of a foundation are subject to a tax rate of 35%. Any distribution of profits to the beneficiaries of a foundation are considered to be dividends distributed to the shareholders of a company, and any transfer of a beneficial interest in a foundation by such beneficiaries is considered to be a transfer of a security for all the purposes of the Income Tax Act.
Finally, administrators of a foundation can notify the Commissioner, in writing, to irrevocably elect that the foundation should be treated as a trust for tax purposes. This allows for extremely beneficial tax and private asset planning, especially where the founders and beneficiaries are non-Maltese tax residents, in which case there is no tax or duty payable in Malta based on the income of the foundation.