The taxation of trusts in Malta is governed by the Income Tax Act, Cap. 123, the Income Tax Management Act, Cap. 372 and the Duty on Documents and Transfers Act, Cap. 364. Under the Maltese tax framework, trusts are considered as being transparent for tax purposes. The income attributable to a trust is not charged in the hands of the trustee if it is distributed to a beneficiary. When all the beneficiaries of a trust are not resident in Malta, there is no tax impact under Maltese tax law. Income attributable to a trust that is not distributed to beneficiaries is charged to tax in the hands of the trustee. Under the Maltese Income Tax Act, capital gains are levied on the settlement, distribution or reversion of certain assets in a trust. However, no capital gains tax is charged on any capital gains derived by non-residents on transfer of assets situated outside Malta. The fiscal implications relate to the various parties involved in the trust relationship and depend on the stage or phase, as well as the event, in the life of the trust. These also depend on the nature or class of the assets of the trust.

The basis of taxation of trust income

In terms of Maltese tax law, a tax liability arises where at least one of the trustees is resident in the island. The tax is computed in relation to the income attributable to a trust. Income attributable to a trust relates to the aggregate of the income accruing or derived by the trustee from property which has been settled in a trust and from property which was acquired in the course of the administration of the trust. For Maltese tax purposes, income includes capital gains.

Income ‘attributable to a trust‘ consists of income arising outside Malta

Where the income ‘attributable to a trust‘ consists of income arising outside Malta or is made up of interest, discount, premium or royalties, or gains or profits on the disposal of units in a collective investment scheme and the beneficiaries are persons not ordinarily resident in Malta or not domiciled in Malta, it shall be deemed that such income is not income attributable to the trust but rather income directly derived by such beneficiaries. Even when the income arises outside Malta but is received in Malta by the trustee, it shall be considered that such income has been received in Malta by such beneficiaries. In this instance, the trustee will notify the beneficiaries of such income and shall also inform them of his duties under the income tax acts.

When the income attributable to a trust comprises solely of:

· Income arising outside Malta;

· Interest, premiums, discounts and royalties;

· Dividends distributed out of profits allocated to the foreign income account;

· Dividends from profits of an international trading company;

· All the beneficiaries under the trust are persons not resident in Malta, provided that the trustee issues a certificate to this effect, it shall be deemed that such income does not constitute income attributable to the trust but income which as been derived directly by the non resident beneficiaries.

Trusts treated as companies

A trustee resident in Malta, and who has been granted authorisation to act as trustee, may elect to treat the trust as if it were a company ordinarily resident and domiciled in Malta. Such an election is to be made within 30 days from the constitution of the trust or 30 days from the appointment of a resident trustee whichever is the later. Once made, the election cannot be revoked. The trust will then be treated as if it were a company incorporated in Malta and charged to tax at the current rate of tax. The accounts of the trust are to be audited by a certified public accountant in Malta. Profits available for distribution shall be allocated in the same manner applicable to companies and distributions will be considered as dividends. When distributions are made to non-resident beneficiaries, such non-resident beneficiaries become entitled to claim a refund of the tax paid by the trust as if it were operating as a company.