A Malta Private Foundation has been around for hundreds of years. Tracing its origin back to ancient Greece and Rome, Malta adopted their legal traditions allowing for the creation of private foundations for their own wealthy families.
In 2007, Malta amended its civil code and published guidelines for the creation of private foundations. Since 2007, Maltese private foundations are separate legal entities with the benefits of a trust. They can engage in several activities without actively being involved with commercial business activities. Currently, foundations can own commercial properties like real estate, vessels, intellectual properties, and corporate shares while not taking an active role in their operations. In other words, a Malta private foundation can partake in passive commercial activities.
Many foreigners use a Malta foundation for passively holding companies. Some of these companies may be actively engaged in trading with the company’s shares owned by the foundation. Private limited companies owned by foundations are the most popular vehicles for these types of passive ownership of active trading companies.
A Malta Private Foundation enjoys these benefits:
• Complete Foreign Control: Foreigners can create foundations for foreign beneficiaries and hold foreign assets.
• 0% Taxation: Foundations can choose to be treated like trusts and pay no taxes. Or, be treated like a company and only pay 5% after refunds. Note: U.S. taxpayers and others residing in global taxation countries must disclose all income to their tax authorities.
• Privacy: The founder’s name and the beneficiaries’ names are not part of any public records.
• Confidentiality: The law provides extra confidentiality for the beneficiaries.
• Cell Foundations: A foundation can create separate cells for specific assets, beneficiaries, or purposes in order to segregate them from liabilities of other cells.
• English: Malta’s second official language is English.
Malta Private Foundation Name
Malta foundations must select a name not the same or similar to other legal entities names.
Foundations must include the word “Foundation” in its name.
Two Types of Foundations
Maltese foundations can either be for specific purposes or private foundations. Purpose foundations are created without having beneficiaries and usually provide charitable purposes. Registered charities with tax exemption status are typical purpose foundations.
On the other hand, private foundations do not need to be charitable. They can be created to provide benefits to beneficiaries. Most foreigners create private foundations because they offer increasing the value of their assets while taking advantage of available tax benefits.
Separate Legal Entities
Foundations are separate legal entities with a separate identity from their founders, council members, protectors, and beneficiaries. Just like a corporation in relation to its shareholders and directors. This allows them to own properties in its own name, open brokerage and bank accounts, and be able to file lawsuits and be sued in a court of law. Neither the insolvency nor death of an involved party will affect the legal identity and status of the foundation.
Malta offers greater confidentiality and privacy to its foundations than other legal entities. For instance, even during legal proceedings like a lawsuit the identity of the beneficiaries are to remain confidential. Closed court hearings are held to protect the confidentiality of the beneficiaries.
The identity of the founders are given greater confidentiality for special purpose foundations which do not have beneficiaries.
Many foundations do not register with the government. Some are created by the founder’s death where his or her will provides the structure for cresting a trust. In other instances, a public deed may be registered identifying a trust as the owner of the property.
When foundations are registered with the government, they register with the Registrar for Legal Persons (rather than for Companies) which is a unique authority than the regulator for companies and trusts. Private foundations have their own special license.
The required documents are: the Constituting Deed (like a Trust Deed or a corporation’s Memorandum and Articles of Association). The deed establishes the manner in which the foundation operates and the duties of the involved parties.
Since foundations are not regulated by the Registrar of Companies which has a larger staff and better facilities and open for longer hours than the Registrar of Legal Persons, registration may take up to two weeks.
At least 1,200 Euro needs to be the initial endowment which can be cash or like kind asset requiring a local auditor to establish its value. There are no limits on the amount of later endowments other than they have to be reported. Endowments are irrevocable meaning they cannot be transferred back to the original donor.
Protected Cell Foundations
The law allows the formation of protected cell foundations which are separate, segregated cells like a protected cell company. Cells can be created to separate assets, beneficiaries, objectives and purposes. Cells are segregated from each other protecting the other cells from one foundation cell which may be sued in a court of law.
Each cell can choose its own tax jurisdiction where all its assets may be located.
The foundation’s deed is a public document and must contain the following information:
• Foundation’s name;
• Foundation’s Malta address;
• Foundation’s purpose;
• Evidence that the initial endowment was paid;
• Details of the duties and appointment of the administrators;
• If administrators are not Maltese, details of their legal representative in Malta;
• Legal representative’s identity;
• Duration of the lifespan (100 years if not specified);
• Details including the license of the person forming a private foundation.
Similar to a settlor of a trust, the founder donates cash or properties to the foundation as an endowment.
Unlike settlors in a trust, foundation founders can retain control directly or indirectly through the administrators, the council, and/or the beneficiaries. The only limit is when the founder is the sole beneficiary who cannot be the sole administrator.
Similar to directors of a corporation, foundation administrators manage the foundation pursuant to the terms in the foundation’s deed. The deed sets forth how they are appointed, removed, compensated, and what powers they have. Administrators can be local or reside in any country and can be natural persons or legal entities. However, if all of the administrators reside outside of Malta, then at least one must be appointed who is local and licensed as a foundation services provider.
Administrators have access to all records and can appoint a supervisory council to manage the foundation.
The most important functions for administrators is to determine who benefits from the foundation and in what manner according to what is set forth in the deed.
The foundation deed establishes whether a protector will be appointed. According to the terms of the deed, the protector may have to be consulted by the administrators and/or supervisory council regarding all important matters. The deed may provide greater powers to the protector.
Protectors can be natural persons or legal entities and may be the founder or a beneficiary.
Similar to beneficiaries in a trust, they have the rights to certain benefits from the foundation as described in the deed. They can be natural persons or legal entities or another foundation or a trust. Unless the deed specifically excludes, beneficiaries have the right to access all of the foundation’s records and information.
The rights of the beneficiaries cannot be interfered with by the beneficiaries’ creditors or heirs.
While not considered an essential managing group with administrators serving that function for private foundations, the option exists to appoint a supervisory council. The need may arise in order to lessen the burden on busy administrators.
The founder, beneficiaries, protector, or third parties may be appointed to the council. Members may be natural persons or legal entities residing anywhere in the world.
Foundations are required to prepare audited accounts.
Private foundations who do not have Maltese beneficiaries are similar to non-resident legal entities not earning income or holding assets within Malta. These entities have favorable tax treatment.
Private foundations have the option to be taxes either as a trust or a company. The differences are demonstrated below:
• Treated as a Company – The Maltese corporate tax of 35% can result in an 85% refund depending upon how it is structured with a net corporate tax rate of 5%.
• Treated as a Trust – Malta trusts are taxed on their beneficiaries and if they are non-residents their income tax is 0%. Besides having non-resident beneficiaries, the trust’s income must all derive outside of Malta to qualify for the tax free income. The pass-through income bypasses the trust directly to the beneficiaries who are tax exempt in Malta. The decision to be treated as a trust for tax purposes is irrevocable. The declaration must be in writing and filed with the tax authorities and may never be changed.
The founder and beneficiaries names do not appear in any public records.
A Malta Private Foundation enjoys these benefits: total ownership and control by foreigners, privacy, beneficiaries’ confidentiality, separate cells can be created, no taxes can be accomplished, and English is the second official language in Malta.