Trusts

The Trusts and Trustees Act of 2004 has completely updated Malta’s trust legislation which was originally enacted in 1988. The Recognition of Trusts Act 1994 enacted into Maltese law most of the provisions of the Hague Convention on Trusts.

A trust of which the proper law is Maltese is called a "Maltese law trust" while a trust whose proper law is not Maltese law is called a "foreign law trust". Foreign law trusts are recognised in virtue of the Recognition of Trusts Act.

A trust must be voluntary, in writing or evidenced in writing either by a deed, a will or by a unilateral declaration of the trustee. The rules of the "three certainties" apply. Statute allows for any constructive or resulting trusts which arise in connection with the administration of property under a written trust.

A trust remains valid for 100 years except if it has a charitable purpose.

The Trustee

Only persons who have been duly licenced by the Malta Financial Services Authority can act as trustees of Maltese trusts.

The trustee enjoys all the powers of a natural person having absolute title to the trust property, subject to the duties of utmost good faith and the terms of the trust.

Trust property must be conveyed to the trustees or put under their exclusive control and kept separate from their personal property. Any incomplete gift will not be considered as trust property or as an addition to the trust fund.

There is no statutory list of approved investments and it is for the terms of the trust to limit these powers, although speculative investments may constitute a breach of trust under the general rules.

Asset protection trusts may be set up but Maltese law gives creditors the 'actio pauliana' to recover assets disposed by the debtor fraudulently. However, a foreign trust may be governed by a foreign law which does not provide for such an action.

The Settlor

The settlor can be any person (which includes a body of persons such as a company or association whether vested with legal personality or not) who is freely capable of conveying property, provided the person is not a Maltese resident. Persons residing in Malta in virtue of the Foreign Permanent Residents scheme are considered as qualified to be settlors.

The Beneficiaries

The beneficiary may be any person, born or unborn, minors, incapable persons, settlors and trustees. Under Malta trusts which are to be registered in Malta, the licensed company trustee may not be a beneficiary, although it is possible for a co-trustee to be treated as a beneficiary. A Maltese resident may not be a beneficiary under a trust registerable in Malta at the time of its creation. Under a foreign trust not being registered in Malta, there are no such limitations barring those instances where the trust is clearly a sham trust

Beneficiaries must be ascertained or ascertainable by reference to a class or to a relationship to some person. Purpose trusts are not valid unless they come under the definition of a charitable trust.

Taxation

Income attributable to a trust is not charged to tax in the hands of the trustee if it is distributed to a beneficiary. Therefore on distribution of income to a beneficiary, tax is charged directly to the beneficiary. As a consequence, when all the beneficiaries of a trust are not resident in Malta and when the income attributable to a trust does not arise in Malta, there is no tax due by the beneficiary, since non-residents are not subject to tax in Malta. Therefore in effect, where the beneficiaries under a trust are non-resident and the income of the trust does not arise in Malta, there is no taxation in Malta.

A trust with non-resident beneficiaries can have a mixed income, partly arising in Malta and partly arising abroad. In such a case, the non-Maltese income is not taxed whereas the Maltese income of the trust is taxed in the normal way as for residents. Income arising in Malta would usually either be investment income or rental income from real estate owned by the trust

Income attributable to a trust that is not distributed to beneficiaries is charged to tax in the hands of the trustee at the rate of 35% tax law.  It is therefore usually recommended to distribute trust income to the non-resident beneficiaries.

Where the beneficiary of a trust is a Permanent Residence Permit holder under Maltese law, the non-Maltese income of the trust distributed to the Permanent Resident is taxed at 15% if such income is paid in Malta to the Permanent Resident; non-Maltese trust income which is distributed by the trust to the Permanent Resident but which is not remitted to Malta remains untaxed.