Malta is recognised as an advantageous location for trusts due to its favourable tax environment. Despite being governed by Civil law, Malta has effectively incorporated trust legislation into its legal system, overseeing trusts and ensuring local courts uphold trust principles.
The Income Tax Act (Cap. 123 of the Laws of Malta) and the Income Tax Management Act (Cap. 372 of the Laws of Malta) govern the taxation of trusts in Malta.
Tax obligations for trusts arise when the trustee (or at least one trustee in the case of co-trustees) is a resident of Malta. The amount of tax due depends on the trust's income, this being said, trusts with non-taxable income, such as those lacking chargeable assets, are exempt from taxation.
Regarding taxation of trust income, trusts established in Malta have the option to be treated as companies, subject to a 35% tax rate. This election, once made, is permanent, and the trust's income is then taxed similarly to Maltese companies, with relief available for double taxation.
Malta's tax framework emphasizes transparency, with trust income directly attributed to beneficiaries. Income sourced from outside Malta is generally not taxed, except when received by a trustee in Malta, in which case local tax laws apply.
Beneficiaries must either be non-ordinarily residents or domiciled outside Malta, or individuals whose income is tax-exempt. If beneficiaries are ordinary residents but not domiciled in Malta, tax is levied on local income and gains, with foreign income remitted to Malta also taxed.
Transparency rules do not exempt foreign income remitted to Malta by trustees but rather impose tax liability at the beneficiary level.
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.
