The reasons why clients opt to set up trusts in Malta as opposed to other jurisdictions are various. To mention a few:
- Malta, whilst being a civil law jurisdiction, has a fully fledged trust law that has been in place since the late 80’s. In addition,
- Malta has also ratified the Hague Convention on the Law applicable to Trusts and their Recognition.
- Trusts are available to non-residents and residents alike.
- Trusts in Malta are considered to be transparent for tax purposes, in the sense that income attributable to a trust is not charged in the hands of the trustee if it is distributed to the beneficiaries.
- Additionally, a trust with non-resident settlors, beneficiaries and assets are generally not subject to tax in Malta.
- Moreover, a trust may opt, in certain cases, to be taxed as a company with the benefits of being so taxed when taking into consideration Malta’s attractive corporate tax regime and double tax treaty.
Provided that all the requisite documentation and information mentioned below is in place (including the receipt of the trust property) and provided further that the Instrument of Trust and Letter of Wishes are finalised and executed by the parties concerned, the trusts may be set up in one day.
For the purposes of the preparation of the Instrument of Trust as well as the Letter of Wishes, we would require the full identification details (i.e full name, passport number, residential address) of both the settlor and the beneficiaries of each Trust as well as full details of the nature of the trust property. You may wish to note that trust property may consist of as little as one Euro/USD.
In so far as the due diligence documents are concerned, we would require further documents on behalf of both the settlor and the beneficiaries.
Kindly note that the beneficiaries will not be required to provide us with the due diligence documents until the trustee exercises its discretion in their favour.
Position of Protector of the Trust
The reader may wish to note that Maltese legislation provides for the appointment of a protector in Article 24A of the Trusts and Trustees Act, Chapter 331 of the Laws of Malta (‘the Act’). The Article also provides that subject to the terms of the trust the protector shall have the following powers:
- to appoint a new or additional trustee;
- to remove a trustee;
- to require the trustee to obtain his discretion.
The Act only sets out general parameters for the appointment of a protector and therefore the actual terms and conditions of appointment of the protector are up to the parties involved.
It is also common for our clients to nominate an individual to act as a protector on their trusts. Put simply, a protector’s role is principally to safeguard the interests of the settlor as well as those of the beneficiaries.
Taxation applicable to Trusts
Where the income ‘attributable to a trust’ consists of income arising outside Malta or is made up of interest, discount, premium or royalties, or gains or profits on the disposal of units in a collective investment scheme and the beneficiaries are persons not ordinarily resident in Malta or not domiciled in Malta, it shall be deemed that such income is not income attributable to the trust but rather income directly derived by such beneficiaries. Even when the income arises outside Malta but is received in Malta by the trustee, it shall be considered that such income has been received in Malta by such beneficiaries. In this instance, the trustee will notify the beneficiaries of such income and shall also inform them of his duties under the income tax acts.
When the income attributable to a trust comprises solely:
- Income arising outside Malta
- Interest, premiums, discounts and royalties
- Dividends distributed out of profits allocated to the foreign income account
- Dividends form profits of an international trading company and
- All the beneficiaries under the trust are persons not resident in Malta, provided that the trustee issues a certificate to this effect, it shall be deemed that such income does not constitute income attributable to the trust but income which has been derived directly by the non-resident beneficiaries.
This structure would be tax transparent in the sense that the trustee would be able to claim all tax refunds on behalf of the non-resident/domiciled beneficiaries as if same were to be claimed directly by them AND naturally said refunds would not be subject to the investment income provisions.
A Qualified Person needs to be appointed by an overseas trust which is not authorised by the Maltese Authorities holding:
- Securities in a Maltese company,
- Interest in securities in a Maltese company
- Immovable property in Malta
Given that the Maltese Authorities have no control over the overseas Trust, such qualified person will act as the local representative and intermediary between the non-resident trustee and the Authority.
The responsibility of the Qualified Person is to ensure that due compliance with local legislation is maintained.