Malta Nominees

Nominee services (also known as mandatory services and sometimes as “bare trusts”) are licensed in Malta. A nominee is a person who holds an asset in name only for the benefit of another person. Unlike a trustee a nominee has no discretion about the use of the asset and can only act in accordance with instructions from the beneficial owner. Nominee shareholders are used in situations where it would be impractical or expensive for an asset to be registered in the name of the beneficial owner and/or privacy about ownership is required. The situation in which people most commonly encounter nominee shareholding is where a bank or stockbroker buys or holds stock/shares for a client. In this case by default the shares will be held in the name of the broker or bank as nominee for their client. In most cases it would be impractical and causes delays and incur additional expense to register the beneficial owner as legal owner of the shares in the books of the underlying company. In Malta we recommend clients do not use full discretionary trust services for reasons set out in our main article on trusts in Malta but please note that if a trust is desired a foreign country may be used. Please see our main article on trusts for more information.

Advantages of Nominee Shareholders

Administrative
The holding of shares by nominee rather than in the name of the beneficial owner has numerous administrative advantages. In Malta it allows the service provider to form the company on behalf of the client and without signature in original which means there is no requirement to visit and it is not necessary to delay formation waiting for documents to be couriered. On an ongoing basis it will allow the nominee shareholder to attend or conduct Annual General Meetings (AGMs) in the client’s absence and more generally to act on client’s spoken or email instruction to make changes to the structure or activity of the company without waiting for paper documents to be signed by the client.

Privacy
In Malta the share register is a matter of public record so it may be possible with little effort for a member of the public to identify the owners of a registered company. In many cases the client may not wish to be publically associated with the company and the use of nominee shareholders will conceal their connection. Another consequence of nominee shareholding is that the client’s company is owned by a licensed nominee who also owns hundreds or perhaps thousands of other similar companies registered at the same address and frequently having the same directors. In this sense the company is part of a group of companies connected to a service provider which may identify or single out any one company. This may also be seen as a negative as explained below.

Transfer
Although nominee shareholdings gives no tax advantage (as explained below) it can make the transfer of shares to a third-party considerably simpler, faster and less obvious than a transfer from shares held by the beneficial owner directly which is usually recorded on the permanent records of the company and which will depend on the receipt of documents signed by the named shareholder.

Disadvantages of Nominee Shareholders

Cost
The use of nominee shareholders usually has a cost, though it is frequently fairly low. The cost is a reflection of the need for the service provider to obtain a licence and to carry out due diligence or Know Your Client (KYC) on the beneficial owner of the shares they hold.

No Tax Advantage
The use of nominee shareholders confers no tax advantage (by comparison with a trust or foundation for example which may give tax advantage). Since a nominee has no beneficial interest in the assets they hold any gains are directly attributable to the beneficial owner and will be taxable on him (this is a general principle but is also usually set out in the nominee declaration signed by the client). Consequently, any tax advantage gained from for example the transfer of shares through a nominee will be based on non-disclosure and could be tax evasion. If tax advantage is desired (as opposed to merely privacy and administrative ease) a nominee alone is not an appropriate method.

Connection with Service Provider
The use of a nominee connects the company with the service provider (and in many cases it will have the same registered office and directors as hundred or thousands of other companies). This anonymity may have positive aspects (discussed above) but it may also create an easily traceable route to a company which, for example, may specialise in offshore company formation and tax avoidance and this may not be desirable. This risk can be mitigated by using a broker or law firm as nominee but the connection will always exist and is a reputational consideration. On a more practical level it may delay a change in service providers if the incumbent nominees are reluctant to be replaced. Choice of a nominee should be made with regard to reputation, professionalism, as well as financial stability since in the event that a nominee company would go into liquidation it could be problematic to retrieve control of the shares. In Malta nominee services are licensed and well regulated.

Disclosure
Though nominees will conceal the identity of owners from searches on the public registry and from other shareholders it may nevertheless be necessary to disclose the identity of the beneficial owners and their due diligence documents at various occasions in the life of the company for example to open banks accounts or to disclose to commercial partners or to sell part of the company or its underlying assets. Generally occasions requiring such disclosure will be the result of local Know Your Client (KYC) requirements and therefore cannot be avoided however the company is structured. This means that this disadvantage is not specific to the use of nominees but it is important to note that the protection offered by a nominee will sometimes need to be lifted or operating the company may become impossible.

Administration

Nominee Declaration
A Maltese nominee will provide a fiduciary declaration stating that they hold the shares as nominee for the client. This document is usually a single page and may be called a nominee declaration, a mandatory note or sometimes a declaration of trust (though this is not a true trust, for a comparison please see below). This document will usually outline the relationship between the nominee and beneficial owner and specify that the nominee cannot act without direct instruction from the beneficial owner and that any gains made by the underlying assets are attributable (and therefore taxable) on the beneficial owner and not the nominee. The document may be attached to the share certificates or may be sent to the client separately but it is advisable for the client to keep at least a soft copy.

Differences from Discretionary Trust
In the case of both a trust and a nomineeship the holder of the assets has legal title but not beneficial interest. In both cases the assets are held for the benefit of the beneficial owner. The difference is that a nominee holds assets in name only for the beneficial owner and must follow instructions whereas a trust holds assets under trust with discretion on how to administer them or what benefit (if any) to advance to the beneficiaries and whilst they may consult beneficiaries they are not bound to follow their instructions. This important distinction means, for example, that whilst a gain made by assets under trust is taxable in the hands of the trustee a gain made by assets under nominee is taxable in the hands of the beneficial owner.

Use of Nominees in Vessel Registration
Licensed fiduciaries can also be used to conceal the identity of the beneficial owners of Maltese registered vessels. For more information please see our main article on Malta’s maritime industry.

Use of Trusts in Aircraft Registration
Although we do not generally recommend the use of Maltese trusts one area where they are beneficial is to conceal the ownership of a Maltese aircraft. For more information please see our main article on the aviation industry in Malta.

Alternatives

There are no directly comparable products to a nominee shareholder and it can be seen as complementary in most situations in the sense that a nominee can hold shares in a company for the benefit of either the beneficial owner directly, or in nominee for their trustee or for their holding company or for any other legal or natural person. In this way it can be seen as a further layer of protection to be used in conjunction with other products rather in place of them.Where the client wishes the legal owner of the shares to have a wider discretion (and not to simply follow instructions) a discretionary trust may be desirable however even in this case it is quite normal to use a nominee in conjunction with a discretionary trust, for example the owner of ABC Limited may be DEF Nominees Limited as nominee for GHI Trust Limited, as trustee of the JKL Settlement. Although we do not recommend the use of Maltese trusts a foreign trustee may be used to hold Maltese structures.