The Income Tax Act (ITA) brings to charge income tax and capital gains, on a limited number of chargeable assets, with respect to inter alia individuals, companies, trusts, foundations and partnerships.
Malta does not currently have any wealth tax, gift tax or inheritance tax in force. Having said that, the Duty on Documents and Transfers Act (DDTA) levies transfer duty, “stamp duty”, on the transfer of a limited number of assets, both during one’s lifetime and on death.
Individuals may become tax resident in Malta in one of two ways. Firstly, should an individual spend 183 days or more in Malta over a 12-month period, that individual shall become tax resident Malta. An individual may also become tax resident in Malta if they move with the intention to reside there indefinitely, basing themselves in Malta and only spending as much time away for business or leisure purposes as would be in line with a claim that one is residing in Malta.
The ITA applies the British concepts of "residence" and "domicile", as well as that of "ordinary residence" (Malta’s tax laws date back to when it was a British colony). In fact, Malta also operates a similar remittance-based system of taxation for individuals (and other persons alike). Accordingly, individuals who are resident but not domiciled in Malta, so called "res non-doms", for tax purposes are subject to tax in Malta on:
These principles, and supplementary interpretative guidance on a number of practical issues, applicable to individuals resident in Malta and benefitting from the remittance basis of taxation, are now set out in a recently issued Revenue Guideline titled "The Remittance Basis of Taxation for Individuals under the Income Tax Act" (the “Guideline”). The Guideline provides guidance as to several key issues, such as the principle that an individual who moves to Malta to establish his residence there becomes tax resident there as from the date of his arrival, regardless of the duration of his stay in Malta in any particular year; as to the issues around remittances used to cover "ordinary expenses" and so on. Individuals who are "res non-dom", not being beneficiaries under any one of the tax programmes discussed below, are now subject to a minimum annual tax charge of EUR5000, assuming said individual shall have been in receipt of at least EUR35,000 worth of foreign sourced income in the tax year concerned.
Malta operates a self-assessment system of taxation. Individuals who are tax residents in Malta are taxed at progressive rates of tax, with the maximum tax band reaching 35%. Individuals may opt to apply "single", "married" or "parent" tax rates, the latter two where applicable and subject to statutory conditions.
The tax year for individuals is the calendar year, with said individuals being obliged to submit a tax return, where applicable, by 30 June of the following year. Tax payable on certain forms of income, such as employment income, is deducted at source. Where tax on a particular source of income is not deducted at source, the taxpayer shall become subject to the payment of provisional tax thereon (payable in three instalments throughout the tax year on account of the estimated current tax year liability).
Malta has several attractive tax programmes in place, open to both EU/EEA/Swiss and non-EU/EEA/Swiss nationals, the most commonly availed of programmes being the Residence Programme (TRP) and the Global Residence Programme (GRP). A key benefit of both programmes is that beneficiaries of said programmes benefit from a flat 15% rate of tax on any foreign sourced income remitted to Malta, subject to a minimum annual tax payment of EUR15,000. In light of the fact that the funds remitted to Malta to cover ordinary expenses are now deemed, as per the Guideline, to be income in nature, the tax programmes may also be attractive to individuals who may not necessarily remit large amounts of foreign sourced income to Malta, opting to remit capital or capital gains to Malta instead, which amounts would thus be taxed in Malta at this reduced rate. Beneficiaries under the GRP are also issued with a residence card, which also acts as a Schengen visa.
A Maltese company, as defined, is deemed to be resident and domiciled in Malta by reason of its incorporation in terms of Maltese law and, accordingly, is taxable in Malta on a worldwide basis, subject to any applicable double tax treaties. A foreign company that is effectively managed and controlled in Malta is tax resident in Malta and, accordingly, is taxable on a remittance basis. The term "company"’, for income tax purposes, includes other entities, such as partnerships, foundations, either by operation of the law or upon registration by the entity concerned to be taxed as such.
The standard corporate tax rate applied to taxable income (being income less a generous range of tax deductions, including the recently introduced notional interest deduction that intends to provide for equivalent tax treatment of debt and equity financing, by allowing an additional deduction for the amount of return on equity financing, eg, retained earnings, etc) is 35%. When a company distributes dividends out of profits on which it has paid tax at 35%, no further tax is due by the shareholders and a credit for the tax paid by the distributing company is available to the shareholders against the latter’s tax liability in terms of the full imputation system of taxation applicable to companies. Subject to statutory conditions, a dividend payment may trigger a right in the shareholder’s hands to a tax-exempt refund of part or all of the Maltese tax paid by the company on the distributed profits. The standard tax refund is 6/7.
