Maltese Foundations are regulated by Second schedule of the Civil Code (Chapter 16 of the Laws of Malta) and the Voluntary Organizations Act (“the Act”) as part of the drive to complement recently introduced legislation that regulate trusts, voluntary organizations and fiduciary obligations in general.
Defining a Foundation
“A foundation is 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 aforesaid definition is aimed to draw a distinction between ‘purpose foundations’ – foundations established exclusively for a charitable, philanthropic or other social purpose and ‘private foundations’ – foundations established for private benefits.
The assets of a foundation may originate from any lawful business or activity and may consist of present or future assets of any nature.
Setting up a Foundation
A foundation can only be constituted either by a public deed or by a will. If a public deed is used as the means to establish a foundation then it would have to be published by a public notary and subsequently registered in the Public Registry.
The minimum endowment of money or property to set up a foundation must be worth at least €1,165 (and €233 for a foundation established exclusively for a social purpose or as non-profit making) and must contain the following information:
- the name of the foundation, which name must include in it the word ‘foundation’;
- the registered address in Malta;
- the purposes or objects of the foundations;
- the constitutive assets with which the foundation is formed;
- the composition of the board of administrators, and if not yet appointed, the method of their appointment
A local representative of the foundation is necessary, if the administrators of the foundation are non-Maltese Residents.
- the legal representation;
- the term for which it is established.
Except when foundations are used as collective investment vehicles or in securitisation transactions, a foundation shall be valid for a maximum term of one hundred (100) years from its establishment.
- In the case of a private foundation, the deed of foundation must contain the names of the beneficiaries, or in the absence of such indication, a declaration that the foundation is constituted for the benefit of the beneficiaries. In the latter case, the beneficiaries must be indicated in a separate written instrument, which must be signed by the founder and addressed to the administrators. In order to protect confidentiality, the beneficiary statement need not be filed, in its stead a note of reference referring only to the founder is filed with the Registrar of legal person.
Confidentiality and foundations are intrinsically intertwined, which is why, when it came to ‘private foundations’, any court proceedings shall be held in camera and attended only by the parties to the proceedings, the administrators and the beneficiaries, if they have an interest in the proceedings. All the legal actions, decrees, judgments and evidence shall be presented or awarded in a manner to preserve the confidentiality of the foundation. Similar provisions apply in relation to Trusts.
The Legal Personality of a Foundation
Unlike any other type of organisations, foundations must be registered for the purposes of legal personality. Thereinafter, the foundation shall be bestowed of juridical personality in any multilateral or bilateral treaty to which Malta is a party. Foundations can also be shareholders in a Maltese limited liability company.
Purpose foundations may also be established for the achievement of ‘a lawful purpose’, including but not limited to a social purpose, without beneficiaries. It is possible for the founder, or if permitted by the statute, another body or person, to amend or add to the purpose of a foundation by means of an additional public deed.
The deed of foundation may indicate the way in which the moneys or property of the foundation may be used for the attainment of the purpose for which the foundation is established and when no such indication is made the administrators may exercise their discretion.
Purpose Foundations shall have at least three (3) administrators or at least one juridical person acting as administrator. The founder, and such other persons who may be designated in the deed of foundation, may exercise supervision over the administration of a foundation, and may obtain copies of the accounts held by the administrators, copies of the inventory or descriptive notes of property. The founder, and any other person(s) so designated may intervene in the matter of appointment of administrators or in the disposal of the assets. A founder may also act as administrator of a foundation.
The Right to Trade
Foundations cannot be established to trade or carry on commercial activities, with the following exceptions-
- A foundation may be endowed with commercial property or a shareholding in a profit making enterprise, a franchise, a trade mark or other asset which gives rise to income, as well as a ship, as long as the organisation is only the passive owner of such assets;
- A foundation may, subject to such authorisations as may be necessary under applicable laws, be used as a collective investment vehicle, and issue units to investors therein, for the passive holding of a common pool of assets, the management of which is delegated to a third party;
- A foundation may be used as a vehicle for the purpose of a securitisation transaction, borrow monies against the issue of bonds and do all relative and ancillary acts.
Beneficiaries Under a Private Foundation
Private foundations are established for the private benefit of one or more persons or of a class of persons. Such beneficiaries have a right to enjoy such benefits and shall have a legally enforceable right against the foundation, in accordance with the foundation deed.
Like Trusts, the beneficiaries’ interest in the patrimony of the foundation is a personal one. Creditors, spouses, heirs or legatees of the beneficiaries may have right only to the extent of the beneficiaries’ entitlement, and therefore the do not have right against the assets of the foundation.
The founder of the foundation enjoys discretion in amending the deed and substitute, add or remove beneficiaries. However, no such alteration shall affect the validity of anything lawfully done by the administrators prior to such decision, nor shall it affect or interrupt lawful acts in progression or lawful commitments made and not yet fulfilled by the administrators.
A beneficiary may be appointed subject to a condition, or for a specified time, or up to a specified value of benefit as the founder shall deem appropriate. The terms of the foundation may further provide for the addition of a person as a beneficiary or the exclusion of a beneficiary from benefit at the discretion of the administrators.
An administrator may be granted the power to decide at his absolute discretion, which beneficiaries are to benefit, the quantity of any benefit, at what time and in what manner beneficiaries are to benefit and such other powers relating to the appointment, application or advancement of property of the foundation.
The endowment to the foundation may be augmented by further endowments, and in such case, there is a reporting requirement to the Registrar. Unless expressly provided, in the deed of Foundation, an endowment is irrevocable.
An administrator may be a ‘juridical person’ provided that it has at least three (3) directors.
A founder may also be an administrator, but if he is also a beneficiary, then he may not at the same time act as the sole administrator of such foundation. A founder may also exercise supervision over the administration, and is also entitled to intervene in the matter of appointment of administrators or in the disposal of the assets, when these issues are being dealt with by a court of law.
The foundation may establish a supervisory council consisting of at least one member or an office of a protector with similar functions, to supervise the acts of the administrators.
The Founder, the Court, the supervisory council, the protector or the beneficiary may demand information from the administrator regarding the state and amount of the foundation property.
Unless the founder has expressly excluded such a right, a private foundation may be terminated on the demand of all the beneficiaries of the foundation provided no one of them is an interdicted or a minor.
After the death of the founder, the Court may dissolve and wind up any private foundation when requested by all the beneficiaries of the foundation, if it is satisfied that the continuance of the foundation is no longer necessary to achieve the intentions of the founder.
Purpose foundations, on the other hand, may only be constituted in an irrevocable manner and any clause in the statute reserving the right to revoke the foundation shall be null and void. However, it is possible for administrators to apply for another purpose when the stated purpose has been achieved or is no longer possible.
A Foundation may, for the purposes of the Income Tax Act, treated in the same manner as a company that is ordinarily resident and domiciled in Malta. By means of the Foundations (Income Tax) Regulations – (S.L. 123.114), it is possible for a foundation to apply to the Maltese Commissioner of Inland Revenue to be treated as a company. When the application is accepted, all distributable profits shall be allocated in the same manner applicable to Maltese companies, and shall be available upon distribution to the beneficiaries of the foundation.
Effectively this means that whilst tax is payable on the profits of the foundation at a rate of 35%, a beneficial tax refund regime is applicable to the beneficiaries. As foundations may not actively trade, the beneficiaries may nonetheless benefit from participation holding and participation exemption regime.
Click here for a more thorough understanding of the TAX TREATMENT OF THE MALTESE COMPANY and understand how the same tax treatment may be applied to a Malta Foundation.
The administrator of the foundation shall be answerable for all matters as necessary for the determination, assessment and payment of tax in connection with the income of the foundation.
However, purpose foundations established for non-profit making purposes may apply by letter to the Maltese Commissioner of Inland Revenue to make the foundation exempt from Maltese Law. Applications shall be entertained on a case-by-case basis.
Advantages of Setting up a Foundation
A foundation consists of the dedication of a fund to a specified object with an appropriate organisation for its administration so that it has a legal personality.
- The main advantage foundations entail is that the patrimony of things is being held by a legal person separate from the founders or the administrators. Thus any potential debt and other liability that a foundation might have can only be enforced upon its patrimony and not beyond, unless voluntarily agreed otherwise between the parties concerned;
- A purpose foundation may, subject to an application to the Commissioner of Inland Revenue be exempt from income tax purposes;
- Highly beneficial fiscal treatment even for private foundations;
- It is possible for the conversion of a foundation into a trust and vice versa. The requirement of registration of a foundation, severely reduces the possibility of a foundation, being declared as a sham;
- A foundation would hold title to its assets;
- A foundation’s founder may be an individual or a legal person;
- Protectors and Supervisory council can be appointed, and thus independent persons can be appointed to supervise the acts of the administrators;
- Beneficiaries can be individual, legal persons or even other foundations.
Contact one of our officers to initiate the registration process for a Maltese Foundation. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500
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