Trust and Fiduciary

Trust and Fiduciary

The use of international trusts is becoming ever more popular for a number of reasons. Malta has rapidly earned a reputation as an ideal location from which to establish and manage both private and commercial trusts. This is no doubt, a testament to Malta’s growing reputation as a serious and well regulated jurisdiction within the EU. The Malta trust offers flexibility, security and confidentiality as well as a significant pool of professional accountants, lawyers, financial managers and administrators who can ensure that any trust property settled to a Malta based trust are handled in an appropriate manner and in the best interests of the beneficiaries.

Trusts in Malta are regulated by the Trusts & Trustee Act, 2004 and draws heavily on trust concepts derived from UK jurisprudence. Malta Trusts are however more flexible and far more simplified, making Malta an attractive and more up-to date alternative than other, more traditional trust jurisdictions. Malta Trusts, for instance, permit the holding of any property for any person irrespective of nationality or residence. The added levels of flexibility and the over-riding, fundamental principle to protect beneficiaries lend themselves particularly well to various applications. Trusts are not available over the counter but are customised to provide solutions for various different scenarios. Malta trusts have been found to be particularly adapt as solutions certain commercial applications such as unit trusts, collective investment schemes and securitisation. The Trust & Trustees Act also interacts very well with other related laws particularly the Income Tax Act. Income earned by the application of trust assets is not taxable in the hands of a trustee but only falls to be taxed in the hands of a beneficiary upon distribution. However, the Income Tax Act specifically exempts from tax any income arising outside Malta when earned by a person who is not resident in Malta.

A Malta Trust offers both settlors and beneficiaries a high degree of comfort and protection since the industry is extremely well regulated. Trustees are themselves subject to rigorous due diligence by the Authority and must meet stringent ‘fit and proper’ criteria prior to obtaining the relevant license to act as such. This is in stark contrast to other legislations were trustees are neither regulated nor licensed. In case of any conflict between the trust and the Trust and Trustees Act, the law will always prevail and will over-ride any provisions which may not be aligned to the act thereby creating uniformity and clarity and reassurance that trust principles will always prevail. Another key feature of a Malta Trust is the option to have the trust governed by either Maltese jurisdiction or by the laws of any other country. Therefore, should a settlor prefer to have the trust governed by ‘common law’ as opposed to ‘civil law’ prevailing in Malta, provided adequate disclosure is made in the trust deed, this is possible.

By their nature, trusts are historically considered as instruments that provide high levels of discretion and protection for both the settlors and beneficiaries. This protection of the identity of some of the significant parties involved in establishing a trust may lead to abuse and manipulation to attain a fiscal advantage. There are, in fact various recorded instances where trusts have been utilised as part of tax avoidance schemes. Since Malta is a fully fledged member of the EU and all its legislation conforms to EU directives, any person residing in one of the member states can rest assured that by establishing a cross border trust domiciled in Malta he will not attract any untoward attention by the authorities within his country of residence and tax domicile.

Maltese banks have also adopted the trust concept and most offer ‘Trust accounts’ which are basically deposit accounts held in the name of the bank who is also the trustee of the same account and who is responsible for the maintenance and operation of that account for the benefit of the beneficiaries. This account does not form part of the estate of the settlor and on his demise is not frozen, nor does it form part of any succession procedures. Therefore, it offers a number of benefits particularly with regard to estate planning. It offers all the features of confidentiality and in the case of non-resident beneficiaries, income generated is tax exempt.