A trust is a legal arrangement that allows you to transfer assets to another person or entity. One of the tax implications of trusts is capital gains tax.

When the asset held in trust is sold, capital gains tax may apply to any increase in value since the date of acquisition. It is important to note that capital gains tax rules can be complex, and it’s advisable to seek professional advice when setting up a trust. Understanding capital gains tax, and its potential impact on trusts, can help ensure that your assets are protected and that you are able to achieve your financial goals.

Trusts in Malta provide a flexible estate and commercial planning method for both private individuals and commercial applications.

With its legislation based on Jersey law, and with the advent of Malta joining the EU, Malta is now seen as a secure, accessible and regulated region for trusts and their administration. In recent years, trusts have gained popularity in Malta as a means of estate and commercial planning. The unique flexibility offered by Maltese legislation allows both private individuals and businesses to benefit from this efficient tool.

One of the key advantages of choosing Malta as a jurisdiction for trusts is the country’s EU membership. This ensures a high level of regulation and also provides accessibility and security for those who engage in trust activities.

Malta’s reputation as a trusted destination for trust administration continues to grow, attracting individuals and businesses seeking a reliable framework for managing their assets and ensuring the smooth transfer of wealth to future generations. The country’s legislation offers a solid foundation for trust structures that can be tailored to meet the specific needs of individuals and businesses alike.

The flexibility provided by Maltese law allows for the creation of various types of trusts, such as discretionary trusts, purpose trusts, and charitable trusts. This versatility enables individuals to protect their assets, manage their investments, and plan for the future in a manner that suits their unique circumstances.

The Trusts and Trustees Act of 2004 of Malta is modelled on the UK Law of Trusts (Jersey), providing assurance and peace of mind for international settlors and beneficiaries.

Any trust, no matter what jurisdiction, should only be considered and set up after considering the overall estate and tax plan of the individual settlor and proposed beneficiaries.

• Avoiding lengthy probate processes and associated expenses, minimising estate taxes and shifting taxes to beneficiaries who enjoy more favourable tax rates
• Preserving assets from creditors and protecting assets for a child beneficiary
• Setting up a charitable trust so that upon a settlor’s death or insolvency their accounts are not frozen
• Not part of matrimonial property upon death

• Unit trusts, which allows the holding of any property for any person, irrespective of nationality or residence
• Collective investments schemes, which allow the holding of real estate securitisation (especially during construction)
• A form of guarantee

A trust may be created unilaterally or bilaterally, by oral declaration or in writing.

A unit trust must always be created in writing.

The settlor is the person who sets up the trust. The settlor must be of age, have full capacity to contract, and a free disposition of the assets settled on trust. While imposing fiduciary obligations upon the trustee in favour of the beneficiaries, trusts do not leave the settlor with any rights in relation to the trust property, except as specifically provided for in the Trusts and Trustees Act.

The Trusts and Trustees Act lists the settlor’s rights (which may be supplemented by the trust deed) as follows:

• The settlor has the power to seek court directives as to trust validity
• In cases of trust termination, interest lapses or no existing or possible beneficiary, the trustee holds the trust property for the settlor (or their heirs) absolutely, and
• The settlor has the right to a variation of terms and revocable trusts where the Trust Deed so provides

It is the trustee’s duty to provide the settlor with information, subject to the terms of the Trust Deed.

The beneficiary is the person who may benefit from the assets of the trust. All beneficiaries have to be mentioned by name, or are ascertainable by class or by relationship, to a person, alive or dead. For instance, children not yet born or conceived may be beneficiaries of the trust. The rights of the beneficiary are personal and are regarded as movable property. Subject to the trust deed, the beneficiary may sell, charge or deal with their interest in any manner, provided that this is done in writing. The beneficiary has the right to information from the trustee and may seek court directives regarding the validity of the trust. The beneficiary may also disclaim his or her interest, or part thereof.

The trust deed is the instrument whereby the trust is created and includes the terms of the trust. It may also be in the form of a unilateral declaration of trust, for example, a trust deed may provide for the addition of new beneficiaries (such as unborn children), or the exclusion of a specific benefit to certain beneficiaries of the trust under conditions clearly stated in the trust deed.

The settlor can guide the trustee in a separate letter of wishes on how the trustee should exercise his discretion. Depending on the relationship between the settlor and the beneficiaries, the settlor can inform the beneficiaries of this letter. However, they may also choose not to disclose this to the beneficiaries.

A trust is a form of legal institute which does not have its own legal personality. Trusts are not registered anywhere, and there are no formalities for the annual maintenance of trusts other than statutory obligations that are imposed on trustees in the administration of trusts (for example, the duty to prepare accounts).

There are no statutory restrictions that could delay the setting-up of a trust in Malta. Therefore, the time required depends on the particular circumstances and mainly relates to the drafting of the trust deed.

A Malta trust is subject to a maximum duration of 100 years. However, it can be terminated earlier if all beneficiaries acting in unison demand termination, which the trustees must accept.

Malta foundations can be set up in two ways: a trust deed, or via a last will and testament.

There are minimum capital requirements, namely an endowment of money or property in the sum of €165.00 must be settled. Or, if the foundation is of purely social or charitable objectives, a sum of €232, although there is no requirement to maintain the capital minimums.

A trustee may elect that the trust be treated as if it were a company that is an ordinarily resident and domiciled in Malta.

Any distribution of profits will be taxed at the prevailing corporation rate, which is currently 35%. The distribution of profits will be treated as if it were a dividend. Non-resident beneficiaries can claim a tax refund, resulting in an effective tax rate on a trust income of 5% to 6.25%.

A trust treated as a company for tax purposes is particularly advantageous where a trust holds operating companies as its assets. The accounting of the dividends from such operating companies at the level of the trust need to be streamlined.

Treating a trust as a company also allows the trust to avail itself of Malta’s 70+ double tax treaties, as well as various European Union directives, such as the Parent Subsidiary Directive, which in Maltese law results in 0% taxation at the level of the trust of subsidiary income distributed up to the trust.