Tax of Trusts & Investment Vehicles

Tax of Trusts  Investment Vehicles

Malta and Cyprus are both mixed jurisdictions and as such benefit from the possibility of adopting a combination of solutions inspired from different legal systems. Domestic law includes various elements typically found in civil law jurisdictions such as foundations but Malta also benefits from the adoption of the common law concepts such as trusts in its legislation. Maltese law allows for the creation of  trusts in Malta as well as the recognition of foreign law trusts. Cyprus, which mainly takes legal inspiration from English common law, has legislated with regards to trusts whilst also providing for civil law vehicles such as foundations. Our team of Trusts & Investment advisors can guide you in respect of everything you need to know regarding the taxation of trusts and various investment vehicles. As part of our Families & Wealth practice group, our Tax of Trusts & Investment Vehicles practice can optimally tackle important aspects of your wealth management. 

Taxation of Malta Trusts

All income attributable to a trust is taxed in Malta where at least one of the trustees is a Malta tax resident. The income attributable to a trust includes all income or gains chargeable to tax under Maltese law derived by the trustees from property which has been settled in trust or property acquired in the course of the administration of the trust throughout a trust’s lifetime.

A licensed trustee may elect for the trust to be taxed as a company which is ordinarily resident and domiciled in Malta for tax purposes, as long as:

  • The trustee is an authorised trustee;
  • The trust has been established by an instrument in writing;
  • Election is made within 30 days from constitution of trust or appointment of Malta resident trustees;
  • Income attributed to the trust consists only of dividends, interest, royalties, capital gains and income from investments.

This decision is irreversible. The income attributable to the trust will be taxed at the corporate income tax rate of 35% and subject to double taxation relief in respect of income which has been taxed oversees.

Maltese Trusts Law envisages two scenarios whereby income which would otherwise be taxable in the hands of the trustees is actually deemed to be income of the beneficiaries. This is applicable where:

  • All income of a trust arises outside Malta OR consists of interests, royalties, gains or profits on disposal of shares or securities of a company the assets of which do not wholly or principally consist of immovable property in Malta, or
  • All the beneficiaries of the trust are not persons ordinarily resident or domiciled in Malta OR persons whose income is exempt from tax under Maltese law.

Our team of advisors focusing on the taxation of trusts and investment vehicles is particularly geared towards helping you understand tax-related implications and how you can benefit from Malta's trusts regime in a simplified and optimal manner. 

Taxation of Trusts in Cyprus

Cyprus trusts are increasingly becoming a very popular form of international trust.Following amendments carried out in 2012, non-residents may establish a Cyprus resident trust, benefitting from an attractive tax treatment and asset protection features. 

With regards to taxation of a Cyprus International Trust, when a beneficiary is a Cyprus resident, all income and profits of an international trust which are earned or deemed to be earned from sources within and outside Cyprus are subject to tax in Cyprus. However, a non-Cyprus resident beneficiary will only be subject to tax on Cyprus-source income and profits. Beneficiaries who are Cyprus tax resident will be subject to taxation on their worldwide income in the same way as any other Cyprus tax resident. Non-resident beneficiaries will be subject to Cyprus taxation only on any Cyprus-source income.

Trusts as Investment Vehicles

Our advisors can also assist you with the use of trusts for investment purposes, such as in relation to unit trusts and real estate investment trusts.

Unit Trusts allow successful families to accumulate large pools of moneys, sufficient to individually give each family member access to substantive investment opportunities. Investors may collectively contribute through the set up of a unit trust.

Real Estate Investment Trusts (REITs) are also well suited for investment. REITs are a form of mutual fund operating in real estate. REITs enjoy tax exemptions on condition that the structure in question distributes all (or almost all) of its profits to its investors.These vehicles typically own and manage income-generating properties that may be both residential and/or commercial, thus providing investors with access to property assets without having to personally/directly purchasing the property.

Our Tax of Trusts & Investment Vehicles Practice

The aim of our Tax of Trusts & Investment Vehicles Practice is to serve as a platform for clients who are considering different investment vehicles in order to invest their wealth in the most advantageous way possible. We are geared towards helping our clients choose the best investment vehicle that suits their wealth management needs, bearing in mind various tax requirements and benefits.

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