Malta Charitable Foundations: The Law, Establishment, and Taxation Advantages
In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhanced Malta as a jurisdiction for foundations designed for charitable and private purposes.
The Objects of a foundation may be charitable (non-profit), or non-charitable (purpose) and may benefit one or more persons or a class of persons (private foundation). The Objects must be; reasonable, specific, possible, and must not be unlawful, against public policy or immoral. A foundation is prohibited from trading or carrying on commercial activities, but it may own commercial property or a shareholding in a profit-making company.
Foundations and the Law
Despite the relatively recent implementation of the law on foundations, Malta enjoys an established jurisprudence relating to foundations, where the Courts have dealt with foundations set up for public purposes.
Under Maltese law, a foundation may be set up by natural or legal persons, whether Maltese resident or not, irrespective of their domicile.
Two main types of foundation are recognised by the law:
- The Public Foundation
A public foundation may be set up for a purpose, as long as it is a lawful purpose.
- The Private Foundation
A private foundation is a fund endowed to benefit one or more persons or a class of persons (the Beneficiaries). It becomes autonomous and acquires the status of a legal person when it is formed in the manner prescribed by law.
Foundations may be set up either during a person’s lifetime or as specified in a will, on that person’s death.
The law provides that the foundation must be constituted in writing, via public deed ‘inter vivos’, or by a public or secret will. The written act must include detailed provisions containing the powers and signing rights.
The setting up of a foundation involves the registration of the foundation Deed, with the Office for the Registrar of Legal Persons, through which it gains a separate legal personality. The foundation itself is, therefore, the owner of the foundation property, which is transferred to the foundation through an endowment.
Registration and Voluntary Organisations
For voluntary organisations in Malta, there is a further registration procedure which must be fulfilled.
A voluntary organisation must fulfil the following conditions to be eligible for registration:
- Established by a written instrument;
- Established for a lawful purpose: a social purpose or any other lawful purpose;
- Non-profit making;
- Independent of the State.
The law also establishes a procedure for enrolling Voluntary Organisations in a Register of Voluntary Organisations. Enrolment requires the fulfilment of several requirements, including the submission of annual accounts and identification of the organisation’s administrators.
The Benefits of Enrolling a Voluntary Organisation
Any organisation that fulfils the above criteria is designated as a Voluntary Organisation. Enrolment, however, confers essential advantages to the organisation, including:
- Can be created by foreigners, hold foreign assets and distribute dividends to foreign Beneficiaries;
- Can receive or be the beneficiary of grants, sponsorships, or other financial aid from the Maltese Government or any entity controlled by the Maltese Government or the Voluntary Organisations Fund;
- Founders do not need to be featured in any public records;
- Ability to benefit from policies supporting voluntary action, as may be developed by the Government;
- Details relating to the Beneficiaries, are protected by law;
- Receiving or benefitting from exemptions, privileges, or other entitlements in terms of any law;
- Being party to contracts and other engagements, whether remunerated or not, for carrying out services to achieve its social purpose, at the Government’s request or the request of an entity controlled by the Government.
The formation and enrolment of a Voluntary Organisation does not automatically give rise to a legal person. Voluntary Organisations have the option to register as legal persons but do not have the obligation to have to do so. Similarly, the registration of a Voluntary Organisation as a legal person, does not imply the enrolment of the organisation.
Setting up a Foundation
A public deed or a will can only constitute a foundation, if a ‘general act’ takes place to establish a foundation, it must be published by a public notary and subsequently registered in the Public Registry.
The minimum endowment of money or property to set up a foundation is €1,165 for a private foundation, or €233 for a public foundation established exclusively for a social purpose or as non-profit making, and must contain the following information:
- The name of the foundation, which name must include in it the word ‘foundation’;
- The registered address in Malta;
- The purposes or Objects of the foundation;
- The constitutive assets with which the foundation is formed;
- The composition of the board of administrators, and if not yet appointed, the method of their appointment;
- A local representative of the foundation is necessary, if the foundation administrators are non-Maltese residents;
- Designated legal representation;
- The term (length of time), for which the foundation is established.
A foundation is valid for a maximum term of one hundred (100) years from its establishment. Except when foundations are used as collective investment vehicles or in securitisation transactions.
Setting up a Non-Profit Organisation
Purpose foundations, also referred to as non-profit organisations, are regulated under Article 32, where one of the essential requirements is an indication of the purpose of such a foundation.
This can subsequently be amended through an additional public deed. This may include supporting a class of persons within the community due to a social, physical, or other type of disability. Such an indication of support, will not render the foundation a private foundation, it will remain a purpose foundation.
The deed of foundation, for such an organisation, may indicate how its money or property will be used. It is at the administrators’ discretion whether or not to make such a specification.
As the foundation is explicitly being established for a particular purpose, if the purpose is; achieved, exhausted or becomes impossible to accomplish, the administrators must refer to the Foundation Deed, to determine how the remaining assets, left in the foundation should be treated.
Taxation of Malta Foundations and Non-Profit Organisations
In the case of foundations enrolled under the Voluntary Organisation Act as long as they are purpose foundations and are non-profit organisations, there are several options available:
- To be taxed as a company, such a decision is irrevocable; or
- To be taxed as purpose foundation and pay a capped rate of 30%, rather than 35% tax; or
- If the foundation has not opted to be taxed as a company or as a trust and does not qualify for the capped rate above, the foundation will be taxed as follows:
- For every euro within the first €2,400: 15c
- For every euro within the next €2,400: 20c
- For every euro within the next €3,500: 30c
- For every euro of the remainder: 35c
The relevant provisions will be applied to the Founder of the foundation and to the Beneficiaries.
How Can Dixcart Assist?
The Dixcart office in Malta can assist with the efficient establishment and management of a foundation to meet the agreed Objects.
For further information about Maltese foundations and the benefits that they offer, please speak to Jonathan Vassallo: firstname.lastname@example.org at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.