The setting up of trusts in Malta is regulated by the Trusts and Trustees Act (hereinafter referred to as ‘the Act’). The Act provides for the creation of trusts and authorisation and supervision of trustees. In this regard, the MFSA is the competent authority for the purposes of the Act. The Act incorporates within its provisions the Hague Convention on the Law Applicable to Trusts and on their Recognition which Malta has ratified.

The Maltese Regulatory Environment
The Malta Financial Services Authority (MFSA) is responsible for the authorisation, regulation and supervision of trustees. The MFSA also licenses, regulates and supervises banking and financial institutions, and investment services business.

The MFSA is an autonomous public authority constituted and regulated by the Malta Financial Services Authority Act (“MFSA Act”). The MFSA aims to provide a seamless regulatory function for financial services. It also houses the Registry of Companies.

The MFSA requires the highest standards of probity and honesty. Every licence is issued subject to standard conditions which may be adapted to suit certain circumstances so long as standards are not compromised.

Trusts
A trust is an obligation which binds a person or persons (called the ‘trustees’) to deal with
property over which they have control (called ‘the trust property’) for the benefit of
persons (called the beneficiaries) or for a charitable purpose in accordance with the terms
of the trust.

Creation of Trusts
A trust can come into existence in any manner. A trust may come into existence by an instrument in writing including by a will. A unilateral declaration of trust is also possible. A unilateral declaration of trust is a declaration in writing made by a trustee stating that it is the trustee of a trust, containing all terms of the trust as well as the names or information enabling the identification of all beneficiaries.

A trust may also come into existence by oral declaration, with the exception of a unit trust which must be created by a written instrument. Also in the case of an inter vivos trust, the trust must be created by notarial trust deed. A trust may also come into existence by operation of law or by a judicial decision.
Where assets are held, acquired or received by a person for another on the basis of oral arrangements of a fiduciary nature, express or implied, there shall be presumed to be mandate or a deposit rather than a trust, unless there is evidence of the intention to create an oral trust.

A trust may continue until the 100th anniversary of the date on which it came into existence, and, unless sooner terminated, shall terminate. This limit does not apply to a trust for a charitable purpose or to a unit trust.

Legal Effects and formalities
The effects of any transactions related to property under trust are regulated by the Act and other laws that apply specifically to trusts. The formalities required with respect to such transactions are as a general rule regulated in the normal manner. Transactions relating to the transfer of ownership or other rights to or in property under trust shall therefore be carried out in the form and manner required by the law applicable to such transactions.

‘The Settlor’
The settlor is the person placing the assets in the trust. This includes a person who provides trust property or makes a disposition on trust or to a trust. Once a trust has been created, the settlor ceases to have any active role in the trust.

‘The Trustee’ or ‘Corporate Trustee’
The trustee is the person or persons holding or in whom the property is vested on trust for the beneficiaries. Trustees are usually appointed by, or as provided in, the trust instrument and in such number as may be so provided. A trustee may be a natural person provided he is of full age and legal capacity and not under any legal impediment to so act.

A trustee may also be a juridical person the objects of which include acting as trustee. A corporate trustee can be defined as a trustee which is any legal person wherever incorporated.

‘The Beneficiaries’
The beneficiary is the person entitled to benefit under the trust or in whose favour discretion to distribute property held in trust may be exercised. The rights of the beneficiary are personal to him. Thus a person shall not be entitled to benefit under a trust unless he is either identifiable by name, or ascertainable by reference to a class or to a relationship to some person. If there are no beneficiaries identifiable or ascertainable, the trust shall, unless the purpose is a charitable one, fail.

‘The Protector’
The terms of the trust may provide for the office of protector of the trust. Normally the powers of the protector cover matters such as the appointment of a new or additional trustee, the removal of a trustee and obtaining information as to the way in which trustees are managing the trust. In the exercise of his office, the protector shall not be deemed to be a trustee.

‘The Trust Deed’
The trust instrument is the instrument whereby the trust is created and includes any instrument varying the terms of the trust and also a unilateral declaration of trust.

Types of Trusts
There are three main types of trusts. These are express trusts, implied or resulting trusts and constructive trusts.

Express Trusts
Express trusts are declared by the settlor. In an express trust, the intention to set up the trust is clearly and openly expressed.

Implied Trusts
Implied trusts are trusts arising from the unexpressed but presumed intention of the settlor, which intention is presumed from his words or actions. Implied trusts are also resulting trusts since the property will return to the person setting up the trust.

Constructive Trusts
Constructive trusts arise by operation of law and are in no way dependent on the intention of the settlor. They are imposed by operation of law in situations where not to do so would mean one party’s unjust enrichment.

