Trusts are regulated under The Trust and Trustees Act, Chapter 331 of the Laws of Malta, and the Trusts Amendment Act, 2004. A trust is defined as an obligation that binds a person (the trustee), as owner or has vested in him property, to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose.
A trust may be governed by the proper law of Malta or of a foreign jurisdiction. Malta has ratified the Hague Convention on the Law applicable to Trusts and their Recognition.
In terms of Maltese law, the settlor may be a Maltese resident or non-resident. The settlor may also be a beneficiary of the trust.
The trustee must satisfy a number of strict criteria, such as good reputation, fit and proper test and a proven track record in financial, fiduciary, accounting or legal services. When acting in the capacity of a trustee, a professional trustee is obliged to be licensed (subject to certain exemptions) under the Malta Financial Services Authority Act. A trustee is usually not permitted to be a beneficiary (other than from certain trusts used in a financial services context).
Trusts are particularly flexible legal instruments and may be created by written deed or even orally. As long as the scope underlying the trust agreement is lawful, trust may be created to cover practically any kind of activity. Typical uses of trusts would include the following:
In Malta, a trust can be charged to tax or not depending on the residence status of the trustees. Where at least one of the trustees of a trust is a person resident in Malta, tax shall be payable on any income attributable to the trust. However, in certain scenarios, the principle of transparency applies whereby the income will be deemed not to be attributable to the trust but derived directly by the beneficiaries and thus not taxable in Malta in the hands of the trustees.
Where the income consists of income arising outside Malta, interest or royalties or gains or profits upon the disposal of units in a collective investment scheme, units relating to linked long term business of insurance or securities in a company the assets of which do not wholly or principally consist of immovable property in Malta and the beneficiaries are persons not ordinarily resident in Malta and not domiciled in Malta, the income shall be deemed to have been derived directly by the beneficiaries.
Where income consists of income arising outside Malta or dividends distributed out of profits allocated in the foreign income account of a Maltese company, and the beneficiaries are persons not resident in Malta, the income shall be deemed to have been derived directly by the beneficiaries.
If the beneficiaries are persons not ordinarily resident in Malta or not domiciled in Malta, in the case of a discretionary trust where it is not possible for a Maltese resident to be appointed as a beneficiary or to receive any income, it is considered that such income has been directly derived by the non resident beneficiaries and there is no tax impact under Maltese tax laws.
That said, there are circumstances where income would be taxable, for instance from the sale of Maltese immovable property or instances where a trust has income arising in Malta.
Companies that provide trust-related services and that are ordinarily resident and domiciled in Malta are subject to the normal company tax rate of 35% on their worldwide income. Where they are involved in international activity it is possible for non-resident shareholders on receipt of a dividend to claim a refund of the tax paid by the company on the profits out of which the dividend is paid.