About Malta Foundation
Foundations have been recognised and regulated in Malta for almost 200 years through case law and legal practice, but specific legislation was enacted to provide a clearly defined legal framework in 2008. As a result Maltese Foundations are now regulated under the Second Schedule of the Civil Code (Chapter 16 of the Laws of Malta), which allows for the set-up of two types of Foundations: ‘Private’ and ‘Purpose’.
The objects of a Foundation may be charitable, non-charitable (Purpose) and may benefit one or more persons or a class of persons (Private). The objects must be reasonable, certain and possible and must not be unlawful, against public policy or immoral. A Foundation is prohibited from trading or carrying on commercial activities, but it may own commercial property or a shareholding in a profit making company.
A Foundation can only be constituted in writing, either by a public deed or by a will. The Foundation deed must be registered with the Office of the Registrar of Legal Persons. The assets of a Foundation may originate from any lawful business or activity and may consist of present or future assets of any nature.
Unlike a trust, a Malta Foundation has a legal personality that is separate to that of the founder, the board of administrators and the beneficiaries. The Foundation itself becomes the legal owner of the Foundation assets and can contract obligations and be part of administrative and judicial processes.
Maltese Foundations require the appointment of administrators who are responsible for the administration of the Foundation’s property and are regulated under the TTA. The administrators – whether natural or legal persons – are responsible for maintaining possession and control of the property of the foundation, safeguarding such property and ensuring compliance with the statute of the foundation and the law. They are bound by fiduciary obligations stipulated in the Civil Code.
An administrator can be based outside Malta but a person resident in Malta must be appointed to act as the local representative of the Foundation. The founder can also be the administrator but, in such a situation, the founder cannot be the sole administrator.
A Foundation deed must contain the following information:
- Name of the Foundation, which must include the word ‘Foundation’
- Registered address in Malta
- The purposes or objects of the Foundation
- The constitutive assets with which a Foundation is formed
- The composition of the board of administrators or, if not yet appointed, the method of their appointment
- Legal representative – a local representative is required if the administrators of a Foundation are non-resident in Malta
- The term for which it is established – Foundations are valid for a maximum term of 100 years from establishment, except for Purpose Foundations, which may be established for an unlimited term.
In the case of a Private Foundation, the deed must contain the names of the beneficiaries or a declaration that the Foundation is constituted for the benefit of the beneficiaries. In the latter case, the beneficiaries must be indicated in a separate legal instrument, known as a beneficiary statement, which must be signed by the founder, addressed to the administrators and authenticated by the Notary Public who has issued the deed.
Foundations are required to report information on the beneficial owners to the Registrar for Legal Persons.
Taxation of Malta Foundations
A Foundation is treated as a company for income tax purposes in Malta unless the administrators opt to have the Foundation taxed under the rules applicable to trusts.
A Maltese Foundation is therefore subject to tax at 35% on its worldwide income however, upon receipt of a distribution of profits, the beneficiaries of the Foundation are generally entitled to a refund of 6/7ths of tax paid (for trading income) or 5/7ths tax paid (for passive income), thus reducing Malta tax liability to 5% or 10% respectively.
If a Foundation elects to be taxed under the rules applicable to trusts, profits received by the Foundation would be charged to tax in the hands of the beneficiaries following distribution. If all beneficiaries are non-resident in Malta and all income derived by the Foundation is foreign-source, there would be no tax payable by the beneficiaries in Malta. Tax advice should be sought by beneficiaries in their jurisdiction of residence.