Authorisation of Trustees
Persons may carry on the activities as trustees either in a professional or in a private capacity.
Any person, whether an individual resident or operating in Malta, or a corporate trustee, registered or operating in Malta, who receives property upon trust or accepts to act as a trustee or co-trustee of a trust and who:

• receives or is entitled to remuneration for so acting, or

• does so on a regular and habitual basis, or

• holds himself out to be a trustee;

shall require authorisation by the MFSA in terms of the Act irrespective of the proper law of the trusts they hold and whether or not at all or part of the trust property is in Malta. Any person, whether individual or a company may apply in writing to the Authority to be authorised as a professional trustee. The Authority may grant authorisation upon being satisfied that the conditions laid down at law have been met. Such authorisation may be general or may be restricted to particular specified activities.

An application for authorisation shall be made in the form and manner required by the MFSA and shall furthermore:

• contain or be accompanied by such information and particulars, in addition to those required by law, as the Authority may require as may be prescribed;

• be verified in the manner and to the extent required by the MFSA, or as may be prescribed;

• contain the address in Malta for service on the applicant of any notice or other document required or authorised to be served on him by or under the Act;

• be accompanied by such fee as may be prescribed in respect of the authorisation
  applied for.

The Duties of Trustees
The duties of trustees can be particularly onerous. As a matter of fact, trustees shall in the execution of their duties and the exercise of their powers and discretions act with prudence, diligence and shall observe the utmost good faith. Trustees should treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies. Trustees are also bound:

• to carry out and administer the trust according to its terms;

• to safeguard the trust property from loss or damage;

• to keep accurate accounts and records of the trusteeship and shall, upon request by any beneficiary, disclose such accounts and records to such beneficiary and provide copies thereof;

• to provide full and accurate information as to the state and amount of the trust property.

• to keep the trust property distinct and separate from their own property as well as from any other property held by them under any other trust or title, and separately identifiable therefrom;

• to act jointly in the performance of their duties and powers in the case of co-trustees;

• to act impartially in the interests of all the beneficiaries;

• not to delegate powers unless permitted to do so by law, by the terms of the trust or by the court;

• inform third parties with whom it is dealing that it is acting as trustee.

Trustees shall not without the authority of the court:

• directly or indirectly profit from the trusteeship; or

• cause or permit any person to profit directly or indirectly from the trusteeship; or

• on his own account enter into any transaction related to the trust property; or

• delegate his powers.

Trustees do not enjoy any benefits under any trust of which they are sole trustees without the prior authority of the MFSA (where the trustee is authorised by the MFSA) or the Court (in any other case). Furthermore unless authorised by the terms of the trust, or by the consent in writing of all beneficiaries or by any order of the court, a trustee is not entitled to remuneration for services rendered. A trustee may reimburse himself or pay out of the trust all expenses properly incurred by him in connection with the trust.

Trustees are bound to follow the Code of Conduct issued by the MFSA.

The powers of trustees
A trustee shall, in relation to the trust property, have all the powers of a natural person having the absolute title to such property. The trustee shall exercise his powers in the interest of the beneficiaries and according to the terms of the trust.

Establishing a trust company in Malta

Companies that provide services related to trusts may be incorporated and managed in Malta in compliance with Maltese statutory requirements. These companies usually provide administrative services in relation to trusts. The MFSA may issue rules to establish which activities constitute administrative services in relation to trusts and to establish the criteria for the conduct of these activities.

Where such companies carry out or intend to carry out trustee services along with routine administrative services, they would have to obtain prior authorisation to act as corporate professional trustees from the MFSA.

Redomiciliation of Trust Companies
The Continuation of Companies Regulations apply in that it is possible for foreign trustee companies to relocate to Malta and effectively to continue their operations from Malta without having to wind up their operations in the original country as long as such foreign companies are established in an approved jurisdiction.

Money Laundering
Trustees must act in accordance with the regulations made under the Prevention of Money Laundering Act, 1994 and follow the relative Guidelines issued by the MFSA.

Taxation
The taxation of income attributable to trusts and all matters relating to taxation upon the settlement, distribution and reversion of property settled in trust are regulated by the Income Tax Act (Chapter 123 Laws of Malta).

Trusts are considered to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee if it is distributed to a beneficiary. Also, when all the beneficiaries of a trust are not resident in Malta and when all the income attributable to a trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees. Income attributable to a trust that is not so distributed to beneficiaries is charged
to tax in the hands of the trustee at the rate of 35%.

Other taxes
Other laws and regulations may have an impact on the taxation of trusts and trustees.  Malta is also signatory to a number of Double Tax Treaties that may apply in the circumstances.

Taxation of Trust Companies
Companies that provide trust-related services and that are ordinarily resident and domiciled in Malta are subject to the normal company tax rate of 35% on their worldwide income. Where they are involved in international activity it is possible for non-resident shareholders on a receipt of a dividend to claim a refund of the tax paid by the company on the profits out of which the dividend is paid.

Tax is paid in the currency in which the share capital of the company is denominated. Any refund of tax is made in the same currency. Any tax payable by the company with respect to profits derived from international activities is not payable before the earlier of the date of distribution of such profits or eighteen months after the end of the relevant accounting period of the company.

This Section does not apply to income that is attributable to trusts in respect of whom such company acts in its capacity as trustee.

See also: International Trading Companies Malta Double Taxation Treaties