Trusts
SETTING UP OF TRUSTS AND REGULATION OF TRUSTEES
The setting up of trusts in Malta is regulated by the Trusts and Trustees Act. This Act provides for the creation of trusts and the authorisation and supervision of trustees. In terms of the Trusts and Trustees Act, the Malta Financial Services Authority (MFSA) is responsible for the authorisation and supervision of trustees. This Act also incorporates within its provisions the Hague Convention on the Law Applicable to Trusts and on their Recognition (which Convention has been ratified by Malta).
WHAT IS A TRUST?
The Trusts and Trustees Act (TTA) defines a trust as existing when ‘a person (called a trustee) holds, as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose or for both such benefit and purpose aforesaid.’
From this definition it is evident that the trustee holds the trust property ‘as owner’. The TTA provides that ownership include the full control of property, full administration, power of disposal, power to sue and be sued.
HOW IS A TRUST CREATED?
In terms of the TTA, a trust can come into existence in any manner. This means that a trust may, apart from coming into existence by an instrument in writing, also come into existence by oral declaration, operation of law or by judicial decision. In order to ensure certainty of intention to create a trust, if property is settled in trust orally the settlor must manifest his intention clearly. Accordingly, so as to avoid uncertainty, the TTA provides that unless the intention of the settlor to create an oral trust is evident, the presumption is that the arrangement intended was one of mandate or deposit. Where the trust is a unit trust (a particular type of trust created as a collective investment scheme vehicle), such trust must be created by an instrument in writing.
ARE TRUSTEES REQUIRED TO BE AUTHORISED?
Persons may carry on the activities as trustees either in a professional or in a private capacity. Both professional and private trustees are regulated by the MFSA. A professional trustee is a person who receives property upon trusts or accepts to act as a trustee or co-trustee of a trust and who:
- either receives or is entitled to remuneration for acting as a trustee,
- or acts as a trustee on a regular and habitual basis,
- or holds himself out to be a trustee.
A professional trustee may be either an individual, resident or operating in Malta, or a corporate trustee, either registered in Malta or operating in Malta.
An individual may act as a private trustee if he is either related to the settlor, by consanguinity or affinity in the direct line up to any degree or in the collateral line up to the fourth degree, or he has known the settlor for at least ten years. In both cases, a private trustee cannot be remunerated, cannot hold himself out as a trustee to the public and cannot act habitually as trustee (meaning that he cannot act as trustee to more than five settlors at any time).
Private trustees do not need to be authorised by the MFSA whereas professional trustees, resident or operating in Malta, are required to obtain authorisation, irrespective of the proper law of the trusts they hold and whether or not all or part of the trust property is in Malta.
PROCEDURE FOR AUTHORISATION OF TRUSTEES
For the MFSA to grant authorisation, certain conditions must be satisfied.
Where the applicant is a company, its Board of Directors must be composed of at least three individuals of good repute possessing experience and qualifications in financial, fiduciary, accounting or legal services and whom the MFSA considers to be fit and proper to carry out the duties of a trustee. The objects of the company must include acting as trustee and carrying on activities ancillary or incidental thereto and its actual activities must be compatible and connected with the services of a trustee.
Furthermore, the company seeking authorisation to act as trustee must have adequate systems for maintaining proper records of the identity and residence of beneficiaries, the dealings and the assets in connection with trusts. Where the company seeking authorisation is not registered in Malta, the company must be constituted or incorporated in what the MFSA considers to be an approved jurisdiction.
Where the applicant seeking authorisation to act as a professional trustee is an individual, the MFSA must be satisfied that such individual is resident or operating in Malta and is a person of good repute possessing experience and qualifications in financial, fiduciary, accounting or legal services and whom the MFSA considers to be fit and proper to act as trustee.
‘FAST TRACK’ AUTHORISATION OF FOREIGN TRUSTEES
The TTA provides that the MFSA may authorise a foreign person having a licence or authorisation to act as trustee which licence is issued by the relevant regulatory authority in an approved jurisdiction.
In practice, such persons will not be required to submit a full application but there will be a ‘fast track system’ considering that such persons are already in possession of a valid licence or authorisation issued by a regulatory authority in an approved jurisdiction. This fast track system entails the person, wishing to have its licence/authorisation recognised, notifying the MFSA of its intention to act as trustee in Malta at least forty-five days prior to commencing activities. The MFSA must then confirm in writing whether it objects or not to the commencement of such activities.
For the MFSA to authorise such foreign person to commence activities in Malta, the following conditions would apply:
- The foreign applicant must be in possession of a licence or authorisation to act as trustee issued by the relevant regulatory authority in an approved jurisdiction.
- The foreign applicant must obtain prior consent of the relevant regulatory authority to provide trustee services in Malta as well as provide it with the requisite details.
- The foreign applicant must have a contact address in Malta for service on the applicant of any notice or other document required to be served
- At present, the approved jurisdictions are EU member states, EEA countries, Switzerland, Jersey, Guernsey, Isle of Man, Gibraltar and Bermuda.
TAXATION OF TRUSTS
Trusts are considered to be transparent for tax purposes. This effectively means that income attributable to a trust is not charged to tax in the hands of a trustee if it is distributed to a beneficiary. On the otherhand, income attributable to a trust that is not distributed to beneficiaries is charged to tax in the hands of the trustee at the rate of 35%. If all the beneficiaries are non-resident and all the income does not arise in Malta, there is no taxation under Maltese law.
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