In the past few years the Maltese legislature has been active in the sector of fiduciary obligations, particularly those resulting from the creation of trusts and Foundations. Foundations have always been regulated by customary law, as no legislation on Foundations existed until April 1 2008, when the Second Schedule to the Civil Code was enacted. The Second Schedule to the Civil Code Chapter 16 of the Laws of Malta, dedicates an entire Sub-title to Foundations ('the Law').

The Law on Foundations

Although the law on Foundations adopts principles from the Maltese Companies Act, it is largely based on Italian and French civil code provisions. It is possible to set up a private or a purpose Foundation in Malta. The Law provides that the Foundation must be constituted in writing, via public deed inter vivos or a public or secret will. The deed of Foundation must also be registered with the Office of the Registrar of Legal Persons, which is an ad hoc office set up for the specific purpose of undertaking the registration of legal persons in general.

The deed of foundation must contain on pain of nullity the following information1:

(a) the name of the foundation, which shall include the word "foundation";

(b) the registered address, in Malta;

(c) the purposes or objects;

(d) the constitutive assets with which it is formed;

(e) the composition of the board of administration and the names of the first administrators, and if not yet appointed, the method of their appointment;

(f) the legal representation;

(g) the term for which it is established, if any;

(h) in the case of a foundation, the administrators of which are non-residents of Malta, the name and address of a person resident in Malta who has been appointed to act as the local representative of the foundation in Malta;2

Furthermore, specifically in the case of a private Foundation the deed of a Foundation must contain either the names of beneficiaries, or, in the absence of such indication, a declaration that the foundation is constituted for the benefit of beneficiaries. In the latter case the beneficiaries shall be indicated in a written instrument, which need not form part of the public deed, called the "beneficiary statement", signed by the founder and addressed to the administrators, and the same shall be authenticated by the Notary Public who publishes the deed of Foundation.

The statute must be signed by the founders and any person subscribing to the statute after a Foundation is established shall be deemed to have consented to all the provisions of the statute.3

The Foundation deed must also include detailed provisions containing the powers, form of resolutions and signing authority of the Foundation. Clearly this feature is more akin to companies than to trusts. In a country such as Malta that operates on civil law principles, the formalities of the Foundation may be perceived as reassuring when contrasted with the seemingly casual nature of the setting up of a trust.

Once a Foundation is established and registered, a new legal person is created. Therefore, the Foundation itself becomes the owner of the Foundation property. It is only through the Law that the notion of a 'legal person' has finally been clearly defined under Maltese law. The Law in fact deals with the various implications of setting up a legal person either for the benefit of specified persons or for the fulfilment of a purpose. This is a significant variation from the trust concept as a trust does not constitute a separate legal person. Legal persons are distinct from their promoters, founders, administrators and members, if any. The acts of legal persons bind no one but themselves except as provided by law.4 As a result, with Foundations there is no need to be concerned about the segregation of Foundation property from property belonging to the administrators of the Foundation.

The Private Foundation

A private Foundation is set up by the founder for the private benefit of one or more persons, or a defined class of persons in which the beneficiaries must be certain. Beneficiaries of private foundations enjoy and are entitled to those benefits contemplated in the Foundation statute. The rules relating to beneficiaries of private foundations are similar to those relating to beneficiaries of trusts. The legislator felt that keeping the regimes parallel will help them co-exist in tandem and this, in turn, will serve to retain harmony between the two institutes.

The Purpose Foundation

The Law provides that when a Foundation is established for a charitable, philanthropic or other social purpose or as a non-profit organisation or for any other lawful purpose it shall be referred to as a "purpose" Foundation. Purpose Foundations are very relevant in the voluntary sector. In the past few years the legislator in Malta has responded to an increasing social conscience in both companies and individuals and has been active in creating a framework for voluntary organisations. The law provides that an organisation established for a lawful purpose, as non-profit making and which is voluntary is to be considered as a voluntary organisation in Malta. Any voluntary organisation may apply to become enrolled with the Commissioner for Voluntary Organisations and, once enrolled it may enjoy numerous privileges/exemptions and may even be entitled to contributions from governments or other organisations.

The national action plan aims to aid and encourage the sector to continue increasing its effectiveness and efficiency, and ultimately to deliver. The enactment of the Voluntary Organisations Act in the year 2007 solely dedicated to non-governmental organisations further demonstrates this rationale whilst creating the certainty required for the functioning of Foundations and other non-governmental organisations.

Endowment and Assets of the Foundation

A private Foundation must be endowed with money or property worth at least 1165 Euro5 and a purpose Foundation must be endowed with money or property worth at least 233 Euro. The endowed assets may originate from any lawful business or activity and consist of present or future assets of any nature.6

Beneficiaries of a Private Foundation

In those cases were private Foundations are intended for the benefit of a class of persons, that class of persons must be clearly named in the statute. This must be stated as clearly and as fully as possible.7 In those cases where it is intended that a particular person or persons are to be bestowed with an entitlement to a benefit, they must be indicated as clearly and as fully as possible in the deed of the Foundation in order to eliminate any doubt as to the identity of the intended beneficiary.8 If there are no identifiable beneficiaries, the foundation is deemed to be for the private benefit of the founders or their successors in title.

