Malta has just amended the Trusts and Trustees Act (Chapter 331 of the Laws of Malta) to allow for the creation of trusts in Malta. This brief introduction to trusts in Malta relates to situations where the settlor and beneficiaries of the trust are non-resident in Malta or hold Permanent Residence Permits in Malta. Although trusts are permitted where the settlor or beneficiary are resident in Malta, the tax implications of trusts as set out hereunder are limited to non-resident situations. Where the settlor and/or beneficiaries are resident or domiciled in Malta, the tax situation is completely different.

Our law firm owns an in-house trust company (International Beneficiary Services Ltd) which is a Licensed Trustee Company under the terms of the Trusts and
Trustees Act 1989 (Chapter 331 of the Laws of Malta). Its business is regulated and supervised by the Malta Financial Services Authority.

The Trusts and Trustees Act provides for the creation of trusts and the regulation and supervision of trustees. The MFSA (The Malta Financial Services Authority) is the Regulator for financial services in Malta and is the Authority responsible for the regulation, supervision and authorization of trustees in Malta.

A trust can come into existence by an instrument in writing, or by a will, or by a unilateral declaration of trust by the trustee. A trust can be set up in such a way whereby the settlor is the sole beneficiary and even a company (whether registered in Malta or not) can be the sole beneficiary of a trust. Trusts can be fixed, discretionary or charitable in the usual recognized way.

On a yearly basis, the Trustees must prepare and file audited accounts of the trust for tax purposes.

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 always advisable 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.

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.