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Trusts in Malta

Malta is considered as a growing reputation and as a seat of confidence, particularly as the non-cooperative jurisdictions has increased. Malta as a member state of the EU,  with around 60 double taxation agreements and with very high reputation of high quality professional services gains a vital role in the area.

Malta, based on a fairly responsibility of the policies has successfully completed the transfer of the trust law system. The possibility for national courts to recognize and support the principles of confidence is a strong advantage of Malta’s legal system.

From 2010 Malta’s Law has an alternative policy in a trust where both institutions are regulated, and each has its own set of tax.

Among Malta’s advantages regarding trusts is the fact that there is a huge flexibility in regards to the choice of law. Foreign trust is recognized, therefore the legal principles of other jurisdictions regarding trusts can be implemented in Maltese courts and consequently tax liability to Malta can be excluded.  Accordingly above characteristics leads to high efficiency.

The law governing the trust can with other words either be Maltese or foreign law. With the ratification of the Hague Convention on the recognition and execution of the trusts, the Maltese courts have recognized the validity and enforceability of trusts governed by foreign laws.

As to the mandatory rules including rules of forced inheritance embedded of Malta’s Civil law legislation will have no impact on the founder who is not domiciled in Malta at the time of settlement.

With more details the tax system in Malta is proving to be extremely beneficial to trusts set up by non-residents, resulting in either complete neutrality or a low effective tax rate. The Trust income is taxed at 35% with relief from foreign tax unilaterally relief but the income trust consisting of investment could be subject to a final 15% withholding tax. Where at least one of the managers of the trust is an individual resident in Malta, the tax applies as follows.

The majority of Malta resident managers could be useful for other countries' recognition of tax residence.

A major point is that, if the trust's income consists of income arising outside Malta or from interest or royalties, profits arising from the disposal of securities or certain income from dividends agreed and provided that the beneficiaries are either not ordinarily residents or not domiciled in Malta leads to tax neutrality and transparency of the trust in Malta. Exception is the securities in a company where the assets of which entail solely or principally from immovable property situated in Malta.

Therefore when all managers do not have their residence, and assets for trust located or registered in Malta, distribution falls outside of Malta authority to tax. When a manager resident in Malta is elected, he is treated as a company and any gains arising from the transfer of shares the operating participant will be tax-free provided that all conditions for the tax exemption are fulfilled. No obligation consequences occur when the distribution of the assets of the trust excludes real estate in Malta and the exemption applies for securities where the company's activity is not related to Malta.

The law of Malta allows the establishment of private and purpose foundations. An institution can order any purpose which is lawful and doesn’t need to be to the beneficiaries.

Once a foundation is established, the act has filed and a new legal person created the institution itself acquires ownership property of a foundation. The institutions have separate legal status recognized by law that does not recognize trusts. Also while the trustee takes legal possession of assets' then the founder of the institution continues to maintain a level of control on the direction of the property. An institution has the option to establish separated cells in order to reach specific purposes with certain assets. In this case, the assets and obligations cell are a unique heritage which is divergent from all other assets and obligations of the body.

An institution may be transformed to a commercial enterprise, although it cannot be transformed completely in a trade, a foundation can be used for the purpose of exploitation assets, comprising shares, trademarks or other assets arising income. Foundations can be used as a fund vehicle for piloting a common pool of assets which can include pension benefits to employees, or systems and securitization vehicles. Foundations based in a foreign jurisdiction may change their seat in Malta.

The administrators are required to keep records for the annual financial periods, but not duty bound to have such accounts inspected and audited or to prepare merged accounts.

Finally the regulatory authority responsible for the authorization and supervision of managers and foundation managers is the Malta Financial Authority (MFSA).  Confidentiality is a basic principal among trustees and the liquidators.
Foreigners that are authorized or entitled to act as a trustee in an approved jurisdiction can strongly profit from the fast-track application, or even the recognition.

Author: Maria Erotokritou

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