Foundations & Associations

The institute of foundations is not new to Malta, having been recognised for many years, even as early as Roman times. Prior to the Second Schedule to the Civil Code, foundations lacked a clearly defined legal framework within which to function, and it was with the inception of the Second Schedule that foundations were legislatively defined.

The term ‘foundation’ includes all organisations, institutes or similarly titled patrimonies which are set up through a bequest, endowment or appropriation of assets, but do not include trusts. In terms of Maltese law, two main types of foundations may be set up, that is:

Purpose Foundations

  • Purpose foundations have no ascertained beneficiaries but are set up exclusively for:
  • A non-profit making organisation;
  • Any charitable, philanthropic or other social purpose;
  • Any other lawful purpose.

Due to its separate legal personality, the foundation’s patrimony is owned by the foundation itself and administered by designated persons, known as ‘administrators’ for the fulfillment of the purpose for which the foundation was established.

Private Foundations

Private foundations are set up for the benefit of a named person or class of persons called beneficiaries. As with purpose foundations, the foundation’s patrimony is owned by the foundation itself, and is administered by the administrators for the benefit of the same beneficiaries.

Private foundations do not need to have any philanthropic element and may undertake any lawful activity which is not commercial in nature. They may however, be endowed with commercial property such as vessels, shares, intellectual property and real estate if they take no active role in their operation.

Insurance under Maltese Law

Maltese insurance law incorporates the standards set by European Union Insurance Directives, together with the Insurance Business Act and the Insurance Intermediaries Act, which are the local legal instruments governing Insurance Law in Malta. Insurance Businesses may only be carried in or from Malta, subject to the obtainment of a licence from the Malta Financial Services Authority (MFSA). The MFSA is in compliance with the standards expected by the International Association of Insurance Supervisors (IAIS).

Innovative and flexible structures are available within the field of insurance, such as Protected Cell Companies (PCCs) and Incorporated Cell Companies (ICCs) which allow for the benefit of the segregation of assets and liabilities and which may be utilized to in the captive insurance market. The legal and regulatory framework underpinning captives, which are termed as Affiliated Insurance Companies (AICs) under Maltese rules, provides a number of concessions which are not otherwise applicable to insurance companies, hence catering for the insurance business’ specific needs. The Continuation of Companies legislation also enables captives to re-domicile to and from Malta.

As with several other jurisdictions, the administrators of foundations may also be legal entities, provided that, as per Maltese law, such entities have at least three directors. A recent development is that administrators of private foundations require the authorization of the Malta Financial Services Authority to act as such.

The creation of a foundation under Maltese law requires a minimum amount as an initial endowment, in the form of money or property of at least €1164.69. It is noteworthy that the law creates an exception in the case of a foundation established exclusively for a social purpose or as non-profit making, in which instance the endowment must be at least €232.94. Furthermore, a Maltese foundation may only be constituted by virtue of a public deed inter vivos or a will.

Under Maltese law, the statute of a private foundation may state that it is revocable, as long as acts which have been lawfully carried out are not invalidated or interrupted whilst still in progress. In addition, a private foundation may be terminated upon request of all the beneficiaries of the foundation. Nevertheless, if the founder is still alive, his consent is required. On the other hand, a purpose foundation may only be set up in an irrevocable manner and may not be subsequently revoked.

Segregation of cells

Maltese law also allows the setting up of segregated cells within a foundation so that particular purposes can be achieved with particular assets. The ensuing result is that:

  • The assets as well as the liabilities of the cell shall form a distinct patrimony from all other assets and liabilities of the organization, including other cells which may be established.
  • The assets of the cell shall be available for the realisation of any obligations pertaining to that cell (but not with respect to any obligations contracted by the organisation for itself or in respect of other cells).
  • The assets of an organisation shall not be available for the realisation of the obligations undertaken in relation to that cell.
  • No individual can attempt to use any assets attributable to any cell to satisfy a liability which is not attributable to that cell.

Can Foundations be converted into other organisations?

A unique aspect of Maltese law is that it allows for the possibility of converting a foundation into another type of organization, including a trust. Therefore, one can appreciate the great amount of flexibility in structuring one’s affairs and adapting to changing circumstances. It is also possible to amalgamate two or more organisations and to divide an organisation into two or more organisations

FISCAL TREATMENT

In terms of Maltese fiscal laws, a foundation can be treated as a company which is resident and domiciled in Malta, and can therefore benefit from Malta’s imputation tax system and, accordingly, tax suffered and paid in Malta by the foundation is directly attributed to the beneficiaries. Alternatively, the administrator, by notice in writing to the Commissioner for Voluntary Organizations, can irrevocably elect that the foundation should be treated as a trust for tax purposes (thus wholly transparent for Malta tax purposes).

The election to be treated as a trust generates a number of private asset planning opportunities, particularly where the Founder and beneficiaries are not resident and domiciled in Malta. In this situation, no tax or duty is payable in Malta on settlement or on income attributable to the foundation.

Where a Maltese foundation has protected cells, each cell must determine which is its most appropriate taxation route. Maltese income tax authorities treat separate cells as different entities and each cell will file its own return and be assessed individually.

Practical uses / benefits

  • Succession planning
  • Asset protection
  • Securitization vehicles
  • Hold shares in local/foreign companies
  • Collective investment schemes
  • Collection of royalties
  • Invest in shares/bonds
  • Own real estate
  • Manage pension plans for employees
  • Spendthrift beneficiaries
  • Care for persons with special needs
  • Care for minors
  • Partners / lifestyle planning
  • Charitable / Philanthropic uses
  • Perpetuity / Winding up
  • Conversion between foundations and trusts
  • Confidentiality

We are here to assist you.

For more information, please contact us on info@atomfs.com.mt or +356 2247 9000.