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Taxation of Trusts
The taxation of trusts is a comprehensive issue particularly due to the fact that the 'trust' is not an entity but a relationship. The tax treatment is dependent on a number of factors including the nature of the trust income and the residency of the beneficiaries in question.
As a general rule, the Malta Income Tax Act specifies that where at least one of the trustees of a trust is a person resident in Malta, tax shall be payable on any income attributable to a trust. Malta tax legislation defines "income attributable to a trust" as "the aggregate of any relevant income, (such as dividends and interest, and gains or profits from any trade), which has accrued to or is derived by a trustee or trustees of a trust from property which was settled in such trust and from property which was acquired in the administration of such trust including any income from the employment of such property". An exception to this rule includes the Tax Transparency Principle which involves looking through to ultimate beneficiaries.
Where all income attributable to a trust consists of foreign source income or other sources of income arising outside of Malta (such as interest and royalties, or gains or profits on a disposal of units in, for example, a Collective Investment Scheme), and all trust beneficiaries are either not domiciled in Malta or not ordinarily resident in Malta or otherwise totally tax exempt under Malta law, then the income is deemed not to be attributable to a trust. In this scenario, the income shall be deemed to have been derived directly by the beneficiaries. In such cases the trustee is obliged to notify the beneficiaries of such income as well as the beneficiaries' obligations under Malta law.
Where all income attributable to a trust consists solely of:
- the income mentioned in the above example; or
- dividends distributed out of the profits allocated to the Foreign Income Account by a Maltese company; or
- of dividends distributed out of the profits of profits resulting from a trading activity.
and all beneficiaries are not resident in Malta, the income shall be deemed to have been derived directly by the beneficiaries.
This exception holds as long as the trustee provides the Commissioner of Inland Revenue in Malta with a relative certificate confirming that the said beneficiaries are all non-residents of Malta.
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