Although private foundations have always existed under Maltese law, they have never been specifically regulated until recently. Instead, a recent regulation provides that these entities must be constituted in writing, either by a public deed between living persons or by a public or secret will, and then registered with the Registrar of Legal Persons, which is an ad hoc office established for the registration of legal persons in general.
The deed of incorporation must include detailed provisions on powers, the form of resolutions and who holds the power of signature within the foundation, features that make the foundation more similar to a duly incorporated company than a trust.
Once the foundation is established, a new legal entity is created: as a result, the foundation itself becomes the owner of the assets. This is a significant variant on the trust concept in that the trust does not constitute a separate legal entity and it is the trustee who holds the property for the benefit of the beneficiaries. In addition, the foundation is preferable when the founder wishes to maintain some level of control over the assets.
The foundation has a board of directors with powers of administration, representation and disposal similar to those of a trustee.
For both trusts and foundations the law provides for a “protector”, generally appointed by the settlor/founder, who can qualify or in some cases limit the discretion exercised by the trustee or the board of trustees.
In the case of a foundation, the founder may also appoint a supervisory board.
The board of trustees is responsible for the management of the foundation, but the founder can exercise considerable control. The founder can directly supervise the administration and can also be one of the trustees as well as the beneficiary.
The main purpose of the foundation should be to hold assets or to manage assets. In fact, it cannot be formed for commercial purposes, although it may own commercial real estate or interests in a for-profit corporation, a franchise, trademarks, or ships as a passive owner. It is important to note that a trust can be converted into a foundation or vice versa, and that both private trusts and private foundations have a maximum term of 100 years.
One very interesting feature is that it is permissible to establish separate cells within a foundation to accomplish specific purposes with some particular assets. The separate cell will not have a separate legal personality, however the assets and liabilities of the cell constitute separate assets from the other assets and liabilities of the foundation or the other cells.
Maltese law also allows for the redomiciliation of a foundation within or outside Malta.
By default, a foundation must be treated for tax purposes in the same way as a company; consequently, any rules applicable in a corporate dispute should also be applied to a foundation.
A foundation will be deemed to be resident and properly domiciled in Malta and the profits of the foundation will be taxed at the rate of 35% which must be paid in the same way as for companies.
It follows that distributions of profits to the beneficiaries of a foundation will be treated, from a tax point of view, as if they were dividends distributed to the shareholders of a company and any transfer of a beneficial interest in a foundation by such beneficiaries will be treated as a transfer of a security, for all the purposes of the Income Tax Act.
The trustees may, by written notice to the Commissioner, irrevocably elect that the foundation be treated for tax purposes as a trust.
This leaves scope for very advantageous opportunities in terms of planning private assets, particularly where the founder and beneficiaries are not resident or domiciled in Malta, in which case no tax or duty will have to be paid in Malta on the creation of or on the income attributable to the foundation.
Finally, let us summarize some of the advantages of registering private foundations in Malta:
- Flexibility in drafting the statutes
- Certificate of fiscal residence in a few days
- Flexibility in taxation and structure
- No tax on dividends
- No tax on capital gains
- Foreign tax credit relief
- Possibility to take advantage of the Maltese tax refund system
- Planning, management and strong asset protection
- No withholding tax on distributions
- Extensive network of tax treaties with foreign countries
- Privacy for members and beneficiaries
For more information contact the Malta Business Agency team by filling out the form below: