Foundations & Other Legal Persons

One of the reasons why founders choose Malta as the jurisdiction of choice for their purpose or public benefit foundation is that Maltese law offers legal certainty thanks to an extensive framework detailing how foundations may be set up and how they should operate.

The endowment of foundations with legal personality and the possibility to elect that a foundation be treated the same as a limited liability company for tax purposes are other factors making Malta’s regulatory framework on foundations attractive.

The legal framework applicable to foundations is also linked with the Maltese Voluntary Organisations Act seeing as at times, a foundation is also registered as a voluntary organisation in Malta.

Foundations are organizations consisting of a “universality of things constituted in writing (…) whereby assets are destined either for the fulfilment of a specified purposes; and, or for the benefit of a named person or class of persons”. Under Maltese law, foundations may take either of the following legal forms:

1. Purpose foundations
2. Beneficiary (private) foundations

This emerges from Article 26 (6) of the Second Schedule of the Civil Code which states that “Foundations may be established in one or two legal forms being either for the benefit of beneficiaries (called “beneficiary foundations”) or for the fulfillment of a specified purpose without beneficiaries (called “purpose foundations”).

Purpose foundations may or may not be “public benefit foundations”, depending on certain attributes. If the purpose of a purpose foundation is to exclusively promote a social or public purpose on a non-profit making basis (excluding any private benefit), or if it has beneficiaries, the foundation is for the benefit of ‘public interest beneficiaries’ (such as organizations which are themselves established exclusively for social or public purposes on a non-profit making basis), then such foundation may be classified as a public benefit foundation.

Once a foundation is registered with the Registrar for Legal Persons within the Malta Business Registry, it acquires legal personality. This enables a foundation to hold and administer a patrimony of assets and liabilities that are distinct from those of any other person.

Under Maltese law, the acts of foundations bind no one but themselves. As such, the Foundation would be liable for the fulfillment of its obligations with all its present and future assets.

Furthermore, founders are not liable for the obligations of the foundation except to the extent that they expressly agree to be so liable – unless they commit unlawful acts to the detriment of the foundation – in which case they may be held liable for any damage suffered by the foundation.

Foundations are established either by means of a public deed drawn and published by a Notary Public of Malta or through a will. An endowment of cash (which can be as low as EUR 233 if the foundation is designed to fulfill social purposes) is necessary for a foundation to be established. Furthermore, the foundation’s administrators must be identified and the deed of constitution must be registered with the Registrar of Legal Persons within the Malta Business Registry.

For a deed of foundation to be valid, it must expressly state the foundation’s objective, the first administrator/s and the term of the foundation (if it is not established for an indefinite period). Additionally, the foundation must have an address in Malta with the administrator having to be located in Malta, as he will serve as the contact point in Malta.

There are no tax implications when a cash endowment is made by the founders of a foundation. However, if immovable property is transferred to the foundation, duty on the endowment document is chargeable at the rate of 5% of the real value of the immovable property in accordance with the Duty on Documents and Transfers Act.

Income received by the foundation in the course of its operation is generally treated in the same manner as companies ordinarily resident and domiciled in Malta and rules pertaining to the taxation of income applicable to companies apply equally to foundations.

Under this framework, tax will be payable by the Foundation on income received at the rate of 35% less permissible deductions arising from costs incurred in the production of the income which may be deducted from the taxable amount.

This is subject to the option of the Foundation to elect to pay a lower income tax rate of 15% of the first EUR 2,400 in chargeable income, 20% of the next EUR 2,400 in chargeable income, and 30% of the remainder, which preferential rates are only available to entities serving a social purpose.

Gonzi & Associates, Advocates assists its clients throughout the process of setting up a foundation. We can help you by: