Malta Trusts

Malta is party to the Hague Trust Convention which has recently passed a Trust Act however in spite of this there is not much to recommend Maltese trusts within an international context. For a general discussion on trusts please see our trust article in the products section. Trusts in Malta are governed by the Trust Act which attempts to create a legal framework for the use of trusts. Although the fiduciary concept is well understood in company law (which is closely based on UK law) the Act does not provide any level of detail about the operation of trusts and does not seek to address the various conflicts between Malta’s civil law principles and the common law notion of trust. Since Maltese law is lacking the legal precedents which make up the bulk of trust law elsewhere and the peculiarly English historical legal system of equity law (as a distinct body of law) trust law in Malta is conspicuous by its absences and omissions. Maltese courts also tend to take a fairly literal interpretation of agreements which is potentially disastrous in the case of a fully discretionary trust where the wording of the deed could be seen by a Maltese court as outright gift to the trustee. Trusts create a direct conflict with a number of civil law and constitutional principles in Malta (especially relating to patrimony of assets, the interests of mortgaging banks and Malta’s rules of succession) and courts have decided cases based on the merits of the case without reference to established common law principles or developments of trust law elsewhere without attempting to reconcile or explain these decisions. All of the above has led to a high level of uncertainty in the application of trust law in Malta. Whilst it is theoretically possible to operate a trust in Malta under a foreign proper law the courts have indicated that they will nevertheless apply domestic law to override any contrary provisions. In light of all the above it is recommended that the use of Maltese trusts be limited to nominee services which are well understood at least until the position is clarified.

Nominees
Nominee services in Malta are common place and have various pros and cons which are addressed fully in the main article on Malta nominees.

Taxation
Maltese trusts may be taxable either on the trustee or may elect to be taxed as a company (paying an effective rate of 5% and 10% on trading and passive respectively). Foreign trusts under Maltese proper law would not need to pay Maltese tax at all unless the trustee or in some cases the underlying assets were located in Malta. For more information on the taxation system please see our main article of Maltese private companies.

Use in Aviation
A recent development in the aviation sector in Malta allows for the ownership of aircraft via trusts. Whilst untested this area is supported by statutory authority and may be beneficial for the co-ownership of aircraft. For more details on this please see our main article on aviation in Malta.

Maltese Alternatives

Foundations

A foundation can be seen as a civil law alternative to trusts but they are also generally recognised in common law countries (though the reverse is not true; whilst trusts are not understood in civil law countries foundations generally operate under both civil and common law countries). A foundation has its own legal identity (unlike a trust) and therefore the assets of the foundation are not intermingled with the private assets of the trustee/administrator. A foundation, like a trust, is not usually suitable for trading. Malta offers private and public foundations, for more information please see our main article on Maltese foundations.
Private Company

Where the purpose of the trust is purely asset holding, a limited company may be a cheaper and simpler alternative to a trust however a limited company is not suitable for any of the non-commercial uses of a trust and is also likely to be less effective in tax avoidance than a trust. Malta offers private and public companies, for more information please see our main article.