Malta foundations

Establishing a foundation in Malta

Despite foundations having long been recognised in Maltese Law and practice, specific legislation was promulgated in 2007 with a view to finally set out a legal framework under the Second Schedule of the Maltese Civil Code that regulates domestic foundations.

As such, a foundation is defined as an organisation consisting of a universality of things constituted by one or more founders whereby assets are destined either for:

  • the benefit of a named person or class of persons such foundations being designated “private
  • foundations”; or,
  • the fulfilment of a specified purpose – such foundations being designated “purpose foundations”.

A foundation may not be established to trade or carry out commercial activities, even if the proceeds of such efforts are destined for social purposes. Nonetheless, 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;
  • subject to such authorisations as may be necessary under applicable laws, be used as a collective investment vehicle. They may 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;
  • 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.

The assets of a foundation would be entrusted to the administration of a designated person or persons. The said

administrator(s) 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 periods prescribed.

Such registration would, in turn, provide 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).

Key features of foundations

Method of establishment
A foundation must be constituted in writing by virtue of a public deed or by a will. As such, a foundation cannot be created through private writing or an oral arrangement. The relevant deed of foundation (which must be registered with the Malta Registrar of Legal Persons) is required to contain certain mandatory details including the foundation’s name, its registered address, its purposes or objects and a description of the constitutive assets with which it is formed.
The assets of a foundation may originate from any lawful business or activity and may consist of present or future assets of any nature. The minimum initial endowment of money or property must be worth at least €1,165 (or €233 should the foundation be established exclusively for a social purpose or as non-profit making).
Purpose foundations and foundations used as collective investment vehicles or in securitisation transactions may be established for an unlimited term. Any other foundations are valid for a maximum term of 100 years.
The founder (and such other person(s) designated for the purposes in the deed of foundation) may, inter alia, exercise supervision over the administration of a foundation and obtain a copy of the accounts and the inventory of the property appertaining to the foundation. In addition, the founder may also be an administrator and/or a beneficiary during his or her lifetime, although the founder cannot be a beneficiary and the sole administrator of the foundation at the same time.

Malta tax treatment

For Malta tax purposes, domestic foundations are generally treated in exactly the same manner as companies ordinarily resident and incorporated, or domiciled, in Malta. Such foundations are accordingly subject to tax in Malta at the flat rate of 35%.

However, by application of Malta’s full imputation and refundable tax credit systems, beneficiaries of a private foundation would be entitled to refunds of Malta tax suffered at the level of the foundation on its distributed profits. Such refunds would typically reduce the combined overall effective Malta tax rate to 5%.

Alternatively, the administrators of a foundation may irrevocably opt to have the foundation treated as a trust for Malta tax purposes. In the circumstances, the foundation may be wholly transparent for Malta tax purposes insofar as all income and gains otherwise attributable to the foundation would be deemed to have been derived directly by its beneficiaries.