Taxation on Foundations

Malta Foundations Highlights

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Tax On Income Derived by the Foundation

Generally, the standard tax rate of 35% is applied on chargeable income and gains derived by the foundation. Distributable profits must be allocated in the same manner applicable to companies, and the full imputation system and tax credit system is available for foundations as well.

Participating holdings can also benefit from the participation exemption regime applicable on the income derived from such holdings.

If a foundation elects to be treated as trusts and one or more of the administrators are resident in Malta, the tax payable would be charged at 35% on any income attributed to the foundation. If the foundations are treated as a trust for tax purposes and operates internationally, the same specific exceptions applicable to trusts would also apply to such foundations. In this case the foundation would be treated as a transparent entity and income would be considered to have been derived directly by the beneficiaries.

Tax On Transfer of Assets by the Foundation

If the asset consists of immovable property the 8% immovable property tax is applicable. Any assets transferred for the purposed of capital gains tax would be charged at the regular rate of 35%. This also applies if the foundation has been elected to be treated as a trust.

Malta tax on Distribution of Assets

When profits are allocated to the foundations tax account, these are treated as dividends distributed to the shareholders. Beneficiaries therefor have access to applicable tax refunds.

If the foundation is treated as trusts, capital gains from transfer of property being distributed is forming part of the income and thus taxed at the level of the foundation. Distributions by the administrator are treated the same when the distributions are in favour of the beneficiaries.

Exemptions applicable to trusts also apply to foundations when they are elected to be treated as trusts.

Tax on Transfer of a Beneficial Interest

Unless the foundation is treated as a trust, transfers of beneficial interest are deemed to be a transfer of security for income tax purposes.

For foundations elected to be treated as a trust, assets are being classified as taxable trust company and thus tax would be charged on gains derived from this since the transfer constitutes a chargeable event. The tax rate charged is 35%.