What is a trust?
A trust is created when one party, known as a settlor, transfers property to another party, the trustee, to hold, administer and perhaps 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 applicable law.
One of the most unique characteristics of this legal institute is the acquisition of ownership of the trust assets by the trustee in his or her fiduciary capacity. Having said this, the beneficial ownership of said assets will continue to vest in the beneficiaries of the trust.
Trusts and Trustees Act
Maltese trust law is far from stagnant. The legislator strives to ensure that the law is on par with those of other leading trust jurisdictions.
The domestic Trusts and Trustees Act regulates trusts in Malta and provides a regulatory framework for the authorisation and supervision of trustees. This law is consistently reviewed by practitioners and professionals in the area in order to create a sound and effective piece of legislation that fits well within the Maltese legal framework.
The Malta Financial Services Authority is the regulatory authority designated as such for the purposes of the Act. The Act also transposes, into domestic law, the provisions of the Hague Convention on the Law Applicable to Trusts and on their Recognition, ratified by Malta in 1994.
Creation of trusts
In terms of the Act, a trust may come into existence in any manner. As such, a trust may be created by instrument of writing (including by a will), by means of a unilateral declaration in writing or an oral declaration or, alternatively, by operation of law or a judicial decision.
A trust may validly exist until the 125th anniversary of the date on which it came into existence, and, unless sooner terminated, would then terminate. This limitation (against perpetuities) would not, however, apply in respect of a trust created for charitable purposes or a unit trust or a qualifying retirement scheme.
Why set up a Trust
There are numerous benefits that come with setting up a trust structure in Malta. A trust is a useful and effective means of creating a personalised asset protection vehicle, suited to each and every clients’ particular needs; both during and after a settlor’s lifetime.
Malta tax treatment
The Malta tax implications of a trust are driven primarily by the nature and location of the trust property and by the residence and/or domicile, for tax purposes, of the parties to the trust. As such, no Malta tax would be chargeable upon the creation of a trust when:
- the settler is not ordinarily resident and domiciled in Malta for tax purposes and the assets settled on trust are situated outside Malta; or,
- when the assets settled do not represent chargeable or dutiable assets.
In turn, a trustee would be wholly transparent for Malta tax purposes (insofar as all income and gains otherwise attributable to the trust would be deemed to have been derived directly by the beneficiaries of the trust) when:
- none of the beneficiaries are persons ordinarily resident and domiciled in Malta; and
- the relevant income and gains have a foreign source for Malta tax purposes and/or comprise of domestic source interest, royalties or gains realised pursuant to the disposal of shares in a Malta company (not being a property company).
Likewise, a trustee would be wholly transparent for Malta tax purposes (insofar as all income and gains otherwise attributable to the trust would be deemed to have been derived directly by the beneficiaries of the trust) when:
- none of the beneficiaries are persons resident in Malta; and
- the relevant income and gains comprise dividends distributed by a Malta company and/or have a foreign source for Malta tax purposes and/or include Malta source interest, royalties or gains realised pursuant to the disposal of shares in a Malta company not being a property company.
Insofar as the beneficiaries of a tax transparent trust would be deemed to have directly derived all income and gains otherwise attributable to the trust, such beneficiaries may or may not be chargeable to tax in Malta on such income or gains - depending on their tax residency and domicile. Should a resident trustee not be transparent for Malta tax purposes, then income and gains attributable to the relevant trust would be chargeable to tax in Malta at the flat rate of 35%. Finally, no Malta tax would be chargeable pursuant to the transfer of a beneficial interest in a trust:
- by a beneficiary who is not ordinarily resident and domiciled in Malta should the relevant trust not include chargeable assets situated in Malta; or
- which does not include chargeable or dutiable assets.