Foundations and non-profit organisations have existed in Malta for a long period of time, however, it was only through Act XIII of 2007 that they were regulated through the Civil Code. Such organisations are also regulated under the Voluntary Organisations Act and the Foundations (Income Tax) Regulations.
Defining Foundations
Maltese Law defines foundations through Article 26 of the Second Schedule of the Civil Code, holding that it is:
“an organisation consisting of a universality of things constituted in writing, including by means of a will, by a founder or founders whereby assets are destined either –
(a) for the fulfilment of a specified purpose; or
(b) for the benefit of a named person or class of persons, and are entrusted to the administration of a designated person or persons. The patrimony, namely assets and liabilities, of the foundation is kept distinct from that of its founder, administrators or any beneficiaries.”
Through this schedule, it can be observed that the law keeps the definition regarding who can establish a legal organisation quite general. It provides any natural person (Maltese national or foreigner) or legal person with the right to establish a legal organisation. The aforementioned definition provides the two main reasons for the setting up of such organisation, which are broad, in order that they can encompass all organisations, institutes or similarly entitled patrimonies.
Article 1(6) of the Second Schedule within the Civil Code holds that organisations may be public or private. Public Organisations are those which are controlled, directly or indirectly by the Government, and therefore, are regulated by the law applicable to the State and any other specific laws. Private organisations, however, are regulated by the Civil Code and any other specific laws which apply depending on their legal form and purpose. The difference in how both foundations are established will be held in further detail below.
The definition of non-profit organisations is held within Article 26(7) of the Second Schedule, referring to them as purpose foundations’, which are based on a charitable, philanthropic or other social purposes. Such foundations may be private if they are established for a private benefit.
Setting up a Foundation
Article 29 of the Civil Code specifically holds that a foundation may only be formed through a public deed or through a will. This article also refers to the requisites necessary for a deed of foundation to be considered valid. First and foremost, the foundation must have an endowment of money or property worth at least €1164.69, or in the case of a non-profit organisation, the endowment must be worth at least €232.94. If it is the case that cash is not provided, but rather other assets, the administrators must declare that, in their opinion, the asset provided is worth the minimum held above. This endowment is merely required when establishing the foundation, this value may decrease or be used by the foundation.
If the foundation is created by a public deed, an authentic copy of the deed must be delivered to the founder, the administrators appointed in the deed, and the Notary publishing the deed. In the case of a purpose foundation, an authentic copy of the constitutive instrument is to be delivered and filed with the Registrar of foundations. If the foundation was created by a will, an extract of the relevant part (which has been authenticated) must be delivered by a testamentary executor by the heirs. Upon filing documents with the required information, the Registrar shall decide whether to register or refuse to register the foundation. The Registrar has the right to require any further information which it deems necessary for the registration of such a foundation.
>Private foundations are specifically regulated under Article 33 of the Second Schedule, where they are established for “the private benefit of one or more persons or of a class of persons and such beneficiaries shall enjoy such benefits, and shall have legally enforceable rights against the foundation, as may be stated in the terms of the foundation and the provisions of this Schedule”. Therefore, contrary to a public foundation, private foundations are specifically aimed at the personal benefit of the beneficiary. The class of persons or the persons(s) who is entitled to the benefit must be clearly indicated. If there are no beneficiaries identifiable or ascertainable, it is assumed that the foundation is for the private benefit of the founders and the successors. In a private foundation, a beneficiary or beneficiaries must be appointed. According to sub-article 8 of Article 33, the appointment of such beneficiary may be subject to a condition, for a definitive period of time or up to a specified value of the benefit. Such conditions are specified by the founder. The beneficiary may request the Court to eliminate any conditions if the founder is deceased, however, such condition must be considered unreasonable with regards to all the circumstances.
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 requisites is the indication of the purpose of such foundation. This may subsequently be amended through an additional public deed. Such purpose may include supporting a class of persons within the community due to a social, physical or other need or disability which they suffer from. The indication of this class will not render it a private foundation, but it will remain a purpose foundation. The deed of foundation for such an organisation may indicate how its moneys or property are to be used, and in the case where such an indication is not made, it lies within the administrators’ discretion. Since the foundation is specifically being established for a particular purpose, if such purpose is achieved, exhausted or becomes impossible to accomplish, the use of the assets in such case may be indicated in the deed of foundation.
Duties within Foundations
The duties and obligations to be carried out by administrators within a foundation are held in article 35. In the case of purpose foundations, there must be at least 3 administrators, or at least one juridical person acting as administrator. Any person who has been nominated as administrator in the constitutive deed but is unable or unwilling to carry out the relative responsibilities must notify his intentions in writing to the Registrar, founder or his heirs, or successors within 15 days. Any administrators, whether originally named or succeeding, must submit an account of their administration when relinquishing their position. The law also holds that, unless stated otherwise in the deed of foundation, the administrators must be remunerated from the income or capital of the foundation. Article 35 also specifies the circumstances in which the administrator shall no longer hold his position as administrator: his removal as administrator by the Court, the coming into effect of a condition in the deed of foundation where such administrator is removed from office, and if there are steps being taken for the winding up of the administrator when it is a legal person. Upon ceasing to be an administrator, such person must deliver all property of the foundation which are in his possession to the other administrators as is necessary, keeping in mind the interest of the foundation. In private foundations, administrators may be granted the power to add a beneficiary at his discretion, however, this must be stated in the deed of foundation or in the beneficiary statement. If there is no indication, this power is null and void. The administrator in such a foundation may also decide which beneficiaries are to benefit, the quantity of such benefit, at what time and in what manner such a benefit is made.
