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CSB Group assists clients with setting up a Foundation in Malta through its licensed entity, CSB Trustees & Fiduciaries Limited, which is licensed by the Malta Financial Services Authority to act as an administrator of private foundations in Malta. CSB Group’s professionals also assist clients with tax consultancy on Malta Foundations.
Maltese Legislation Regulating Foundations 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.
In terms of the said Second Schedule, foundations are defined as constituting an organisation consisting of 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’.
Objectives of a Foundation
Foundations, like companies, or natural persons, can trade or carry on commercial activities, and can, further:
- 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;
- 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;
- be used as a vehicle for the purpose of securitisation transactions, borrowing monies against the issue of bonds and conduct related acts.
The assets of a foundation must be entrusted to the administration of a designated person or persons known as the “administrator/s”, who will be responsible for registering the foundation with the Malta Registrar of Legal Persons.
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.
Requirements for Setting Up a Foundation in Malta
A foundation may only be formed through a public deed inter vivos or through a will. Article 29 of the Second Schedule of the Civil Code outlines the necessary requisites for a deed of foundation to be considered valid. Including but not limited to the name of the foundation, the purpose, the registered address, the constitutive assets and the composition of the board of administration.
The deed of foundation shall contain, on pain of nullity, an endowment of money or property worth at least EUR 1,164.69, except in the case of a public benefit foundation where the endowment shall be of at least EUR 232.94.
The Deed constituting the Foundation, once executed, must be forwarded to the Registrar for Legal Persons (the Foundations and Associations Unit within the Malta Business Registry) for registration and it should be accompanied by all relevant documentation/statutory forms, including copies of identification documents of involved parties. It is within the discretion of the Registrar whether to register or refuse registration of the same. Moreover, the Registrar has the right to request any further information which it deems necessary for the registration of such a foundation.
If registration is successful, the Registrar will issue a certificate of registration, showing that the organisation has been officially registered and such certificate of registration can be collected from the MBR.
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.
Advantages of setting up a foundation in Malta
Foundations can be utilised as a medium in several instances, such as to structure and plan finances and for estate planning. In a nutshell, through a foundation, a person has more control in managing their assets and determining how they are distributed.
Through a foundation one may appoint an administrator to properly manage the foundation’s funds and distributions to its beneficiaries. Every private foundation must have at least one administrator however a purpose foundation would need to appoint at least three administrators or at least one juridical person acting as administrator provided there are at least three directors within this company. The founder can be the administrator and also a beneficiary.
It is important to note that the assets and liabilities of a foundation are separate and distinct from those of the founders, administrators and beneficiaries. In fact, administrators are subject to fiduciary obligations.