Taxation of foundations under the foundations (income tax) regulations

Abstract

These notes provide an overview of the tax treatment of foundations under Maltese income tax legislation, particularly the Foundations (Income tax) Regulations of 2010 (hereinafter ‘Regulations’) issued in terms of legal notice 312 of 2010. While foundations are not new to the Maltese legal system, it was only recently, through the enactment of Act XIII of 2007, which amended Chapter Sixteen of the laws of Malta (hereinafter ‘Civil Code’), that an appropriate and clearly defined legal framework within which foundations could operate was established. The notion of a foundation under Maltese law is two-pronged. This means that a foundation may either be set up as a ‘private’ foundation and therefore be established for the benefit of one or more persons or a defined class of persons, or alternatively, as a ‘purpose’ foundation and therefore be created for any purpose which is lawful. Even though a foundation may be set up for any lawful purpose it may not be established to trade or carry on commercial activities. Notwithstanding the above, a foundation may be endowed with commercial property or a shareholding in a profit-making enterprise, a franchise, a trade mark or other asset which gives rise to income. This essentially means that commercial activities may be undertaken via underlying corporate entities which are owned by the foundation.