The ITA also includes an attractive participation exemption, covering holdings of as little as 5% of equity subject to various other conditions. The exemption applies to any gains or profits that a resident corporate taxpayer may derive from a holding (covering shareholdings, partnership interests, interests in investment funds etc) that qualifies as a "participating holding", subject as always to statutory conditions.
More recently, Malta has introduced tax grouping rules applying to companies, as defined, and allowing a group to be treated as a "fiscal unit" for income tax purposes. Where a group exercises this option, the parent company (which may be non-resident) shall become the "principal taxpayer" with the underlying subsidiaries being treated as "transparent subsidiaries". The Rules regulate inter alia the manner of computation of the group’s chargeable. Intra-group transactions are generally to be ignored; the same goes for dividends, the payment of tax by subsidiaries and any resulting right to a tax refund at the level of the parent, with the resulting net tax charge being payable.
Foundations are regulated in terms of the Civil Code that includes a full set of rules covering all aspects of foundations, including the creation, administration and termination of same. Three types of foundations are catered for: the public benefit foundation, the private benefit foundation and, commonly availed of by families, the private interest foundation (any reference herein to a foundation should be construed as a reference to a private interest foundation).
By default, a foundation is taxed as a company (see above). A foundation may however opt to be taxed as a trust for tax purposes (see below) – eg, where the assets are located outside of Malta and beneficiaries are not resident and domiciled in Malta, which option, once exercised, is irrevocable. If so taxed, the principle of tax transparency shall apply.
Malta has a fully-fledged trust law, largely modelled on Anglo-Saxon trust law. In addition to the succession planning benefits associated with trusts (and foundations alike), trusts (and foundations which opt to be treated as trusts for tax purposes) may be interesting from a tax perspective for individuals who are non-residents or, being tax resident in Malta, are not domiciled there.
From a tax perspective:
Where a trust does not elect to be treated as a company for tax purposes, then the principles of tax transparency may apply to the trust in specific cases, such as where:
Capital Gains Tax
Article 5, ITA, brings to charge any gains realised upon the transfer of a very limited number of assets, including securities, Maltese real estate (unless subject to Property Transfer Tax), a business, intellectual property, and the beneficial interest in a trust. Excluded are assets such as cash, jewellery, artwork, cars and vessels, amongst others. As will be detailed below, these "personal" assets are also not subject to any form of capital or wealth taxes, nor to any form of inheritance tax.
The ITA caters for several exemptions from capital gains tax. One such exemption relates to a transfer of shares in a Maltese company, not being a "property company", where the shareholder is not tax resident in Malta, and is not owned or controlled directly or indirectly by individuals who are resident and domiciled in Malta. Other exemptions cover the sale of one’s residence, donations of chargeable assets to family members, and so forth.
The DDTA brings to charge transfers of marketable securities and partnership interests, if the relevant document is executed in Malta or, if executed outside Malta, when said document is made use of in Malta, subject to certain exceptions, and of immovable property in Malta, amongst others.
The default rate of transfer duty on transfers of marketable securities and partnership interests is 2%, going up to 5% should the company/ partnership own or have real rights over immovable property in Malta.
A company/partnership may however be entitled to a duty exemption covering acquisitions or disposals of marketable securities issued by companies locally as well as acquisitions or disposals by said company/partnership of marketable securities.
Transfers of immovable property in Malta are subject to duty at the rate of 5%, applying to transfers inter vivos and causa mortis alike. Having said that, the DDTA caters for reduced rates of transfer duty and several exemptions, such as the first time buyers scheme, applicable to individuals purchasing their residential home for the first time in Malta; exemption upon the transfer of one’s home to one’s heirs upon death, subject to statutory conditions.
There is a significant level of stability as far as Maltese estate and transfer tax laws are concerned, with relatively little changes to same having been put through same over the last few decades and, when made, typically, these changes have benefitted the taxpayer. This has also been the case with the laws affecting the tax rules applicable to high-net worth individuals, trusts, foundations and estates generally.
The recent COVID-19 pandemic has not changed the government’s approach in this regard. Whilst the government has thrown significant amounts at the economy to date, in terms of relief to struggling businesses, it has stated that it does not currently intend to raise taxes to cover same.
Malta has transposed the EU Administrative Cooperation in the field of Taxation Directive (DAC), and all amendments to same, including the Common Reporting Standard and the Tax Intermediaries Directive (DAC 6) into domestic law.
Likewise, FATCA has also been transposed into Maltese law, with intermediaries being required to report on financial account information to the US Authorities.
Over the past few years, there has been an increase in families wishing to plan the succession of their family business, which in turn led to the introduction of the Family Business Act. This Act introduced a regulatory framework for registered family businesses, as defined, catering inter alia for several fiscal incentives linked to facilitating a successful business transfer during the lifetime of the owners, as well as for support measures post-transfer.
It is often the case that whilst the older generations may intend to plan for a transfer of wealth, psychologically they are typically less prepared to do so than they think and the plan in question is rarely executed. This being said, it is quite common for older generations to donate shares in family businesses to their children during their life-time (as such a donation may be subject to a capital gains tax exemption in the hands of the transferor), with the older generation retaining the right of usufruct over those shares for a period of time or, at times, for their lifetime. Also common is the practice is for the older generations to retain a minority percentage shareholding with quasi full control over the business, this through the introduction of weighted voted rights at board level or veto powers.
Traditionally, British private international law rules have been applied by Maltese’s courts when faced with cross-border property and succession law matters. Thus, Maltese courts opted for the system of scission, whereby immovable property is regulated by the lex situs and movable property is regulated by the lex domicilii at the time of death.
These rules are now subject to Regulation 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions, and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (the “EU Succession Regulation”), which applies to persons who died on or after 17 August 2015. The Regulation is binding throughout the European Union, with the exception of Denmark, the UK and Ireland (who have opted out of its application). The participating remaining EU member states will apply the rules of the Regulation even in cases involving citizens or residents of third countries, eg, Switzerland or the USA, in particular if they own assets such as immovable property and real estate within the EU. The Regulation achieves a degree of harmonisation of private international law rules, enabling individuals to organise more efficiently and more rapidly their successions within the area of freedom, security and justice.
Although it is only EU Member States and EU residents that are technically bound by the Regulation, the Regulation is intended to apply to estates on a worldwide basis. In terms of the EU Succession Regulation, the law applicable to the succession of the deceased as a whole shall be that of the deceased’s country of habitual residence at the time of death, unless the deceased shall have opted to apply the succession laws of his country of nationality. In more recent times, the availability to high net worth individuals of second passports may eventually have an impact also on this aspect of their lives, in terms of giving them more options as to choice of applicable succession laws.
The Civil Code provides for a reserved portion (a form of forced heirship), which comprises a portion of the deceased’s property reserved by law in favour of the descendants and the surviving spouse of the deceased.
Accordingly, the descendants and/or the surviving spouse of the deceased are generally entitled to a credit of the value of the reserved portion against the deceased’s estate. Said credit is due with interest at the rate of 8% accruing to such credit from the date of the opening of succession if the reserved portion is claimed within two years from such date, or from the date of service of a judicial order if the claim is made after the expiration of the said period of two years.
The actual amount reserved is regulated by law and depends on the existence of surviving descendants and/or spouse, if any. In terms of the Civil Code, it is unlawful for the testator to encumber the reserved portion with any burden or condition and, therefore, the reserved portion is calculated on the whole estate, after deducting the debts due by the estate and any funeral expenses incurred. To this end, the estate is deemed to include the property disposed of by the testator under a gratuitous title, even in contemplation of marriage, in favour of any person whomsoever, with the exception of such expenses as may have been incurred for the education of any of the children or other descendants.
Besides the grounds on which a person may become unworthy to inherit generally (as defined in the Civil Code), the persons entitled by law to a reserved portion may also be deprived of the reserved portion in the event that the testator makes a specific declaration to this effect based on special grounds specified in the Civil Code. This declaration must be stated in a will of the testator.
In relation to the reserved portion, the law provides that testamentary dispositions exceeding the disposable portion shall be liable to abatement and limited to that portion, at the time of the opening of the succession, provided that a demand for abatement is made within the time established by law. For purposes of calculating the abatement, the property of the deceased shall be deemed to include all their property at the time of death, including property disposed of by donation (calculated at the value at the time of the donation).
It is legally possible to renounce one’s right to the reserved portion.
The Civil Code caters for three types of marriage contracts, more commonly referred to as matrimonial regimes, namely:
The Community of Acquests
In terms of the Civil Code, the community of acquests shall, in the absence of an agreement to the contrary, apply by default to a marriage celebrated in Malta. Accordingly, the spouses are free choose a matrimonial regime other than the community of acquests to regulate their marriage; should they fail to do so, this is the default regime.
Furthermore, it is important to note that marriage celebrated outside Malta by persons who subsequently establish themselves in Malta shall also result in the application of the community of acquests between the spouses. Also, in this instance, however, the spouses may take steps locally to opt for an alternative matrimonial regime to apply to their assets.
The community of acquests generally comprises of all property acquired by each spouse after marriage, excluding paraphernal property. "Paraphernal property" refers to property acquired by either spouse before the marriage, donations received, and property inherited by either spouse.
The community of acquests is jointly administered by both spouses. Having said that, the Civil Code also caters for extraordinary acts which require the consent of both spouses. Such extraordinary acts include acts of administration whereby an immovable property or real rights thereon are acquired, constituted or alienated, the borrowing or lending of money (excluding deposits in a bank account), the settlement of property on trust, which property is community property, including the variation and revocation of such property settled.
The community of acquests is jointly administered by both spouses. In terms of the Civil Code, either of the spouses may nullify the effect of an act carried out by their spouse, which act they do not agree with. If one spouse deems there to be maladministration of community property, said spouse may bring about an action to bring the other spouse back into a normative routine. This is possible if there is agreement between the spouses. In the case of disagreement, the spouses have two options:
Separation of Estates
Another marriage contract contemplated by the Civil Code is that of Separation of Estates. The separation of estates is a system whereby each spouse retains their part of the estate, having full control and administration over their part. Should a couple wish to apply the separation of estates as their matrimonial regime, they are to appear before a notary to enter into a marriage contract to this effect, which contract is to be registered in the Public Registry.
Community of Residue and Separate Administration
Under the community of residue system, the property that a spouse has and/or acquires prior to marriage remains their own, whereas the property acquired during marriage by each spouse will be held and administered by the spouse who made the acquisition as a sole owner. In practice, CORSA is rarely applied by couples.
Pre-Nuptial, Ante-Nuptial and Post-Nuptial Agreements
The Civil Code caters for pre-nuptial, ante-nuptial and post-nuptial agreements, subject to same following all the formalities catered for at law.
Specifically with reference to pre-nuptial agreements, it is to be noted that spouses may enter into a pre-nuptial agreement with other stipulations as to which system of property – matrimonial regime – will prevail during the marriage. It is to be noted that certain clauses (primarily relating to inheritance) may be included in this agreement and are deemed to be valid on the basis that they are included in a pre-nuptial agreement. Otherwise, their inclusion in a contract other than a pre-nuptial agreement would be null.
A marriage, whether celebrated in Malta or abroad, shall be valid for all purposes in Malta if:
A decision of a foreign court on the status of a married person, or affecting such status, shall be recognised in Malta. The decision must have been handed down by a competent court of the country in which either of the parties to the proceedings is domiciled, or of which either of the parties is a citizen.
The donation of immovable property to one’s spouse, descendants in the direct line, ascendants in the direct line, in the absence of ascendants and descendants in the direct line to one’s siblings or their descendants, is exempt from capital gains tax in the hands of the transferor in Malta. However, transfer duty is still payable on any such donation.
On a subsequent transfer of that property by the donee, the donee is deemed to have acquired the property on the date it was originally acquired by the donor.
If the transfer is made more than five years after the date of donation, the transferor may either:
These conditions apply solely where the property does not form part of a project, as defined.
If the transfer is made less than five years after the date of donation, the transfer is not subject to capital gains tax but the transferor is to pay Property Transfer Tax. Accordingly, the transferor shall pay a final withholding tax (again ranging from 5% to 10%) on the value of the property so transferred.
Capital gains tax and transfer duty are brought levied on a very limited number of assets (see 1.1 Tax Regimes). In addition, the ITA caters for a number of generous exemptions from capital gains tax that act as quite of an incentive to asset owners to transfer their wealth to the younger generations tax free – one such exemption covers donations of all chargeable assets to one’s children and grand-children, including therefore donations of immovable property and securities.
On similar lines, the DDTA caters for a number of exemptions and reduced rates of transfer duty applying to transfers of assets during one’s lifetime and upon death.
Since the exemptions and reduced rates of capital gains tax and transfer duty are already quite generous, this may make the need for complicated succession plans slightly redundant, unless for example an estate is comprised of significant illiquid assets, such as immovable property, the inheritance of which on the owner’s death will trigger a high transfer duty bill that the heirs would need to not only pay but also potentially finance. In such instances, succession planning that achieves a measure of tax deferral may be useful, if only from a cash flow point of view.
This is where trusts and foundations may come into play, keeping in mind that a foundation may also be set up with a number of cells, each of which constitutes a separate patrimony of assets and liabilities and to which individual asset(s) may be allocated for same to be administered for one or more specific beneficiaries of the foundation to the exclusion of the others. The ITA caters for a number of exemptions from capital gains tax on settlement of chargeable assets on trust, likewise on the endowment of same upon a foundation, in either instance when same are set up for the benefit of inter alia the settlor/founder’s children and grandchildren.
