Tax Planning

The tax treatment of a Maltese Trust depends on several factors, such as the residence of the trustee, settlor and beneficiaries, the nature of the Trust property, the source of the income attributable to the Trust as well as whether the income is distributed or not.

AT SETTLEMENT

The settlement of property on Trust falls within the definition of a “taxable transfer” whereby it is deemed that taxable gain upon settlement = market value of property upon settlement – cost of acquisition.

Such a gain shall not, however, be taxable in Malta if the settlor is not resident or domiciled in Malta, and the assets of the Trust are located or registered outside Malta. In addition, no tax is chargeable upon the settlement of property on Trust, when:

• the settlor is the sole beneficiary; or
• the beneficiaries of the Trust are close relatives or approved philanthropic institutions; or
• the trustee holds such property for designated commercial transactions

The transfer may also be exempt from taxation by reason of the nature of the property settled on Trust.

If the Trust income is not distributed to the beneficiaries, such income is charged tax at the rate of 35%.

It may be advantageous for the Trust income to be taxed in Malta. In this regard, it is allowed that the trustee opts to have the Trust treated as a company for tax purposes – according to Article 27D(1)(a) of the Income Tax Act, Chapter 123 of the laws of Malta – resulting in the distributions of the profits to the beneficiaries being treated as if they were dividends. This automatically triggers the full imputation tax system applicable to Malta companies, whereby the Trust income will be subject to tax at the corporate rate of 35% and upon the distribution of dividends, the beneficiaries shall be entitled to a refund in part or in full of the Malta tax paid, resulting in very little tax leakage in Malta.

Finally, only income arising in Malta will be taxed.

TRANSFER OF A BENEFICIAL INTEREST

No Malta tax would be chargeable when transferring a beneficial interest in a Trust which does not include chargeable property.

Chargeable property comprises solely of: immovable property, securities, business, goodwill, business permits copyright, trademarks and any other intellectual property.

DISTRIBUTION OF INCOME

Income attributable to a Trust is not charged tax in the hands of the trustee if such income is distributed to the beneficiaries. When all the beneficiaries of a Trust are non-Maltese residents and when all the income attributable to a Trust does not arise in Malta, there will be no tax impact under Maltese law.

DURING THE LIFETIME OF THE TRUST

The Maltese Trust offers non-resident beneficiaries a highly attractive tax efficient vehicle.

CAPITALISATION OF INCOME

If the Trust income is not distributed to the beneficiaries, such income is charged tax at the rate of 35%.

It may be advantageous for the Trust income to be taxed in Malta. In this regard, it is allowed that the trustee opts to have the Trust treated as a company for tax purposes – according to Article 27D(1)(a) of the Income Tax Act, Chapter 123 of the laws of Malta – resulting in the distributions of the profits to the beneficiaries being treated as if they were dividends. This automatically triggers the full imputation tax system applicable to Malta companies, whereby the Trust income will be subject to tax at the corporate rate of 35% and upon the distribution of dividends, the beneficiaries shall be entitled to a refund in part or in full of the Malta tax paid, resulting in very little tax leakage in Malta.

Finally, only income arising in Malta will be taxed.