MALTA Law and Practice Contributed by: Rosanne Bonnici and Rebecca Diacono, Fenech & Fenech Advocates
being treated as “transparent subsidiaries”. Among other things, the rules govern how the group’s charge - able income is computed. 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 Foundations are regulated by the Civil Code, which sets out comprehensive rules governing all aspects of foundations, including their creation, administra - tion and termination. Four types of foundations are catered for: • the private interest foundation (any reference herein to a foundation should be construed as a reference to a private interest foundation), which is common - ly availed of by families. By default, a foundation is taxed as a company (see above). However, a foundation may opt to be taxed as a trust for tax purposes (see below) – eg, where the assets are located outside Malta and beneficiaries are not resident and domiciled in Malta. Once exercised, this option is irrevocable. If so taxed, the principle of tax transparency applies. Trusts 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 foun - dations alike), trusts (and foundations that opt to be treated as trusts for tax purposes) are of interest from a tax perspective for individuals who are non-residents or, being tax-resident in Malta, are not domiciled there. From a tax perspective, the following apply. • the social/purpose foundation; • the public benefit foundation; • the private benefit foundation; and A trust falls within the scope of Maltese tax where one of its trustees is resident in Malta for tax purposes and tax shall be payable on any income attributable to said trust, subject to the application of tax transparency. In addition, a trust is always taxable on income and capital gains arising in Malta.
Income attributable to a trust means the aggregate of any relevant income that has accrued to or is derived by, a trustee or trustees of a trust from property that was settled in such trust and from property that was acquired in the administration of such trust, including any income from the employment of such property. A trust may also opt to have its income and capital gains taxed as though it were a company for income tax purposes. This option is only available to trusts whose income is attributable solely to royalties, divi - dends, capital gains, interest, rents or other income from investments. Where a trust does not elect to have its income and capital gains taxed in a manner that is similar to a company for tax purposes, the principles of tax trans - parency may apply to the trust in specific cases, such as where: • all the income attributable to a trust consists of income arising outside Malta or income that ben - efits from exemptions in terms of Article 12 (1)(c) of the ITA; and • all the beneficiaries of the trust are persons who are either not ordinarily resident in Malta or not domiciled in Malta, where said trust’s income might fall outside the scope of Maltese tax altogether should it, for instance, be comprised solely of foreign-sourced income deemed to have thus been derived directly by beneficiaries who are resident but not domiciled in Malta, where said income has not been remitted to Malta. Capital Gains Tax Article 5 of the 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. Assets such as cash, jewellery, artwork, cars and yachts are excluded, among others. As will be detailed
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