Trusts

In 2004 Malta saw the introduction of the law of trust which included an ad hoc tax regime. When at least one of the trustees is a person resident in Malta tax is liable on income accruing or arising and attributed to the trust from;

property which was settled in such trust;
property which was acquired in the administration of such trust; and
any income from the employment of property acquired in the administration of such trust.

For Maltese income tax purposes, the trustee of a trust is the responsible person. The Income Tax Act identifies the trustee as answerable to the determination, assessment and liability for the payment of tax. In the case where a trustee acts jointly with one or more persons, all persons responsible for that particular trust will be jointly and severally answerable to the obligations contained in the relevant tax legislation.

Gains or profits arising from the transfer of a beneficial interest in a trust are subject to capital gains tax. However no transfer and no gain is deemed to arise on a settlement of property on trust when the sole settlor and sole beneficiary of the trust is the same person. Furthermore transfers involving changes in trustees and where there is no transfer in the beneficial interest will not attract any capital gains.

However if the trustee provides the Inland Revenue department with a certificate in writing attesting that the trust holds the share for the benefit of a person or persons all of whom are not resident in Malta, the trustee is looked through for the purposes of liability to tax on income or gains.

A trust may be treated as a company for tax purposes. This treatment is only allowable after the trustee makes an irrevocable election to treat income attributable to a trust as income attributable to a company. This election is only available in the case where the income of the trust is only made up of royalties, dividends, capital gains, interest, rents or any other form of investment income. A trustee is precluded from making the election if the income attributable to the trust is constituted by income from a trade, business or profession. Tax accounts are to be kept by the trustee. For the purposes of Maltese law any distributions from the trust will be treated as dividends.

No duty in terms of the Duty on Documents and Transfers Act is chargeable in ta case of:

An insurance policy holder is a legal person incorporated in Malta who is exempt from income tax in Malta and holds such policy in the capacity of a trustee for the benefit of persons who are all not residents in Malta; and
Acquisitions or disposals of marketable securities by a trustee or a fiduciary arrangement whose beneficiaries consist solely of individuals not resident in Malta or where more than ninety percent of the business is intended to be carried outside Malta.

In the case of immovable property in Malta no duty will be due upon;

Transfer by the settlor to the trustees of a trust which the settlor is the sole beneficiary of a trust and where the settlor has an irrevocable vested right to receive the trust property;
Transfer by a settlor to the trustees of a trust created for the purpose of a designated commercial transaction or which although not a designated commercial transaction has been approved by the Commissioner of Inland Revenue,
Transfer between trustees consequent of a change in trustees,
Reversion of the trust property back to the settlor,
Transfer by the trustee to the beneficiary when duty has been previously charged upon the transfer from the settlor to the trustee provided that upon transfer to the beneficiary duty is payable on any increase in market value from the transfer between the settlor and the trustee.

Re-Domiciliation to Malta

The redomiciliation of companies registered in foreign jurisdictions to Malta has been made possible through changes made in the Companies Act of Malta during the year 2002. – Refer Legal Notice 344/20021. According to these rules, it is possible to transfer the operations of a foreign resident and incorporated company to Malta without the need to liquidate such company and register a new company in Malta. Instead, the company can be redomiciled (moved) to Malta whilst retaining its original legal personality. Such company would still retain all its assets, rights, obligation and liabilities it had in its original country of registration. Furthermore any legal proceedings instituted by or against it would not be affected. Neither would its officers be released from any of obligation, judgment, conviction, ruling, order, debt or liability that was or becomes due on any cause existing against them.

Revaluation of Assets Procedure

Malta’s jurisdiction to tax on capital gains is narrower than the taxation of income. Basically in the absence of an exemption, the transfer of an asset by a company or an individual resident in Malta triggers a capital gains tax on any gains derived from such transfer. However any foreign capital gains remitted to Malta by persons who are ordinarily resident but not domiciled in Malta or domiciled but not resident in Malta are not taxable in Malta.

