Benefits and advantages to register your foundation in Malta
All the benefits and advantages to register your foundation in Europe.
Form a Foundation in Malta
Maltese Foundations are regulated by the Second Schedule of the Civil Code (Chapter 16 of the Laws of Malta), which was introduced by Act XIII of 2007 to complement the detailed regulatory framework for trustee and fiduciary activities, and voluntary organisations.
Legal nature of foundations in Malta
In terms of the said Second Schedule, foundations are defined as constituting an organisation consisting of a universality of things constituted by one or more founders whereby assets are destined either:
- for the fulfilment of a specified purpose – such foundations being referred to as ‘purpose foundations’; or
- for the benefit of a named person or class of persons – such foundations being referred to as ‘private foundations’.
Foundations may be constituted by virtue of a public deed or by a will. The deed of foundation is required to contain certain mandatory details including the foundation’s name, its registered address, a description of the constitutive assets with which it is formed (a minimum amount or value of €1,165 applies but is lowered to €233 if the foundation is established exclusively for a social purpose or as a non-profit making foundation) and its purposes and/or objects.
Registration of a foundation under Maltese law
Registration of a foundation under Maltese law serves to vest the foundation with legal personality distinct and separate from that of its founders, administrators and beneficiaries (where applicable). By virtue of its separate legal personality, a foundation is capable of holding assets for its own benefit and of incurring obligations for which it is liable with all its assets, present and future. A foundation is not, however, liable for the obligations of any other person except to the extent that it expressly agrees to be so liable.
Administration of a Malta-registered foundation
The administrator of a Malta-registered foundation is primarily responsible for keeping accurate records of all the foundation’s assets and liabilities and income and expenditure, maintaining possession and control of the foundation’s property, safeguarding such property and ensuring compliance with the foundation statute and any applicable laws. In particular, the administrators must ensure that the foundation’s assets and liabilities are kept distinct from that of its founder, administrators or any beneficiaries.
Tax on Maltese foundations
Maltese foundations are very attractive from a tax perspective. The Malta Foundation can elect to be treated in the same manner as a company that is ordinarily resident and domiciled in Malta. This results in the chargeable income accruing to and/or gains realised by a foundation to be subject to tax in Malta on a worldwide basis at the flat rate of 35%.
However, upon a distribution of qualifying foreign or local source income by the foundation in favour of its beneficiaries, the said beneficiaries would generally be entitled to a refund of 6/7ths of the Malta tax suffered by the foundation on the qualifying income out of which a distribution was effected (thus reducing the combined overall effective Malta tax rate to 5%).
Alternatively, the administrators of a foundation may irrevocably elect to have the foundation taxed in Malta under the rules applicable to trusts. To the extent that none of the beneficiaries of the foundation are persons resident in Malta and that any assets acquired and held by the foundation shall be located outside Malta, all income and/or gains derived by the foundation would, for Malta tax purposes, be deemed to have been derived directly by the said beneficiaries (such that the foundation would be totally transparent for Malta tax purposes). In turn, such non-resident beneficiaries would not be chargeable to tax in Malta on non-Malta source income and/or gains deemed to have been derived directly by them as aforesaid.
Use for tax advantage
Income/Receipt of capital gains
Controlled Foreign Corporation (CFC) rules
Therefore, a foundation administered in Malta may also be taxable elsewhere if the administrators spend most of their time there in a foreign country. Where foundations are taxable in more than one country there may be dual taxation arrangements in place however if one of the countries is a high tax area this is likely to defeat the tax planning reasons for which the foundation was established. Various methods have been used to attempt to avoid this situation with different degrees of success.
The method of simply holding meetings in the country of registration is, for example, likely to be ineffective in almost all cases. The method of appointing local administrators may, if operated properly, be effective in avoiding CFC rules based on management alone. More sophisticated anti-avoidance rules may seek to attack a foreign entity on the basis of a lack of substance or that it is wholly or mainly artificial and therefore should be ignored for tax purposes.
More sophisticated systems may also base taxation of companies not simply on their management but also on their ownership and voting rights on the basis that the shareholders having the right to appoint and remove the board of directors are effectively in control of the company. Since foundations do not have owners, they may be extremely effective in avoiding anti-avoidance rules of this nature provided they are properly administered.
Non-tax related uses
The following is a list of some of the uses of foundations which are not tax related, or at least not primarily motivated by tax advantage.