Malta Trusts

Notwithstanding Malta’s historical links to the UK for almost two hundred years, trusts law and the legal notion of “equity” relating to trusts were never absorbed or statutorily incorporated into Maltese Law until 2004. The mention of these appeared in sporadic legislation including the Offshore Trusts Act, 1988 (later renamed the Trusts Act in virtue of subsequent amendment). Eventually, the Recognition of Trusts Act, 1994 was enacted, complementing Malta’s financial services legislative framework and paving the way towards the ratification of the Hague Convention on the Law Applicable to Trusts and on their Recognition

In 2004, the Trusts (Amendment) Act 2004 was enacted in Malta, introducing far-reaching amendments to the Trusts Act targeted primarily at enabling Mata to honour its international commitments towards the OECD and the FATF by eliminating “nominees”, abolishing certain rules on confidentiality and re-positioning Malta as a reputable international onshore financial centre, addressing taxation issues relating to the treatment of trust assets and introducing a detailed regulatory framework for trustee and fiduciary activities. As part of these amendments, the Trusts Act was also renamed the Trusts and Trustees Act. These amendments gained the force of law on the 1st January, 2005.

The trustee of a Maltese trust may be either a “private” or a “professional” trustee. Both classes of trustees are subject to the regulation of the Malta Financial Services Authority (“MFSA”), although it is only professional trustees that require formal “authorisation” from the MFSA to act as such, for reasons explained below.

A private trustee is an individual who satisfies one of the following conditions:

• He/she is related to the settlor by consanguinity or affinity in the direct line up to any degree or in the collateral line up to the 4th degree, or
• He/she has known the settlor for at least 10 years.

In either case, a private trustee cannot be remunerated, cannot hold himself out as a trustee to the public and cannot act habitually as trustee, that is act as trustee to more than five settlors at any time, and it is for reasons of materiality that private trustees are not required to obtain formal authorisation from the MFSA.

To compensate for doing away with formal MFSA authorisation for private trustees, the Act provides that private trustees are obliged to follow a strict notarial procedure to formalise the trust instrument. The private trustee must also record in writing all meetings with beneficiaries, advisors or protectors; any appointment or removal of beneficiaries; and any reduction/s distribution/s and/or advancement of trust property. These records must be delivered to a depositary notary.

On the other hand, professional trustees, whether they are resident or operating in Malta, must obtain authorisation from the MFSA, irrespective of the proper law of the trusts they are administering and whether or not all or any part of the trust property is in Malta. Authorisation is only granted as long as certain conditions are satisfied. Thus, in the case of authorised trust companies , the company’s objects must include acting as trustee and carrying on activities ancillary or incidental thereto and its actual activities must be compatible and connected with the services of a trustee; the company must also have a Board of Directors composed of at least 3 individuals of good standing and repute possessing experience and qualifications in financial, fiduciary, accounting or legal services and whom the MFSA considers to be fit and proper to carry out the duties of a trustee.

A professional trustee is authorised to receive property on trust and to act as trustee or co-trustee of a trust.

Any person satisfying any one of the following conditions is required to obtain the authorisation from the MFSA to act as trustee prior to accepting any assets on trust:

• either receives or is entitled to remuneration for acting as a trustee, or
• acts as a trustee on a regular and habitual basis, or
• holds himself out to be a trustee.

A professional trustee may be either an individual, resident or operating in Malta, or a corporate trustee, either registered in Malta or operating in Malta. CSB Trustees & Fiduciaries Limited is authorised to act as a professional trustee by the Malta Financial Services Authority. Click here to view a copy of our certificate of authorisation.

Taxation of Trustees in Malta

In so far as taxation is concerned, the new rules on taxation of trustees in Malta are based on the principle of transparency, looking to the beneficiaries for the determination of whether income is taxable or not. If all the beneficiaries are non-resident or, in case of a discretionary trust, it is not possible for a Maltese resident to be appointed as a beneficiary or, if a beneficiary, to receive any income, then there is no basis for taxation of such income.

It is possible for income to be taxable in such case if income arises in Malta, e.g. from the sale of Maltese immovable property. In such a case the impact will arise wherever the trustee is located. In some cases, such as interest on bank accounts, there is no taxation when there are non-resident beneficiaries notwithstanding that the income arises in Malta. However it is of paramount importance that specific advice is sought on the applicable rules of taxation relating to trusts.

For Trust & Fiduciary Services, including Trustee, Fiduciary & Escrow Services and Malta Trusts; kindly forward your query to trust@csbgroup.com