Subject to case variations, gain is generally computed by deducting the acquisition value from the market value upon alienation. With effect from 1 January 2009 the Income Tax Act provides for a revaluation of assets held outside Malta when a person:

Transfers residence to Malta and such person was at no time prior to such transfer resident or domiciled in Malta; or
Transfers domicile to Malta and such person was at no time prior to such transfer resident or domiciled in Malta; or
Is a company resulting from the merger (hereinafter the ‘Company’) by formation or acquisition and such Company is registered in Malta. It should be noted that none of the assets owned by the Company upon merger should have been owned by a merging resident and/or domiciled Maltese company.

Upon transfer the person may elect that all the assets acquired prior to becoming resident or domiciled in Malta are to be re-valued. Re-valuation in the case of a merger will be limited to all those assets acquired by the non-resident merging company prior to the entry into force of the merger. The re-calculated value will be the market value at the date of relocation to Malta. An authorised independent expert will be appointed to carry out such valuation. Subsequently, the re-valuation will have to be notified to Commissioner within a year from the end of the year of assessment immediately following the basis year in which the relocation takes place. It should be noted that in the case of a company the basis year would be the financial year end.

Upon a transfer of an asset the difference between acquisition value and alienation value will be reduced resulting into reduction in taxable gains. Furthermore if the assets are used in trade or business, taxable gains may also be further reduced by deductions of wear and tear.

If such gains ultimately benefit a non-resident individual and such gain does not derive from immovable property in Malta, the individual may structure his/her affairs by receiving a 6/7ths refund of the capital gains tax paid in Malta.

Ownership, Leasing or Operation of Aircraft

With respect to aircraft, Maltese tax law contains favorable deeming provisions. The Income Tax Act provides for a special treatment of income or gains arising or derived from the ownership, leasing or operation of aircraft used for the international transport of goods or passengers. When such income or gains arise or are derived by a resident but not domiciled person, the Income Tax Act deems that such income or gains have arisen outside Malta. Therefore, unless such resident but not domiciled person receives the income to Malta there will be no liability to tax in Malta. Income or gains will be deemed to have arisen outside of Malta even if the aircraft or aircrafts called at or operated from any airport within Malta. There are also favorable depreciation rules which allow for accelerated depreciation of at least six years for aircraft airframe or engines and at least four years in the case of interiors or other parts. Aircraft do not attract import duty or duty in terms of the Duty on Documents and Transfers Act.

The private use by non-resident employees or is officers of an employer, company or partnership whose business is the operation of aircraft for the international transport of goods or passengers is not deemed to constitute a fringe benefit and consequently not taxable.

VAT Treatment of Aircraft Leasing Agreement

The VAT department has issued the Aircraft Leasing Guidelines (hereinafter the ‘Guidelines’) which determine a proportion of a lease subject to VAT. The Guidelines refer to an aircraft lease agreement (hereinafter the ‘Agreement’) between a lessor and a lessee who are both established in Malta where the lessee contracted the use of the aircraft with a purchase option at the end of the lease for a percentage of the original cost. The Guidelines are based on the assumption that it is very difficult to determine the movement of the aircraft within the EU and, therefore, the usage of that aircraft within and outside EU airspace.

As a result of the above, a determined percentage of the standard 18% VAT on the lease is calculated. The calculation is deemed to reflect the use of the aircraft within EU airspace. Calculation of the chargeable percentage of the lease is arrived at by taking into consideration;

The aircraft type;
MTOM;
Maximum fuel capacity;
Fuel burn;
Optimum altitude; and
Optimum cruising speed.

Guidelines stipulate that the term of the Agreement may not exceed sixty months and that lease instalments inclusive of VAT must be paid every month. Prior approval of the VAT department should be sought before applying any of the benefits stipulated in the guidelines. If the lessee opts to purchase the aircraft at the end of the lease term and provided that all VAT due on the lease instalments had been paid, the VAT department will issue VAT paid certificate.

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