Definition of a Foundation in Malta
Maltese foundations are also known as non-profit organisations(NGO’s). Their popularity increased in Malta over the years, due to an attractive regulatory regime in the Civil Law and Voluntary Organisations Act. This was adopted in 2008 and is the same law that regulates the fiduciary obligations and trust in Malta. One of the main differences of a foundation when compared to a regular organisation is that they must be set up for their legal personality and in some cases, they can also be utilised as a shareholder in a Maltese limited liability company.
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The Maltese Legislation defines a Foundation as;
“an organisation consisting of a universality of things constituted in writing, including by means of a will, by a founder or founders whereby assets are destined either –
- for the fulfillment of a specified purpose; or
- for the benefit of a named person or class of persons, entrusted to the administration of a designated person or persons. The patrimony, namely assets and liabilities, of the foundation is kept distinct from that of its founder, administrators or any beneficiaries”
The definition provided by the Maltese law, distinguishes the differences between the two type of foundations in Malta – Purpose Foundation & Private Foundation. In this case, both natural and legal persons have the ability to set up a foundation in Malta.
Two Types of Foundations in Malta available
- Public Foundation (Purpose Foundation)
- Private Foundation
Understanding the difference between Public and Private Foundations
The main difference between the two foundations in Malta is what they are used for. When it comes to Public/Purpose Foundations, they are established specifically for a charity or social purpose. On the other hand, private foundations, as the name is implies, are utilised by private individuals. These are often used as an estate planning tool in Malta and are known a Beneficiaries.
Legal Personalities of a Private Foundation
Private foundations are set up with the intention of a private benefit, be it for an individual or group of people.
Similar to the use of a Trust in Malta, with a foundation, the inheritance of the foundation is a personal one and beneficiaries shall own an enforceable right against the foundation, by law. This means that heirs, legatees, and spouses of the beneficiaries are limited solely to the beneficiary’s entitlement, and do not own rights against the assets of the foundation.
With that being said, the founder of the foundation has the highest ‘power’ and can remove, add or replace any beneficiaries. The terms of the foundation also have the right to amend the deed at their own will.
The administrator of a foundation is mainly in charge of documenting all records of the foundation’s assets, earnings, costs, and liabilities. Additionally, they must ensure that the foundation’s assets and liabilities are kept separate from its founders, beneficiaries or themselves while ensuring full compliance with the Maltese law. They are also responsible for registering the foundation with the Malta Registrar of Legal Persons.
What are the objectives of a Foundation in Malta and what is it used for?
A foundation in Malta is usually set up for the following reasons;
- To become a shareholder in a profit-generating or income increasing company, trademark or franchise. Additionally, foundations are also used to be able to ‘be gifted’ with a commercial property.
- To license or carry out similar formalities or to act as a collective investment account and/or provide funding and support.
- Used as a vehicle for borrowing money against the issue of bonds, securitisation transactions.
On the other hand, a foundation cannot be created in order to conduct commercial activities or for trading.
How to Set Up A Foundation in Malta?
A foundation in Malta is set up through a written document, consisting of a will, created by its founders, where the given assets are entrusted to the administrator. Additionally, the will includes the legal purpose of the foundation, whether it is for Public or Private. As mentioned above, the administrator is in charge of registering the foundation with the Legal Persons Registrar.
Similar to a regular Maltese company, the foundation will have a legal personality. When it comes to a public foundation, it will be set up on a public deed. In this case, a certified copy would need to be provided to the founder, administrators, and Notary issuing the deed.
On the other hand, a private foundation is regulated under Article 33 of the Second Schedule and will be based on a testament. When setting up the testament, private foundations must include the names of the beneficiaries. If one is unable to do so, the beneficiaries have to be mentioned in other documents signed by the founder, addressing the administrators.
The value of the assets held by a foundation must be;
- 1,165 Euro for Private Foundations
- 233 Euro for Public Foundations
- The endowment of money or property. If the investor does not wish to opt for money as an asset, the asset provided has to have a worth of the minimum amount mentioned above.
Furthermore, the name of the organisation must include the word foundation in it and the foundation must have a registered address based in Malta. When it comes to the actual set up of the Maltese foundation, one must clearly identify the roles and purpose of the beneficiaries, the assets that the foundation consists of and the board of administrators.
Once all of the documents are submitted with the necessary information, the Registrar has the power to decide whether the foundation will be registered or refused. If not satisfied, the Registrar has every right to ask for more information related to the foundation.
Malta’s popularity for setting up foundations resulted due to offering some of the lowest setup rates in Europe. When setting up a foundation, the duration of the organisation must be declared and in Malta, the maximum duration for a foundation is up to 100 years. When it comes to the Maltese collective investment company, this duration may vary. Apart from that, the foreign corporations establishing a foundation, are required to appoint Maltese agents to represent their foundation.
Taxation on Foundations in Malta
From a tax perspective, foundations in Malta, attract many investors. The same tax regime for a regular company set up, that is domiciled and resident in Malta, is applicable to foundations. This means that foundations in Malta are subject to an effective tax rate of 35% on chargeable income.
With that being said, when distributing dividends to the beneficiaries, in most cases, they are entitled to a refund of 6/7thof the Maltese tax. In most cases, foundations end up having to pay an effective tax rate of just 5%.
View our complete guide for Taxation on Foundations.
Main advantages of Setting up a Foundation in Malta
Attractive Tax Rates – Since Foundations can be treated like trusts, they benefit from tax incentives in Malta, with the ability to pay no taxes or as a regular company, paying an effective tax rate, as low as 5%.
- Foreign Control – Foundations can be created by foreigners, holding foreign assets and distributing dividends to foreign beneficiaries.
- Privacy – The founders and beneficiaries do not have to be part of any public records.
- Conversion to or from a Trust
- Confidentiality – The law protects the details of the beneficiaries.
- For more information contact us for a free consultation!