Foundations – Formation process and taxation issues


 Foundations are legal entities that can provide most of the benefits of a company and also those provided by a trust such as consolidation of asset management, provisions for the listed beneficiaries, tax planning, philanthropic purposes as well as the highest level of confidentiality.

The Maltese tax provisions on Foundations is totally EU compliant and is therefore an excellent tool for estate and tax planning. Malta is today a well respected and leading financial centre in the Mediterranean and its membership of the EU provides pass-porting opportunities to investors establishing themselves here.

Purpose Foundations

Foundations can be established for a charitable, philanthropic or other social purpose, or as a non-profit organisation or for any other lawful purpose in which case they are referred to as a ‘purpose’ foundation. Purpose foundations are very relevant in the voluntary sector.

Foundations can also be established for any lawful purpose. Non-profit-making and voluntary foundation is considered a voluntary organisation in Malta and may apply to be registered with the commissioner for voluntary organizations. Such enrollment will entitle it to numerous privileges and exemptions including donations under various Malta Government schemes.

Deed of Foundation

The deed of foundation must contain the following information

  1. the name of the foundation, with ‘foundation’ included in the name;
  2. the registered address in Malta;
  3. its purposes or objects;
  4. the constitutive assets with which the foundation is formed;
  5. the composition of the foundation’s board of administration and the names of the first administrators, and, if not yet appointed, the method of their appointment;
  6. the foundation’s legal representation;
  7. the term for which the foundation is established, if any; and
  8. in the case of a foundation whose administrators are non-residents of Malta, the name and address of a person resident in Malta who has been appointed to act as the local representative of the foundation in Malta.

In the case of Private Foundation, the deed must also contain details of:

Names of the beneficiaries or at least a declaration that the foundation is set up for the benefit of beneficiaries. Where the beneficiaries are not named in the deed of formation, there will be a private statement called “ beneficiary statement” where such beneficiaries are indicated. This statement has to be signed by the founder and addressed to the administrators. The statement must also be authenticated by the public notary that publishes the deed of foundation but itself need not be made public.

Objects of a Public Foundation

A public foundation may be set up for any purpose, as long as this is legal. It cannot, however, be set up to trade or any other commercial activity, whatever the use of profits made from such activity.

However, a foundation may be endowed with commercial property, such as shares or any other income generating assets. However, in respect of such assets, the foundation can only be the passive owner and not the commercial operator.

A foundation can also act as a collective investment vehicle for a number of shareholders to own, jointly, a pool of commercial assets. Again the relationship to these assets must be that of a passive owner and the administration and operation of such assets must be entrusted to a third party.

Other Important Characteristics

The following are some additional characteristics of a Malta foundation:

  1. The founders have the right to amend or add the purpose of a foundation following its set-up
  2. The founders may also be the beneficiary but will require and external administrator
  3. A Maltese foundation can be redomiciled out of Malta and a foreign domiciled foundation can be re-domiciled to Malta under the Laws of Malta.
  4. A Maltese foundation can be converted from an existing trust and vise versa. This ensures legal continuity under a different form and at the same time adopt to new developing requirements.
  5. It can opt for the best tax efficient status that meets its needs.
  6. The administrators can be based out of Malta ( but requiring a local representative)

Taxation of Foundations

The provisions of Maltese tax legislation with regards Foundations is another added attraction to this type of organisation since they provide flexibility and considerable scope for tax planning. The net tax on Foundation income surplus can be as low as 0% when it is classified as a philanthropic organisation and as high as 5% when it qualifies to be taxed on the Company tax regime.


The above information is being provided as a general guide only and should not be considered as a substitute for professional advice.

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