The property endowed to the Foundation is owned by the Foundation, however the beneficiaries have enforcement rights against the administrators in relation to their administration of the Foundation property.9 The benefit under a Foundation is personal to the beneficiary as in the case of a trust. The founder, however may also be the beneficiary of a private Foundation during his lifetime as long as that founder does not at the same time, act as the sole administrator of the foundation.10

The Right to Trade

The general rule is that a Foundation cannot be established to trade or carry on commercial activities, even if the proceeds of such efforts are destined to social purposes.11 However, there are certain exceptions to the general rule as follows:

a. A foundation may be endowed with commercial property or a shareholding in a profit making enterprise, a franchise, a trade mark or other assts which gives rise to income, as well as a ship as long as the organization is only the passive owner of such assets.

b. A foundation may be used as a collective investment vehicle, and issue units to investors therein, for the common holding of a common pool of assets, the management of which is delegated to a third party, including pension or employee benefit arrangements.

c. A foundation may be used as a vehicle for the purpose of a securitization transaction, borrow monies against the issue of bonds and do all relative and ancillary acts.


The general rule is that the term of a Foundation's life cannot exceed one hundred years.12 However, an exception is made to the rule in relation to purpose Foundations, Foundations used as a collective investment vehicle or Foundations used in a securitization transaction, which may be established for an unlimited term.

Government and Administration

The Foundation's board of administrators has powers of administration, representation and disposition vested in it by law, the deed of constitution or the beneficiary statement. The board of administrators is accountable for the management of the Foundation. However, the founder may have a considerable amount of discretion in the administration of a foundation since the Law allows the founder to be an administrator himself. This is not true of the trust as it is the trustee who controls and administers the trust assets and the settlor plays no part whatsoever in the day to day administration of the trust assets.


The legislator has mirrored the trust tax regime to a certain extent. The default rule is that the Foundation is treated as a company for tax purposes and may therefore be subject to a beneficial tax refund regime where applicable. However, the Foundation may irrevocably elect to be treated as a trust for tax purposes. In this case, the Foundation would be tax transparent when the beneficiaries are non-resident as is the case with trusts. On the other hand, a purpose Foundation, enrolled as a Voluntary Orgainsation with the Office of the Commissioner for Voluntary Organisations, may apply by letter to the Tax Authorities in Malta with a view to making the Foundation exempt from Malta tax. Such applications are considered on a case by case basis.

Segregated Cells

The law in Malta provides for the creation of segregated cells within a Foundation. Segregated cells allow assets and liabilities of an organisation to be hived off and insulated from other assets and liabilities of the same organization. Though segregated cells are not vested with legal personality and do not constitute distinct persons at law, each segregated cell constitutes a distinct patrimony from all other assets and liabilities of the organisation or any other cells which may be established.

The assets of a segregated cell will be available for the fulfillment of any obligations undertaken by the organisation in relation to that cell but not for any other liabilities entered into by the organisation for itself or in respect of other cells.

A segregated cell may be created within an organisation when certain conditions are observed:

a) The organisation must be authorised by its statute to establish segregated cells for the achievement of one or more defined purposes which are consistent with the main purposes of the organisation;

b) the administrators of the organisation resolve in writing to establish such cell; and

c) a notice relating to the establishment of a segregated cell is delivered to the Registrar for registration.


The Law allows the conversion of a Foundation into a trust and vice versa and the legal entity will then continue its existence under a different guise. By allowing this conversion, the Law enables advisors to settlors/founders to utilise the diverse characteristics of the institutes in order to best address the needs of individuals or organisations that may vary from time to time.


Foundations provide a useful device for individuals and organizations in various structures and transactions. A case in point is the use of Foundations by high-net worth individuals worldwide to plan their financial affairs and provide for future generations in an efficient and practical manner.

With the Maltese legal system now also offering the Foundation as a well regulated vehicle adaptable to numerous structures and circumstances, Maltese law firms and financial service providers can better compete with their foreign counter parts. In doing so they are in a position to better service their clients' needs in addressing their diverse requests and in dealing with increasingly sophisticated transactions.


1. Article 29(4) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

2. Article 29(4) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

3. Article 29(5) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

4. Article 19(1) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

5. Article 29(2) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

6. Article 26(3) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

7. Article 33(4)(a) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

8. Article 33(4)(b) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

9. Article 33(1) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

10. Article 36(3) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

11. Article 32A(1) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

12. Article 29(7) of the Second Schedule to the Civil Code Chapter 16 of the Laws of Malta.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.