There is no hard and fast rule as to the manner in which digital assets are to be treated for succession purposes as the matter is not currently regulated in Malta.
When considering digital assets such as email accounts or cloud accounts, the starting point should be the terms and conditions the deceased would have accepted with reference to the particular digital asset concerned. Each such set of terms and conditions is to be considered on a case-by-case basis, in order to take a view as to whether or not heirs have acquired a right to access that particular account. It is most often the case that accounts are non-transferable and, accordingly, the service provider would be expected to refuse to provide access to any such account to the account holder’s heirs.
As far as other assets such as cryptocurrency is concerned, the same principle applies should there be no private key involved in the ownership of same. Should there be a private key, the heirs may only benefit should they have access/hold that private key in practice.
Maltese law caters for both trusts and foundations and the laws, as drafted, cater for a wide range of same. In the case of trusts, in addition to your typical discretionary trust, the law also caters for the settlement of spendthrift trusts, disability trusts, charitable trusts, as well as the concept of a private trust company that can go a long way to granting a number of settlors/a family office stronger controls over the family’s assets. Where foundations are concerned, one can set up public benefit foundations where the focus is charitable or social objectives or similar, a private benefit foundation which essentially caters for a public purpose vehicle with an element of private benefit included therein, or a private interest foundation which is the vehicle of choice for a founder wishing to set up a vehicle that will hold and administer assets for his benefit and that of his family and future generations.
Whilst the foundation is firmly rooted in civil law principles, with the foundation being a separate legal person to the founder and the beneficiaries, the law introduces some elements that are akin to the eco environment of the trust, with concepts such as the beneficiary statement that may take the place of a letter of wishes, the role of a protector, amongst others. This may make the Maltese private foundation that more attractive to a family that is drawn to the trust world but be more comfortable with a vehicle they can see, and touch, and be involved in, to the degree required.
As far as trusts are concerned, the private trust company, subject to a light regulatory regime administered by the financial services authority, provides a further option to families wishing to structure their wealth. A private trust company may be set up if:
The private trust company is interesting for individuals who wish to settle assets on a trust for the benefit of their family, yet retain a level of control over same.
Malta has a fully-fledged trust law, introduced in the late 1980s and largely modelled on Jersey trust law. Malta has also adopted the Hague Convention on the Law Applicable to Trusts and on their Recognition, foreign trusts being thus recognised too. In the case of a foreign trust, the validity of the trust and its construction and administration shall be governed by said foreign law and recognised in Malta in terms of the Hague Convention.
A trust falls within scope of Maltese tax if one of the trustees is resident in Malta for tax purposes as well as when a trust has any income or capital gains arising in Malta. Should a foreign trust have Maltese resident beneficiaries, but no Malta resident trustees, and no income or capital gains chargeable to tax in Malta, that trust should fall outside scope of Maltese tax.
As indicated above, a trust which falls within scope of tax may, however, be tax transparent in particular instances, for instance if all trust assets are located outside of Malta and the trust beneficiaries are individuals who are resident or domiciled in Malta for tax purposes.
Should a beneficiary be resident but not domiciled in Malta, where the principle of tax transparency is applicable, the remittance regime will apply and accordingly the foreign sourced income of the trust that is attributable to that particular beneficiary shall only be brought to charge to tax in Malta if and to the extent that that income is remitted to Malta.
The law caters for irrevocable trusts, likewise for foundations where the right of the founder to terminate the foundation may be limited by the foundation deed.
Both laws provide opportunities to settlors and founders alike to maintain a level of control and/or involvement in the administration of the assets and, in the case of foundations, in the management of the foundation itself. This may be achieved in a number of ways:
The laws in question are drafted so as to provide asset owners considering either type of arrangement a significant amount of flexibility in deciding the level of involvement and/or extent of powers over the management of same that they wish to retain.
When dealing with asset planning, there is no one vehicle which suits every family’s requirements and the vehicle choice typically depends on the asset owner’s needs and plans for the future, whether he wishes to retain a measure of control over the manner in which the assets are administered, the extent to which he and/or the beneficiaries wish to be involved in ongoing management of same, the type of regime that best suited to him from a legal perspective.
Malta being a civil law jurisdiction, it is the company that has been the vehicle of choice for generations. Given the changing dynamic in family structures over the years, the use of trusts and foundations has relatively increased as they provide a level of flexibility in planning for future generations, particularly where the family dynamic is "non-traditional".
