Article

Building on Experience

Malta’s trust industry plays a vital role in shaping the country as a wealth management location. As demand for trusts and foundations continues to grow, Malta’s track record keeps it ahead in a competitive market.

Still ranked among the premier league of trust jurisdictions, Malta has also acquired a robust reputation as a domicile for foundations. While the country has been a prominent player in administering private wealth structures for almost 30 years, the latest legislative update of its Trusts and Trustees Act brings the country into line with international trends and rival trust jurisdictions, ensuring that Malta remains one of the ‘go-to’ names for those in search of wealth management solutions. The introduction of private foundations complemented the offering, making the country one of the few places in the EU catering for both trusts and foundations. This ‘marketable advantage’ has attracted some 150 service providers, including large banks, independently owned trust companies and smaller niche providers to the Mediterranean island.

 

A Long Tradition

Trusts were originally developed in England in the 12th century. After centuries of cultivation, this idea was officially introduced into Maltese legislation in 1989 as a ‘ring-fenced’ vehicle, only allowing non-residents to set up such structures. However, after ratifying The Hague Convention in 1994 and becoming an EU member state in 2004, Malta has made significant investments in the development of its legal and regulatory framework, adapting its legislation and tax regime to make it a truly attractive and effective jurisdiction for establishing and managing trusts. In recent years, the country has created specific legislation to establish clear judicial and tax regimes for the set-up of foundations, which had previously only been recognised through case law and doctrinal writing. The new framework made this instrument more secure and the creation of a private foundation even more attractive for foreign clients.


An Instrument of Choice

Whether for estate planning, or protection of assets or both, trusts and foundations are becoming the vehicle of choice for high-net- worth individuals. The recent banking failures, financial crises and economic recessions have also made asset protection a priority for those of more modest means. Foundations appear to be primarily attractive to continental European, Middle Eastern and Asian clients for whom the concept of a trust is less familiar. Trusts are usually found in common law countries, however with the passing of the Trusts and Trustees Act in 2005, trusts became fully ingrained in Malta’s civil law framework. Nevertheless, practitioners point out that foundations are also of increasing interest to affluent individuals from common law countries. They like the fact that a foundation offers all the benefits of a trust, with the added advantage that the founders can maintain a greater level of control whilst having separate legal personality.


Tailored Products

Malta’s trust practitioners and foundation administrators stress that both structures have their specific uses and operate in parallel in Malta. Malta does not offer ‘off-the-shelf’ trusts, and each trust is structured carefully to reflect the requirements of the client. Malta’s legislation recognises all other jurisdictions and offers clients the option to have the trust regulated by the jurisdiction of the clients’ choice. It also recognises all forms of trusts one would find in other jurisdictions, such as discretionary trusts, accumulation and maintenance trusts, fixed interest trusts, spendthrift and charitable trusts. In addition, the trust law identifies a number of commercial situations within which the use of trusts would attract more favourable treatment. These include security trusts, unit trusts or collective investment schemes and securitisation, among others. The use of trusts is now widening to encompass a host of different uses, from Islamic Finance to aircraft holding. Trusts can also be converted into a foundation and vice versa. Foundations can be used in most cases where a trust or a company could be set up, with the most common structures having a wealth planning and philanthropic background.

 

Top Trust and Legal Professionals

The Malta Financial Services Authority (MFSA) oversees trustees and foundation administrators who appreciate the highly regulated environment, as it provides certainty to clients that they are dealing with professional firms. Some 150 service providers operate in and from Malta. This yields a highly competitive landscape for clients who are spoilt for choice when choosing a service provider. In addition, 35 companies in Malta are authorised to act as foundation administrators.


Rules & Regulations

Trusts and foundations have been set up in Malta to safeguard everything from heirlooms to stocks, bonds, art and real estate. The 2014 changes to the Trusts & Trustees Act enhanced the Malta Trust further, with the period of trusts extended by 25 years up to 125 years. The other key change concerns settlor powers. Typically, a trust may be invalid if the person establishing it retains control over the assets; however, the updated law introduced specific circumstances when a settlor may reserve powers under the terms of a trust without the trust being considered a sham. Another major amendment is the introduction of family trusts and Private Trust Companies (PTCs). A family trust can hold assets to the benefit of one specific family, whereby the trustee must be a company that only provides services to that specific family trust. A minimum share capital requirement of €15,000 has also been introduced for trustees in addition to a number of other amendments.

Malta’s fiscally efficient tax framework enhances the attractiveness of the jurisdiction, though naturally the actual impact of taxation on trusts depends on a number of issues, including the type of assets and the status of residence of the beneficiaries. However, where the beneficiaries under a trust are non-residents and the income of the trust does not arise in Malta, there is no tax to be paid in Malta. Foundations may choose to be treated as a trust or as a company in which case they can potentially benefit from the country’s tax refund regime.


Beneficial Ownership Register

As of January 2018, all Maltese trusts are obliged to identify, record and report their beneficial owners to the Malta Financial Services Authority; this was one of the features of the EU’s 4th Anti-Money Laundering Directive. Beneficial owners of trusts include settlers, trustees, protectors, and any beneficiaries who exercise ultimate control through direct or indirect ownership. Name, date of birth, nationality, country of residence, official identification document, as well as the nature and extent of the beneficial interest held by each beneficial owner have to be reported. In case of charitable trusts, the trustee is only required to provide information relating to the settlor, the protector and any other person exercising control over the trust. The new regulations are expected to help in the effort to increase transparency and combat tax evasion and money laundering.

 

Malta Financial Services Authority 

 

Key Selling Points

The MFSA has gained a reputation as an effective and responsive regulator that works hand-in-hand with the government to cement the island’s position as a wealth management hub. Legal and administrative support ranges from small boutique practices to the global ‘Big Four’ accountancy firms, with Deloitte, PwC, EY and KPMG all having branches in Malta. The MFSA also operates a fast-track authorisation for trust companies licensed in other approved jurisdictions. Many are now choosing Malta over other big names in the industry given the island’s status as EU member state, as well as its fiscal and political stability.

Malta’s other key selling point is the value for money it offers those looking to the EU for wealth management solutions, such as significantly lower set-up and administrative costs than other countries. Legal costs, management fees and auditing rates are all lower than in the majority of European jurisdictions due to the fact that well-educated staff can be sourced at two-thirds of the labour costs found in other Western European nations.


Towards the Future

The outlook for the future of Malta’s fiduciary industry is bright. A Maltese trust or foundation offers security, assurance and flexibility in an EU-regulated environment, while maintaining the principle of confidentiality that clients expect. The sector boasts unique legislation that allows the individual requirements of each client and company to be met. Furthermore, Malta is one of the few southern European countries enjoying a stable political and economic environment, and more and more clients are finding Malta trusts and foundations as their preferred vehicles for managing their wealth.

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