This post will talk about how to open a trust in Malta and closely connected topics like how it works and what’s the tax implication.
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The Trusts and Trustees Act in Malta is responsible for the regulation of Maltese trusts.
How Trusts Work
A trust is a commitment where individuals, known as trustees, are obligated to manage a property under their control, referred to as trust property.
This responsibility is undertaken for the well-being of individuals, known as beneficiaries, or for charitable purposes, following the specified conditions outlined in the trust.
How to Open a Trust in Malta
The Trust and Trustees Act of Malta outlines three key elements for how to start a trust:
The Settlor
The individual creating the trust, providing trust property, or making a disposition on trust.
The settlor must be of legal age and possess the freedom to dispose of the stated property.
The Trusts and Trustees Act, along with the trust deed, may grant certain rights to the settlor, such as seeking court directives on trust validity, obtaining information from the trustee, and having revocable trusts.
The Trustee
The person, either legal or natural, who holds or is bestowed with the trust property. Trustees in Malta are regulated and supervised by the MFSA.
The MFSA regulations specify that a trustee set up as a company must follow the given prerequisites:
- It should not act publicly as a trustee
- It should not handle property for more than five settlors simultaneously
- It should not be licensed only to act as a trustee to specific settlors
The Beneficiary
The person benefiting from the trust or to whom the trust property is distributed. Beneficiaries must be named or identified by relationship or class in the trust deed.
Beneficiaries have rights, such as:
- Soliciting information from the trustee
- Seeking court directives on trust validity
- Disclaiming their interest in writing
- Requesting trust termination or property distribution
Additional Components on How to Open a Trust
- The Protector. An additional party designated by the settlor to hold a trustworthy position, like a family associate or lawyer.
- The File Note of Wishes. A non-binding document offering guidance to the trustee(s) for opening a trust
- The Trust Instrument. A legally binding document sets boundaries between legal and beneficial ownership when establishing a trust.
How to Open a Trust: The Process
Opening a trust in Malta necessitates a trust deed that must explicitly list all individuals involved.
This legal document outlines the roles of the trustee and beneficiary, as well as details regarding the trust fund or settlement representing the property held by the trustee.
The property itself can be represented by various assets, whether movable or immovable.
Are Trusts Taxable in Malta?
Taxation of Settlements
Non-Malta domiciled settlors or those with property outside Malta face no tax on trust settlements.
Assets in the trust must be free from charges under Maltese taxation on immovable property.
Taxation of Trustees
Trustees may face Maltese taxation if beneficiaries are not resident in Malta, or if income sources include specific categories like royalties or foreign-sourced gains.
Taxation on Beneficial Interest Transfers
No tax on transfers if the trust property lacks chargeable assets and the transferring beneficiary is not a resident of Malta.
VAT Considerations on Trusts in Malta
Trusts, being non-economic instruments, are beyond the scope of VAT.
Trustees should avoid luxury expenses from trust remuneration to sidestep potential VAT obligations.
Trustee remuneration outside the scope of the company’s services is exempt from VAT.
Engaging in taxable activities, like using trust assets for accommodation, requires VAT registration and compliance.
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