Family businesses, large and small, have been and remain the key driver of Malta’s economy. In this context, the company has traditionally been the vehicle of choice. More recently, families are increasingly considering trusts and foundations as a means for facilitating the transfer of wealth to future generations and, perhaps more importantly at times, a means to ensure the proper management of long-established businesses for the benefit of all moving forward.
The Family Business Act, introduced fairly recently, made a significant contribution on the local front in facilitating the transfer of family businesses to the younger generations in a tax efficient manner, through various tax incentives, and in so doing increasing the chances of said businesses remaining viable for the future. In most cases, however, the key issue remains control key, with the older generations being less than willing at times to relinquish control.
A robust shareholders agreement, which regulates key concerns such as what happens in the case of marriage of family members, which is key in Malta when considering that the default matrimonial regime is the community of acquests, or the manner in which a family member may exit the family business, including rules regulating transfers of shares in the business, may go a long way to regulating such matters. Other steps families are taking in recent times in terms of futureproofing their businesses includes the inclusion of independent non-executive directors at board level; said directors may make a significant contribution in terms of offering expert advice on key areas of the business, improving corporate governance standards, as well as acting as mediators in situations of conflict.
In the case of a transfer of shares in a Maltese company, the local capital gains tax rules distinguish between a transfer of a controlling interest and a that of a smaller holding. In the case of a transfer of a controlling interest, the transfer shall be deemed to have been made at the higher of the consideration and the market value of the shares. However, when dealing with the transfer of a non-controlling interest, the transfer value is determined depending on several factors, such as the date of acquisition of the shares in question.
The DDTA, which applies both in the case of transfers inter vivos and in the case of a transmission of shares on death, makes no such distinction.
Disputes relating to succession matters are quite common in Malta and very much in line with trends pertaining to same in the rest of Western Europe. Most relate to cases of a spouse or child, having been excluded from the deceased’s will or having just been left the reserved portion catered for by law, challenging said deceased’s will. Other cases refer to instances of alleged manipulation of elderly people by their spouse or child or carers, with the deceased having been driven to leave significant assets to same.
In more recent years, there are cases of allegations of trusts or foundations having been used by the deceased to hide assets from family members, or to provide for second families/partners of which one’s family has no knowledge.
The Courts do not typically award damages to aggrieved parties in wealth disputes or disputes involving trusts, foundations or similar entities. The thrust of the judgement in said cases is on ensuring that the party in question gets what is rightfully his/hers, such as, for instance, where a child is excluded from her parent’s inheritance, that she is awarded assets equivalent to the reserved portion she is entitled to in terms of law.
The Trust and Trustees Act regulates both corporate and private trustees, as defined. Corporate trustees, typically regulated by the local financial services authority, regularly act as trustees of trusts locally. The Act also caters for private trustees, providing that it is only an individual that may act as a private trustee, and then only if they are related to the settlor, by consanguinity or affinity in the direct line up to any degree or in the collateral line up to the fourth degree inclusively, or if he has known the settlor for at least ten years, and in either case provided the individual is not remunerated for their role as trustee (except as permitted by the financial services authority) and does not habitually hold himself out to be a trustee.
On similar lines, in terms of the Civil Code, administrators of foundations may be both corporate (if operating locally, regulated by the local financial services authority) and natural persons.
In terms of standards, whilst the Civil Code specifically regulates the rights and obligations of fiduciaries generally, both sets of laws specifically regulating trusts and foundations specifically regulate the rights and obligations of trustees and administrators respectively, setting high standards of behaviour for either type of fiduciary.
Both the local trusts law and the law regulating foundations include provisions to the effect that trustees and administrators respectively cannot negotiate their way out of liability for, in the case of trustees, breach of trust arising from their own fraud, wilful misconduct or gross negligence, and, in the case of administrators of foundations, for wilful misconduct, gross negligence or breach of duty.
Maltese law does not set any particular investment approach that trustees or administrators are obliged to take in investing and administering trust and foundation assets respectively. Both sets of laws require these fiduciaries to act, in matters of investment, like a bonus paterfamilias, meaning to act as a responsible head of a family would in investing that family’s wealth. It follows that, in absence of provisions to the contrary in the trust or foundation documentation concerned, the fiduciary is obliged to invest the trust or foundation assets prudently.
As indicated in 6.3 Fiduciary Regulation, Maltese law does not set any particular investment approach that trustees or administrators are obliged to take in investing and administering trust and foundation assets respectively. Both sets of laws require these fiduciaries to act, in matters of investment, like a bonus paterfamilias, meaning to act as a responsible head of a family would in investing that family’s wealth.
