As an alternative to Trusts, Malta offers the possibility to set up foundations. Foundations have the advantage of being a legal entity and of being a widely accepted and acknowledged concept in countries with a Roman legal system.
Foundations are created by way of a written document, including through a will, by one or more founders, where given assets, of a value equal or greater than € 1,164.69, are trusted to the administration of one or more administrators, with a given legal purpose, including charity or philanthropic purpose (Public Foundations) or for the benefit of a person or of a class of persons (Private Foundations).
In 2010, Malta enacted tax legislation specifically applicable to Foundations. In general, foundations may choose to be taxed as a company (by default) or as a Trust (by irrevocable option).
The foundations taxed as companies are treated exactly as companies with residence and domicile in Malta, being subject to 35% tax, to the full imputation system and to the tax refund regime. A distribution of profits to the beneficiaries is equalled to distribution of dividends to companies’ shareholders.
Because they can apply the participation exemption to dividends and capital gains from participating holdings, foundations are very often used as holding companies.
In case the foundation is taxed as a Trust, by meeting certain requirements, the foundation can be considered as transparent for tax purposes, which implies that no taxation in Malta exists in the cases where founders, beneficiaries and assets are not resident in Malta.
Maltese law foresees the possibility of a Foundation to be transformed into a Trust and vice-versa.