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The setting up of trusts in Malta is regulated by the Trusts and Trustees 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.

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.

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.

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. 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.

Chetcuti Cauchi at IFA Paris 2011 the 65th Congress of the International Fiscal Association | 09/09/2011

 

 

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