It follows, for instance, that it would therefore be prudent to ensure diversification in terms of investment on principle. It is, however, permissible for a settlor or founder to allow the trustees/administrators to administer the trust or foundation funds without ensuring diversification if, eg, the key/sole significant asset of the trust or foundation is to be the family business.
Following up on the duty imposed on the fiduciaries to act as a bonus paterfamilias, it would be prudent for the fiduciary to source the required expertise, in the form of an engagement of a qualified investment manager or advisor in the fulfilment of said duties.
It is to be noted that in terms of law both trusts and private interest foundations may be used as commercial vehicles, although in the latter case certain restrictions apply. Having said that, it is rarely the case that either is so use, with the trust or foundation concerned typically setting up a special purpose vehicle (SPV) through which to undertake same. The family business may be so held, with the settlor/founder and/or their children normally retaining positions at management level thereafter.
Domicile is a private international law principle based on the concept of a permanent home, the place where a person has strong ties. An individual acquires a domicile of origin on birth, this typically being the domicile of one’s father at birth, but one may also acquire a domicile of choice during one’s life. An individual may only have one domicile at a given time and a person cannot be without a domicile at any point in time.
EU/EEA/Swiss nationals may take up residence in Malta in the exercise of their EU Treaty rights, taking up residence there based on any of economic self-sufficiency, employment or study. Whilst EU/EEA/Swiss nationals may freely move to Malta at any time, they are obliged to apply for registration with the Department of Citizenship and Expatriates (DCEA) on arrival, through an application for a residence permit.
They may also apply for benefit from one of Malta’s tax programmes, such as the Residence Programme (modelled on much the same lines as the GRP referred to below). Like the GRP, beneficiaries of the Residence Programme benefit from a flat 15% rate of applying to any foreign sourced income remitted to Malta, subject to a minimum annual tax payment of EUR15,000 per annum.
Non-EU/EEA/Swiss nationals (TCNs), whilst also being entitled to relocate to Malta based on economic self-sufficiency, employment or study, will be required to satisfy more stringent conditions in doing so.
Where a TCN relocates to Malta on the basis of employment, their Single Permit Application, submitted to the DCEA, is typically subject to labour market considerations, whereby the employer is to provide justifications as to why one is employing a TCN as opposed to an EU/EEA/Swiss national. Certain exceptions to said labour market considerations do apply, the most popular one being the Key Employee Initiative Scheme which exempts TCNs holding a managerial position and earning at least EUR30,000 per annum from labour market considerations; in addition, said employees’ applications are fast tracked from a processing time perspective.
A TCN wishing, on the other hand, to relocate to Malta on the basis of economic self-sufficiency, may only do so, in practice, once they benefit from one of the tax or immigration programmes available, such as the Global Residence Programme and the Malta Residence and Visa Programme.
Global Residence Programme
The Global Residence Programme (GRP) is a tax programme open to TCNs, further to which the beneficiary benefits from a flat 15% rate of applying to any foreign sourced income remitted to Malta, subject to a minimum annual tax payment of EUR15,000 per annum. The GRP is very popular with TCNs who wish to relocate to Malta and set up a home here, as processing time is relatively short. Once the applicant becomes a beneficiary of the programme, they can move on to apply for a residence card allowing the holder to reside, settle and stay in Malta; this also doubles as a Schengen visa.
The TCN may opt to include their dependants, as defined under their GRP application, for they would be entitled to apply for a residence card.
Malta Residence and Visa Programme
The Malta Residence and Visa Programme (MRVP), on the other hand, is an immigration programme, modelled on Malta’s citizenship by investment programme. The MRVP is more onerous than the GRP on several fronts, as the fees payable to the authorities, the statutory investments and rental/purchase qualifying amounts involved therein, are significantly higher than the GRP. It is, however, based on a different premise on altogether, with taxation playing no part in same. Beneficiaries under the MRVP may apply for residence in Malta on the basis of economic self-sufficiency, with the added benefit that one may apply for a residence card issued for a five year period (as opposed to for a one-year period when applied for by a beneficiary of the GRP), subject to ongoing compliance obligations.
As far as tax residence per se is concerned, it is to be noted that individuals may become tax resident in Malta in one of two ways. Firstly, should an individual spend 183 days or more in Malta over a 12-month period, that individual shall become tax resident Malta. An individual may also become tax resident in Malta if they move with the intention to reside in Malta indefinitely, basing themselves in Malta and only spending as much time away for business or leisure purposes as would be in line with a claim that one is residing in Malta.
Individuals may become a citizen of Malta:
Individuals born in Malta to a Maltese parent are automatically considered a citizen of Malta by birth.