The founder and any others specified in the deed of foundation, according to Article 36 of the Second Schedule, may exercise supervision over the administration of the foundation in question. As a precautionary measure, the foundation may establish a supervisory council which consists of one or more members or establishes the office of a protector(s) with similar functions. These members will be appointed by the founders in the statute of the foundations.
Revocation of a Foundation
Foundations shall not be subject to revocation prior to their term for which they are established for, however, in the case of private foundations, it may be terminated upon the demand of all the beneficiaries, provided none are interdicted or minors. If the founder is alive, his consent is required besides that of the beneficiaries.
After the death of the founder, it is the Civil Court which has the power to dissolve or wind up the private foundation, upon request by all the beneficiaries of such foundation if it firmly believes that the “continuance of the foundation is no longer necessary to achieve the intentions of the founder”. The founder may provide his heirs or spouse with the right to revoke the foundation, however, this must be expressly held in the deed of foundation.
Purpose foundations must be established in an irrevocable manner, so much so that any clause within the statute reserving the right to revoke will be disregarded, unless the object of the purpose foundation has been completed, deemed impossible or is no longer valid.
Civil Court in Relation to Foundations
The Civil Code shall have jurisdiction in matters relating to the foundations, their administrators, the beneficiaries and other parties which may be of interest. The Court also has the power to approve any arrangements in terms of the deed of foundation on behalf of other persons, including:
- persons incapacitated;
- those who may be entitled to an interest under the foundation at a future date;
- unborn persons, or
- on behalf of a person who has discretionary power given to any one on the failure or determination of any existing interest that has not failed or determined.
The Court will only approve such arrangements if it believes that it will be for the benefit of the person it is acting for.
Second Schedule confers power to the Court in relation to the management or administration of a foundation in the case where the Court believes a particular decision must be made, but this is beyond the power of the administrator according to the terms of the foundation or by law.
The Court is also given power in Article 43 of the Schedule, whereupon a concern raised by the administrator before the Court, in connection with any matter relating to the foundation, the Court may take action as it deems fit. The Court may also make an order concerning:
- the execution or administration of the foundation
- the administrator of the foundation, including orders to exercise any power, discretion, or duty of the administrator. It may also order the appointment (subject to certain conditions), removal, remuneration of an administrator, the submission of accounts of conduct and any payments before the Court;
- the beneficiaries or any other person having a connection with the foundation
Taxation of Malta Foundations & Non-Profit Organisations
The Foundations (Income Tax) Regulations holds that foundations are to be taxed in the same manner as a company which is ordinarily resident or domiciled in Malta. The tax rate applicable is 35% (thirty-five cents per euro) as held in the Income Tax Act. Distributable profits, which in this case refers to the total profits available for distribution to the beneficiaries from the income of the foundation, shall be regulated in the same way as companies.
It is the responsibility of the administrator of the foundation to be responsible for any matters carried out under the Income Tax Act in relation to the determination, assessment and payment of the tax relating to the income of the foundation. If the role of the administrator is shared between two or more persons, those persons will be jointly and severally answerable. It is also the duty of the relevant administrator to keep all records and submit all returns and documents and pay tax to the Commissioner as required for companies.
In the case of foundations enrolled under the Voluntary Organisation Act or if they are purpose foundations and are non-profit, the aforementioned taxation regulations shall only apply where the foundation informs the Commissioner in writing that it wishes to be treated so from a particular year onwards. Such a decision is irrevocable. If this is not carried out, the Voluntary Organisation shall benefit from a capped tax rate of 30% rather than 35%. The administrators of a foundation may notify the Commissioner that the foundation in question be taxed under the provisions of the Income Tax Act relating to trusts. This decision is irrevocable. The relevant provisions with hence be applied to the founder of the foundations and the beneficiaries.
Another scenario envisaged by the law is that the foundation has not opted to be taxed as a company or as a trust, and doesn’t qualify for the capped rate above. In such a case, the foundation will be taxed at the following rates:
- For every euro of the first €2400: 15c
- For every euro of the next €2400: 20c
- For every euro on the next €3500: 30c
- For every euro of the remainder: 35c
Malta Foundations & Non-Profit Organisation Law Practice
Chetcuti Cauchi Advocates is dedicated to providing its clients with the highest standard of service. Our Malta Foundations & Non-Profit Organisations Law team has extensive knowledge relating to trusts and foundations, where they are heavily involved in the executive council of the Maltese Branch of STEP (Society of Trust & Estate Practitioners). Two of the firm’s partners have acted as Branch Chairman and Technical Chair within the executive council since 2013. Our partners are also active in the IFSP Council, the Malta Institute of Taxation, Malta Institute of Accountants, FinanceMalta and the Chamber of Advocates. As a multidisciplinary firm, we are able to provide our clients with services relating to different fields of law, especially tax planning and the setting up and management of Malta foundations and trusts. Escrow agency services are also provided regarding transactions on a local or international, private or commercial level.
