How to set up a foundation in Malta: updated guide for 2024

Set up a foundation in Malta for asset protection or social purposes. Learn about the tax advantages and legal requirements of establishing a private or special purpose foundation with our support.

Setting up a foundation in Malta is an attractive option for individuals and organizations seeking a flexible legal structure for various purposes, such as estate planning or social activities.Malta’s legal and tax framework, makes the process of establishing a foundation simple and structured, ensuring compliance with local regulations.In this article, we will guide you through the basic steps for setting it up in Malta, the benefits that come with it, and why this legal structure can be a useful tool for many.

What is a foundation?

A foundation is a legal entity that holds and manages assets, administered by designated persons, for a specific purpose or for the benefit of particular individuals or groups. Unlike trusts, which are based on a legal relationship between the settlor and the trustee, foundations are recognized as separate legal entities, which means they can hold and manage assets in their own name.

There are two main types of foundations in Malta:

1. Private foundations: These are created for the private benefit of specific individuals or groups, often used for wealth planning or wealth management.
2. Purpose foundations: These are typically non-profit organizations created for charitable, social or cultural purposes.

Steps to establish in Malta

The incorporation process in Malta requires some basic steps that ensure compliance with local laws and a suitable structure to achieve goals. Here are the main steps to consider:

1. Drafting the articles of association

The memorandum of incorporation is the central document required for creation. It defines the name, the purpose, the initial assets contributed to the foundation, the identity of the trustees and the beneficiaries. It can also include details on how the assets will be managed and what will happen if the purpose of the foundation is achieved or can no longer be pursued.The name must include the word “foundation,” and the registered office must be located in Malta. The deed may be drawn up by public deed or private document.

2. Define the initial wealth

Maltese law requires foundations to be established with initial assets. For private foundations, the minimum required is €1,165, while for purpose foundations the minimum is €233. The initial contribution can be in the form of cash or other assets, such as property or financial instruments.

This initial capital is the basis on which the legal entity can fulfil its obligations, whether for private or public benefit.

3. Appoint the directors

Directors are responsible for day-to-day management and strategic oversight. For private foundations, at least one director is required, while purpose foundations may require a supervisory board of at least three directors.

Directors must ensure that the foundation’s assets and liabilities are kept separate from their own and are responsible for maintaining proper records and complying with the articles of incorporation and Maltese laws.

4. Identify the beneficiaries

For private ones, the deed of incorporation must specify the individuals or groups who will benefit from the foundation’s assets. These beneficiaries may be named explicitly or be identified as a class of individuals, e.g. family members.

However, it is important to note that in accordance with Maltese AML regulations, the Ultimate Beneficial Owner (UBO) must always be declared to the relevant authorities.

Although the UBO is not published in publicly accessible records, it cannot enjoy complete anonymity.

This provides the transparency needed to combat money laundering and illicit financing.In purpose foundations, beneficiaries may not be specific individuals, but rather a community or group aligned with the foundation’s stated purpose (e.g., a charity or social initiative).

5. Register the foundation

Once the articles of incorporation have been prepared, the legal entity must be registered with the Registry of Legal Persons in Malta. The registration process requires the submission of the foundation’s articles of incorporation, the identity of the trustees, and information regarding the initial assets. Once registered, it becomes a legal entity able to hold assets, enter into contracts and act legally in its own name.

The need to guarantee a permanent establishment

To guarantee compliance with Maltese regulations, it is essential to have a permanent establishment. This concept refers to the need to maintain a stable organisational presence in Malta, particularly for foundations with non-resident directors. The law requires the appointment of a local representative who can interact with the Maltese authorities and ensure compliance with regulations, especially in tax matters.

A permanent establishment is important to guarantee that the foundation:

• Operates legally and is subject to the jurisdiction of Malta;
• Can properly manage tax obligations;
• Be able to act transparently towards beneficiaries and competent authorities.

For foundations with activities of an international character, maintaining a permanent establishment is essential to benefit from the tax advantages offered by Malta, avoiding the risk of double taxation or legal disputes with other jurisdictions.

Benefits of the constitution in Malta

Setting up a foundation in Malta offers several advantages that make it an attractive choice for individuals and organisations. Here are some of the main advantages:

1. Protection of assets

One of the main reasons why people set up private foundations in Malta is the protection of assets. By transferring ownership of assets to a foundation, the founder ensures that these assets are managed according to the terms of the foundation and are protected from personal liability or family disputes.

2. Flexibility in governance

Foundations offer flexibility in their governance structure. The founder can choose to have a single trustee or a board, depending on the foundation’s needs. Moreover, the foundation charter can allow for future changes in governance, which can be particularly useful for long-term estate planning or evolving charitable purposes.

3. Tax efficiency

Foundations in Malta benefit from the country’s favourable tax regime. Although foundations are subject to a 35% tax rate, they may opt to be treated as companies, allowing beneficiaries to benefit from Malta’s full imputation system. This system allows for a tax refund, significantly reducing the effective tax burden on distributed income.

4. Succession planning

Foundations are an effective tool for estate and succession planning. A private foundation can ensure that assets are passed on to future generations according to the wishes of the founder, without the need for wills or the risk of family disputes. It offers a secure and controlled mechanism for managing wealth over time.

5. Social and charitable impact

For charitable foundations, the ability to pursue charitable objectives while benefiting from legal protections is a significant advantage. These foundations can operate with a structured approach to philanthropy, ensuring that the foundation’s resources are used effectively to support its stated objectives.

Conclusion: why set up a in Malta?

Setting up a foundation in Malta is a well-structured, flexible and secure option for individuals and organisations wishing to manage assets, plan for succession or pursue charitable purposes. With clear legal protections, favourable tax treatments and a simple registration process, Malta offers a solid platform for foundations to thrive.

If you are considering setting up a foundation in Malta, our Malta Business team is here to help. Contact us today for a free initial consultation and a customised quote to get your project started on the right foot.