Individuals married and living with a citizen of Malta for at least five years may apply for Maltese citizenship; likewise, a widow or widower of a citizen of Malta. In addition, a direct descendant, second- or subsequent- generation descendant, born abroad to a parent born in Malta, whose own parent was also born in Malta, may also apply for Maltese citizenship.
One may apply for citizenship by naturalization should one have physically resided in Malta for an aggregate period of five years in the previous six-year period. In practice, however, it is understood that the authorities have not been as forthcoming as one might wish in this context, with residents having at times only managed to secure citizenship after significantly longer periods of residence.
Should citizenship by naturalisation not be an option, one may consider the local citizenship-by-investment programme, the Individual Investor Programme. The original programme, launched in 2013, has now reached its cap and a new path to citizenship is expected to be launched in Q4 2020.
This forms part of a wider reform of local laws to clearly cater for a regulatory framework leading from residence to citizenship. It is expected that this new citizenship framework shall be similar to the original citizenship-by-investment programme, also requiring, at an initial stage, a basic period of residence (two routes are available – a 12-month residence period versus a 36-month residence period). Applicants need to undergo an "eligibility test", focusing inter alia on due diligence reviews and source of wealth and source of funds checks. On completion of both, an application for citizenship is to be lodged by the applicant.
On approval, the new citizens are required to rent or purchase a residential property in Malta for a minimum period of five years as well as to donate to philanthropic entities approved by the Commissioner of Voluntary Organisations.
The Trust and Trustees (Protected Disability Trusts) Regulations establishes "protected disability trusts", which trusts must be:
The ITA and DDTA both cater for certain exceptions and exemptions for income and capital gains derived by the trustees of a protected disability trust, subject to statutory conditions.
In terms of the Civil Code, the appointment of a tutor for minors is made by court order on the demand of any person. However, the appointment of a guardian over a person who has attained the age of majority need not be made before the courts.
An application to appoint a guardian is to be made to the Guardianship Board, said application to be supported by evidence as to the individual’s medical condition, being such that they are not in a position to manage their personal affairs. On application, the reason for guardianship must be indicated and, in the cases of a general guardianship, the particular case is re-assessed every six months to a year.
Around 18% of Malta’s population are aged 65 of over, which number has steadily increased over the last decade or so, much in line with the rest of Western Europe.
In the past few years, several fiscal incentives have been granted to incentivise individuals to plan for their future from a private pension perspective. The Personal Retirement Scheme Rules and the Voluntary Occupational Pension Scheme Rules contain said fiscal incentives in the form of several tax deductions and tax credits. There is admittedly more to be done locally, in the context of pensions, public and private alike, to prepare the population from a financial perspective for the future.
The Civil Code does not distinguish between children born in and out of wedlock; likewise, adopted children.
The Civil Code does provide that individuals who were not yet conceived at the time of the testator’s death are incapable of receiving by will. Accordingly, children born posthumously may not inherit.
Surrogate pregnancy arrangements are not recognised by Maltese law; accordingly, a surrogacy pregnancy contract may arguably be in breach of public policy rules locally. As a result, there is no clarity as to how the local authorities may be expected to act if faced with a case involving a child born to a surrogate, locally or overseas. From a succession perspective, it appears that such a child would not have any succession rights pertaining to a child of the deceased in terms of present law.
The Civil Unions Act, published in 2014, introduced same sex civil unions. Following the introduction of the Civil Unions Act, other laws, including the ITA, were amended to accord rights to same-sex partners in a civil union that are equivalent to the rights of spouses in a heterosexual marriage.
The Marriage Act and other Laws (Amendment) of 2017 – supplemented by the Conversion of Civil Unions into Marriage Regulations, 2017 (Legal Notice 382 of 2017) – amended various laws so as to eventually grant same-sex partners the right to effectively convert their civil union into marriage. As spouses for all purposes of the law, same-sex spouses now enjoy equality of treatment across a range of laws, including taxation, to heterosexual spouses.
The Income Tax Act makes limited provision for tax deductible donations to charities and organisations of a public and/or philanthropic character.
In addition to the particular arrangements to be found in the ITA, the ITA provides for a general exemption from the payment of income with respect to the income (and, therefore, including chargeable capital gains) derived by any institution, trust, bequest or foundation having a public character and engaged in philanthropic work, should it be so declared for the purposes of said exemption by the relevant Minister. There is in fact a Legal Notice, updated from time to time, with a list of qualifying organisations.
Typically, local charities take the form of a public benefit foundation. Such foundations are to be registered with the Registrar for Voluntary Organisations inter alia to be entitled to receive donations from the public.