Malta Foundations

Maltese Foundations - A regulatory framework

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.

Purpose & Private Foundations

What is the Legal Nature of a Maltese Foundation?

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:

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Purpose Foundations

For the fulfillment of a specified purpose – such foundations being referred to as ‘purpose foundations’.

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Private Foundations

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.

Looking to set up a Malta-based Foundation?

Vested with legal personality distinct and separate from that of its founders.

Objectives of a Foundation

A foundation cannot be established to trade or carry on commercial activities – even if the proceeds of such efforts are destined to social purposes.

However a foundation may:

  1. be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, a trade mark or other asset which gives rise to income, as well as owning a ship as long as the organisation is only the passive owner of such assets;
  2. subject to such licensing or similar formalities, be used as a collective investment vehicle, and issue units to investors therein, for the passive holding of a common pool of assets, the management of which is delegated to a third party, including a pension or employee benefit arrangements;
  3. be used as a vehicle for the purpose of securitisation transactions, borrowing monies against the issue of bonds and conduct related acts.

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.

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.

 

Administrators of a Malta-registered private foundation must be authorised to act as such in accordance with Article 43(12)(b) of the Trusts and Trustees Act.

 

The terms of the foundation may provide for the establishment of a supervisory council consisting of at least one member or for the office of a protector or protectors appointed by the founder. Subject to the terms of the foundation deed, the protector/s shall have the power to exercise supervision over the acts of the administrators and may be vested with the power of appointment, removal, substitution or addition of administrators. Moreover, the exercise of any action or discretion on the part of the administrators may be subject to the express consent of the duly appointed protector/s.

The combined overall effective tax rate can be as low as 5% in Malta.

Treated in the same manner as a company domiciled in Malta.

Tax on the Income of a Foundation in Malta

From a Malta tax perspective, a foundation is treated in the same manner as a company that is ordinarily resident and domiciled in Malta.

As a result, chargeable income accruing to and/or gains realised by a foundation would 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%).