Transfer of property by the settlor to the trust
In principle, the settlor may be taxed even if he or she does not receive any amounts upon transferring his or her property to the trust. Whatever the circumstance, the placement of property in a trust shall not create a more heavily taxed regime than that which would be applicable to any other transfer. As such, there are some exemptions:
Normally, stamp duty shall be payable upon transfer of real estate or shareholdings to the trust. However, there are some exemptions:
The trust shall be subject to taxation in Malta when at least one of the trustees is a resident of Malta.
Although a trust does not have legal personality, for tax purposes, the income attributable to a trust is relevant, namely income obtained by a trustee derived from:
Trust income can also include capital gains when the trustee:
The general principle is that income attributable to the trust is subject to a 35% tax rate, as applicable to a person domiciled in Malta (international taxation base), but excluding income that is allocated to the beneficiaries, subject to certain conditions. No one shall be subject to more tax on income earned from the trust if it has already been taxed at 35% as part of trustee income.
If the trustee resides in Malta and chooses to have the income of the trust taxed as a company:
This option can be very useful, seeing as it is possible to create a non-corporate entity under foreign law, but having corporate treatment in Malta. In addition, depending on the type of income (if allocated to MTA and FIA tax accounts ), there is the possibility of refunding the tax with respect to distributions made to non-resident beneficiaries. Various international double taxation relief mechanisms are also available. There are excellent tax planning opportunities when a trust, with beneficiaries that are non-residents of Malta, is used.
It is also possible for trusts to be treated as look through entities for tax purposes. In such cases, if the income from the trust comes from outside of Malta and if the beneficiaries are not residents of Malta or domiciled there, the income from the trust is deemed to have been obtained by its beneficiaries and not by the trust and shall therefore be exempt from taxation in Malta.
Transfer of beneficial interest
The transfer of beneficial interest means that the beneficiary in question ceases to be a beneficiary of the trust. This transfer shall be taxed under certain situations and there shall be exemptions in the following situations:
Return of the trust property to the settlor
The general rule is that the return of the trust property to the settlor is treated as a transfer to third parties, and the acquisition price shall be the value at which it was acquired as property of the trust. However, there are two exceptions: