Let’s Talk About MALTA

We previously discussed Malta in the context of the DTA with the US here – 

https://www.mooresrowland.tax/2019/06/lets-talk-about-us-tax-implications-of.html

Despite the dangerous and unqualified opinions on dubious websites, it’s important for every location independent professional to have a carefully chosen tax residence – 

https://www.mooresrowland.tax/2019/10/perpetual-nomad-is-it-possible-to-pay.html

Malta is a popular option for both EU and non EU citizens seeking alternative residency. We have had lots of inquiries about Malta.  Malta has a very interesting tax regime where foreign income is not taxed if it’s not remitted to the country. Consulting with an accountant is advisable since each case is different.  

It’s similar to being res-non-dom in the UK – 

https://www.mooresrowland.tax/2016/12/potential-uk-non-dom-changes.html

Or Portugal – 

https://www.mooresrowland.tax/2019/10/brief-on-portugal-taxes-including-nhr.html

The income tax rate in Malta varies between 15% and 35% depending on earnings; EU citizens who apply for a residence programme and either rent or buy property in Malta can benefit from a flat tax rate of 15%. Corporation tax in Malta is 35%, however tax refunds can apply. For example, after distributing profits, shareholders can request a tax refund. Special tax incentives apply for financial services professionals who are not resident in Malta, with a view to attract investment in Malta.

Permanent residency in Malta is available to EU citizens as mentioned above (ordinary residence). Non-EU citizens can apply for the Malta Global Residency Programme to benefit from a special tax treatment. For that, they need to invest in Malta through buying or renting a property (minimum amounts needed for either buying or renting) and paying tax on foreign income. To maintain tax residency, one cannot live in any other country for more than 183 days a year.

Here’s some more detail on the tax system

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Have there been any notable recent developments in the provision of private client and offshore services in your jurisdiction, including any regulatory changes or case law?

A number of changes are expected in the coming months and years, most of which will follow legal and tax developments at the EU and international level. Specifically, these developments will include legislative measures to implement the provisions and requirements of the fourth Anti-money Laundering Directive (2015/849/EU), as well as the forthcoming fifth Anti-money Laundering Directive. The advent of the latest Anti-tax Avoidance Directive (2016/1164/EU) will also result in changes to Maltese tax legislation. While this will largely affect corporate structuring, it may have a significant impact on resident non-domiciled individuals. Following proposals in the 2018 Budget Bill, some notable changes to Malta’s remittance basis of taxation are also envisaged, including the introduction of a minimum tax for resident non-domiciled individuals.

Individual taxation

Residence and domicile

How is residence/domicile determined for tax liability purposes in your jurisdiction?

Regarding individuals, the Income Tax Act defines ‘resident in Malta’ as having residence in Malta, except for such temporary absences as may seem reasonable (ie, to the commissioner for revenue) and not inconsistent with such individual’s claim to be resident in Malta. The act also arguably uses the term ‘ordinarily resident’ to distinguish a person who is resident in Malta purely on a day-count basis (ie, for more than 183 days) from a person who, although absent from Malta for a period of more than six months, is still considered a resident based on facts and circumstances implying an intention to reside in Malta. The act also provides the definition of a ‘temporary resident’, being any person who is in Malta for some temporary purpose only, without any intent to establish a residence there and without having resided in Malta on one or more occasion for a period totalling six months in the year.

However, the Income Tax Act does not specifically define the concept of ‘domicile’. The concept derives from common law and closely follows UK law principles and jurisprudence. As such, an individual can have a domicile of origin, a domicile of choice or a domicile by operation of the law. ‘Domicile’ has been interpreted by the Maltese courts to mean presence in a country as an inhabitant of it; a ‘domicile of choice’ is acquired by a combination of residence and the intention to stay permanently or indefinitely in Malta.

Income

Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

The Maltese tax liability of an individual is determined on the basis of source, residence, domicile and remittance. An individual may be:

• resident and domiciled in Malta;
• resident but not domiciled in Malta;
• domiciled but not resident in Malta; or
• neither resident nor domiciled in Malta.

Individuals who are both ordinarily resident and domiciled in Malta are taxed on their worldwide income. Individuals who are ordinarily resident but not domiciled in Malta, or who are domiciled in Malta but not ordinarily resident, are taxed only on:

• income arising in Malta;
• capital gains arising in Malta; and
• income arising outside of Malta that is remitted to Malta.

Income arising outside of Malta that is not remitted to Malta and capital gains arising outside of Malta are not subject to tax (regardless of whether the capital gains are remitted to Malta). Income is subject to tax in Malta at progressive rates of up to 35%.

Importantly, resident non-domiciled individuals whose spouses are ordinarily resident and domiciled in Malta are nonetheless taxable on their worldwide income. Individuals who have the status of long-term residents under the Status of Long-term Residents (Third Country Nationals) Regulations (278/2006) or permanent resident status under the Free Movement of European Union Nationals and their Family Members Order (191/2007) also do not benefit from the remittance basis of taxation. Individuals who are neither resident nor domiciled in Malta may still be subject to tax in Malta if they are entitled to income arising in Malta.

The following rates are applicable to individuals for basis year 2018

Maltese resident individuals must register with the commissioner for revenue for income tax purposes and submit an annual tax return (even if no tax is due for a particular basis year). The financial year end for individuals is 31 December. Therefore, a reference year (or basis year) begins on 1 January and ends on 31 December. The tax return to be completed by the individual for that basis year must be submitted to the commissioner for revenue (ie, at the Inland Revenue Department) by 30 June of the following year (ie, the year of assessment). As of the third year of residence, individuals may further be required to pay provisional tax based on their tax payments of the previous basis year.

Double taxation relief for individuals is available through Malta’s network of over 70 double taxation treaties or unilateral relief and is generally executed by means of a credit method.

Capital gains

Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

Malta has no separate capital gains tax regime. Income tax is imposed on any gain made on:

• the transfer of immovable property situated outside Malta (a property transfer tax also applies to the transfer value of immovable property situated in Malta);
• shares and other securities;
• business, goodwill and business permits;
• copyrights, patents, trade names, trademarks and other intellectual property;
• interests in a partnership; and
• beneficial interests in a trust.

Gains from the transfer of other assets are not subject to income tax unless derived from a trading activity. The rate of tax is the marginal income tax rate applicable to the particular taxpayer.

Inheritance and lifetime gifts

Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

Malta applies no inheritance, estate or gift taxes. Nevertheless, stamp duty may apply in relation to certain transfers, including the transfer inter vivos or causa mortis of immovable property and securities.

Real estate

What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?

Acquisition of immovable property

A stamp duty of €5 for every €100 is generally payable by the buyer on the acquisition of immovable property. If the buyer is an EU citizen declaring on deed that they shall reside in the property being purchased as their sole ordinary residence, a preferential rate of 3.5% applies on the first €150,000 of the purchase price. The remainder is charged at the standard rate of €5 for every €100.

Disposal of immovable property 

Regarding property situated in Malta, the capital gains tax regime applicable to the transfer of immovable property has been replaced by a final withholding tax or property transfer tax (PTT) in all but a few exceptions. As of 1 January 2015, PTT of 8% has applied to the value of the property transferred.

Increased rates may apply in cases where the property being sold was acquired by the seller before 1 January 2004. In this case, the transfer tax payable by the seller is 10%. A lower rate applies to individuals who do not carry on the business of property trading; they will be subject to PTT of 5% if the property is transferred before five years from the date of acquisition. Non-resident persons may opt out of the PTT and still be taxed on their capital gains on the transfer of property situated in Malta. All exemptions applicable under the capital gains regime are applicable to PTT.

Non-real estate assets

Do any taxes apply to the acquisition and disposal of other assets apart from real estate?

Gains from the disposal of capital assets

Income tax is imposed on any gain made on:

• shares and other securities;
• business, goodwill and business permits;
• copyrights, patents, trade names, trademarks and other intellectual property;
• interests in a partnership; and
• beneficial interests in a trust.

Gains from the transfer of other assets are not subject to income tax unless derived from a trading activity. The rate of tax is the marginal income tax rate applicable to the particular taxpayer.

Duty on documents and transfers

Duty is payable by the buyer on the transfer of marketable securities and specific documents, such as insurance policies. Duty is chargeable when such documents are executed in Malta and on the use of foreign documents in Malta, if those foreign documents would have been chargeable under the duty on documents and transfers had they been executed in Malta.

Other applicable tax regimes

Are any other direct or indirect tax regimes relevant to individuals?

Malta offers a number of special residence programmes for individuals looking to become residents of Malta. These programmes typically offer a special tax status and beneficial tax rates in conjunction with the remittance basis of taxation to qualifying individuals. Beneficiaries of the Residence Programme (open to EEA and Swiss nationals) and the Global Residence Programme (open to third-country nationals) benefit from a tax rate of 15% on income received in Malta from foreign sources, with the possibility of claiming double taxation relief. A number of criteria must be satisfied in order for an individual to benefit from this special tax status, including:

• ownership or rental of a qualifying property; and
• proof that the beneficiary has sufficient means of economic subsistence and that the beneficiary and all applicants are covered by a comprehensive insurance policy.

Beneficiaries are subject to a minimum amount of tax set at €15,000 per annum. The Malta Retirement Programme and the United Nations Pensions Programme are similar programmes specifically designed for retirees.

Planning considerations

Are there any special tax planning considerations for individuals with a link to your jurisdiction?

Key tax planning considerations for individuals who are establishing a physical presence in Malta revolve mainly around the concepts of residence and domicile, since these are the main connecting factors for establishing tax liability in Malta for individuals.

Given their particular tax status, resident non-domiciled individuals should seek advice on what constitutes income from Maltese sources and what constitutes income remitted to Malta, as taxation in Malta would arise in both instances. The distinction between income and capital is fundamental for organising one’s tax affairs in Malta, given that capital is not taxed. This distinction is also essential for taking fullest advantage of the remittance basis of taxation, as capital remitted to Malta is not subject to tax, whereas income is. Similarly, capital gains arising outside Malta are also not taxable, even if received in Malta by an individual who is resident but not domiciled in Malta.

Individuals who are in business should also consider the potential benefits of incorporating their activities in Malta, as this would open up the possibility of taking advantage of Malta’s tax refund system and forms of double taxation relief available only to companies.

Trusts, foundations and charities

Trusts

Are trusts legally recognised in your jurisdiction? If so, what types are available and most commonly used?

The Trusts and Trustees Act regulates trusts and the conduct of Maltese trustees. All types of trusts are available in Malta, and the most common is the express trust. The act also provides that the Malta Financial Services Authority is the sole regulatory body in respect of such arrangements.

Trusts are commonly used in commercial transactions but may also be set up for inheritance, estate planning, charitable, social or philanthropic purposes. These purposes include the advancement of education, religion, health, culture and art, as well as social and community advancement. There are also specific regulations relating to protected disability trusts, which can be formed where at least one beneficiary has a disability.

What rules and procedures govern the establishment and maintenance of trusts?

The Trusts and Trustees Act chiefly outlines the basic principles of the Malta trust, comprising:

• the question of applicable law;
• the manner in which trusts may be created;
• the rights of the beneficiaries to a trust; and
• the general existence of the trust up to its termination (which, unless terminated for any other reason contemplated by the Trusts and Trustees Act, runs until its 125th anniversary).

The Trusts and Trustees Act also provides for the appointment of the trustees, as well as their powers and the rules governing their role as trustee. Importantly, the act also provides for the regulation of trustees by the Malta Financial Services Authority.

How are trusts taxed in your jurisdiction?

Tax liability in Malta arises where at least one of the trustees is a resident in the country. The amount of tax due is determined in relation to the income attributable to the trust. The Income Tax Act defines ‘income attributable to a trust’ as “the aggregate of any relevant income which has accrued to or is derived by a trustee or trustees of a trust, from property which was settled in such trust and from property which was acquired in the administration of such trust, including any income from the employment of such property”.

Where the trustee is a person resident in Malta they may elect to compute the chargeable income in relation to the income attributable to a trust for the relevant year of assessment as if the income were derived by a company resident and domiciled in Malta. Such election cannot be revoked and the income will be made subject to tax at the rate of 35%. If this method of taxation is chosen, distributable profits shall be allocated in the same manner applicable to such companies and the distribution of allocated profits to beneficiaries shall be treated as if they were dividends distributed to shareholders of the company. The option to treat the trust as a company is useful when the trustee wishes to claim relief from double taxation on income that has been subject to withholding taxes outside Malta.

In principle, trust income is taxable in the hands of the trustee at a rate of 35%. However, the Maltese tax framework operates a transparency rule for trusts in that, in several instances, income attributable to the trust is deemed to be derived directly by the beneficiaries themselves and therefore taxed in the hands of the beneficiaries. One such instance is where the trust income consists of income arising outside Malta and all the beneficiaries are persons not ordinarily resident or domiciled in Malta, or whose income is exempt from tax. In such cases, such income is not deemed attributable to the trust but rather derived directly by the beneficiaries.

The trust taxation framework was inserted into a broader legislative framework that offers tax exemptions and refunds to non-residents. Therefore, the trust taxation system ensures that such exemptions and refunds that could be used by non-residents outside the trust framework are not prejudiced in the trust scenario.

