Where at least one of the trustees is a person resident in Malta, tax shall be payable in Malta, even if the trust asset, settlor, beneficiary, or all, are situated outside Malta. Tax will be payable in Malta on any income attributable to a trust, including capital gains.

There are a number of specific exceptions to this rule, particularly where the income will not be attributable to a trust but, by a fiction, will be deemed to have been derived directly by the beneficiaries and taxed accordingly.

Where there are no resident trustees, the trustees shall be liable for tax on any Malta source income derived from trust assets.

Trusts Treated As Companies

Trustees resident in Malta may, under the Income Tax Act, elect to compute the chargeable income in relation to a trust for as if such income was derived by a company ordinarily resident and domiciled in Malta. The choice is irrevocable.

When choosing to be taxed in this manner a form must be delivered to the Commissioner within 30 days from when the trust is set up or from when the trustee is chosen whichever is the later.

Where such choice is made, the trustee must keep records and submit returns as required and the income related to such trust:

  • Is taxed at 35%
  • Distributable profits are allocated in the same manner applicable to companies
  • Distribution of the allocated profits is treated as distribution of dividends to shareholders

Taxation of Beneficiaries

Amounts allocated to beneficiaries referred to above shall be aggregated with other income of the said beneficiaries; these amounts shall be treated as income derived by the beneficiary.

Income distributed to beneficiaries shall retain its character as to type and country of source. A claim for relief of double taxation may be made.

Foreign tax

Foreign tax attributable to the income of a trust is deemed to have been paid by trustee. International taxation on income attributable to trust would be mitigated via unilateral relief. International taxation on distributions to beneficiaries may be mitigated via all forms of relief.

VAT implications

Whilst trusts are not typically used as instruments through which to conduct trading activities, situations may arise where the trustee in his capacity as such is required to account for VAT in that case the trustee must be permitted to separately register for VAT as Trustee of the particular trust.

Where a trustee charges fees he is only required to charge Maltese VAT where the fees are not appropriated from trust assets. When his charges are appropriated from trust assets, he is not deemed to be carrying out an economic activity but rather a duty of a fiduciary nature and therefore needs not account for VAT.

For further information, kindly contact Dr.Tonio Fenech.