Where a beneficiary is neither resident nor domiciled in Malta, tax would only be chargeable in Malta on local source income and gains and not on any foreign income or gains. Where the beneficiary is ordinarily resident (but not domiciled) in Malta, tax would be chargeable on local source income and gains, as well as foreign source income that is remitted to Malta. Therefore, where foreign income is remitted to Malta by trustees, the transparency rule would not result in an exemption but liability at beneficiary level. The Maltese tax system is particularly beneficial for trusts set up by non-residents, resulting in either complete neutrality or a low effective tax rate.

Foundations and charities

Are foundations and charities legally recognised in your jurisdiction? If so, what forms can they take?

Foundations are recognised in Malta through the Second Schedule of the Civil Code (Chapter 16 of the Laws of Malta). Maltese law allows for the establishment of ‘private’ or ‘purpose’ foundations. A private foundation is one that is established for the benefit of one or more persons, while a purpose foundation is one that is established exclusively:

• for a charitable, philanthropic or other social purpose;
• as a non-profit organisation; or
• for any other lawful purpose.

What rules and procedures govern the establishment and maintenance of foundations and charities?

Foundations are regulated in terms of the Second Schedule to the Civil Code (Chapter 16 of the Laws of Malta). Foundations must be created, under pain of nullity, either by means of a public deed or by testamentary disposition. A person seeking to set up a foundation must ensure that numerous requirements are observed, as follows. The foundation must necessarily be given a name in which the term ‘foundation’ is clearly legible; its purpose must be clearly stated, as must be the composition of its board of administrators and the names of the first administrators. Under the Trusts and Trustees Act, a person (ie, an individual or a body corporate) that operates in or from Malta and wishes to act as administrator of a private foundation must seek prior authorisation from the Malta Financial Services Authority. Conditions for an individual to act as an administrator include:

• operating in or from Malta;
• being an approved person; and
• proving to have established adequate systems for maintaining proper records of:
  • the identity and residence of beneficiaries;
  • any transactions relating to the assets of the foundations; and
  • compliance with the applicable laws.

Should all the administrators reside abroad, a Maltese representative must be appointed. Further, an endowment must be made by the founder and the constitutive assets must be clearly named. The endowment can be made in money or other property, including the rights to money or property that will arise in the future.

Different requirements then exist, depending on whether the entity is a private or purpose foundation. However, regardless of whether it is private or purpose, the foundation will acquire legal personality as soon as it is registered with the registrar for legal persons and will not be permitted to carry on trade or commercial activities, even if the profits are destined for social purposes. Nevertheless, a foundation can be endowed with commercial property and can hold shares in a company (regardless of whether such company conducts a trade business or other such commercial activity), as long as it is only a passive owner of the assets.

The Second Schedule to the Civil Code specifically caters for the conversion of a foundation into a trust and a trust into a foundation. However, both such conversions are irrevocable.

How are foundations and charities taxed?

For income tax purposes, foundations are treated like companies ordinarily resident and domiciled in Malta, which are taxable at the standard corporate income tax rate of 35%. The administrators of the foundation can also elect that the foundation be treated under the same provisions as are applicable to trusts. Such an election is only possible where the income consists of dividends, interest, royalties, rents, capital gains and income from investments.

In principle, charitable institutions, organisations and foundations are exempt from Maltese income tax under Article 12(1)(e) of the Income Tax Act. However, this exemption applies only where it is granted by the minister responsible for finance and published under subsidiary legislation under the Income Tax Act.

Compliance issues

Anti-avoidance and anti-abuse provisions

What anti-avoidance and anti-abuse tax provisions apply in the context of private client wealth management?

Article 51 of the Income Tax Act comprises a general anti-avoidance provision, under which the director general of inland revenue may disregard any artificial or fictitious schemes that reduce the amount of tax payable by a taxpayer. Further, where a taxpayer makes use of a scheme for the sole or main purpose of avoiding, reducing, postponing or obtaining a tax refund which otherwise would not apply, the director general may determine the liability to tax or entitlement to refund in such a manner or amount as necessary to nullify or modify the scheme and consequent advantage.

Specifically regarding the holding of shares in a Maltese company, where the commissioner for revenue believes that any company (other than a company incorporated or registered outside Malta and not resident in Malta) has not distributed as dividends its profits or some part of its profits, and that the effect of such non-distribution is the avoidance or reduction of tax otherwise payable by the shareholders, the commissioner may deem the undistributed profits to have been distributed by dividend. This deemed distribution would of course not apply if the company decided, for example, to re-invest the distributable profits or to repay a loan, overdraft or other such borrowed capital to external sources.

Maltese tax law currently has no special anti-avoidance measures such as controlled foreign company legislation, thin capitalisation rules or transfer pricing. However, in line with the Anti-tax Avoidance Directive (2016/1164/EU), Malta will be required to implement a number of rules, including:

• controlled foreign company legislation;
• interest limitation (deductions on borrowing) rules;
• exit taxation; and
• rules against hybrid mismatches.

This is expected to affect the way in which private clients structure their investments via Maltese entities.

Anti-money laundering provisions

What anti-money laundering provisions apply in the context of private client wealth management (eg, beneficial ownership registers)?

Malta has fully implemented the fourth Anti-money Laundering Directive (2015/849/EU) and is fully compliant in this regard, having transposed the requirements of the directive into the Prevention of Money Laundering Act and the Prevention of Money Laundering and Funding of Terrorism Regulations. Malta has also implemented EU Directive 2014/07/EU on extending the cooperation between EU tax authorities to automatic exchange of financial account information, as well as the Common Reporting Standard developed by the Organisation for Economic Cooperation and Development.

As of 1 January 2018 all Maltese companies, trusts, foundations and associations must identify, record and report their beneficial owners to the respective registry. This beneficial ownership register will be accessible to national competent authorities, subject persons in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations and persons who satisfactorily demonstrate and justify a legitimate interest, specifically related to the prevention of money laundering and the financing of terrorism.

Wills and probate

Succession rules

What rules and restrictions (if any) govern the disposition of and succession to an individual’s property and assets in your jurisdiction?

Succession under Maltese law is mainly regulated by the Civil Code (Chapter 16 of the Laws of Malta), which regulates testate succession, the drafting of wills and intestate succession. The Civil Code provides that any person, except those that are subject to an incapacity in terms of the code itself, may dispose of or receive property by will.

Under Maltese law, an individual may decide to dispose of their assets:

• through the express disposition of the law in the form of a will;
• by operation of the law, if no will is presented; or
• through a trust.

Since 1 August 2015, the Succession Regulation (650/2012) governs the estate of any person having assets or any other connection with EU member states that have adopted the regulation.

Intestacy

What rules and procedures govern intestacy?

The Civil Code provides for intestate succession, a pre-established succession mode which is granted – in the order and according to the rules laid down – in favour of:

• descendants;
• ascendants;
• collateral relatives;
• the spouse of the deceased; and
• the government of Malta.

Governing law

What rules and restrictions (if any) apply to the governing law of a will?

Under the Civil Code, individuals are generally free to dispose of their worldly belongings as they please. By means of a will, one can bequeath property by singular title (known as a legacy) and institute universal heirs. It is important to note that regardless of freedom of disposal of one’s belongings, the Civil Code provides for a reserved portion in favour of the descendants and spouse of the deceased person, should any exist. In this regard, the reserved portion due to the children of the deceased is:

• one-third of the value of the estate, if there are fewer than five children; or
• half of the value of the estate, if there are five or more children.

The surviving spouse is entitled to:

• one-fourth of the value of the estate in full ownership, if the deceased is also survived by children or other descendants; or
• one-third of the value in full ownership, if there are no children or other descendants.

The surviving spouse is also entitled to the right of habitation in the property occupied as the principle residence of the surviving spouse at the time of death.

Formalities

What are the formal and procedural requirements to make a will? Are wills and other estate documents publicly available?

A will may be either public or secret and may only be opened once the testator has died and a copy of the death certificate is presented to a notary public. A public will is drawn up in front of a notary public and two competent witnesses; it is then registered in the Public Registry, and only the testator’s personal details are recorded. A secret will is typically drawn up by the testator and handed to a notary who, in the presence of two competent witnesses, draws up the act of consignment and deposits the original will in the registry of the Civil Court.

Validity and amendment

How can the validity of a will be challenged? Can the will be amended after the decedent’s death?

If the validity of a will is contentious, the courts will make a final decision on its validity. The courts will make such a decision only if court proceedings are initiated claiming that the will is invalid. The claims must be based on any of the grounds of invalidity stated in the law.

How is the validity of a will established in your jurisdiction?

Maltese law contains numerous disability provisions, which render a person incapable of disposing by or receiving under a will. As a general rule, a ‘major’ (ie, a person who has reached 18 years of age) is capable of performing all the acts of civil life, including the making of a will. The law further provides that persons who have attained the age of majority but have a mental disorder or other condition that renders them incapable of managing their own affairs, or who are insane or prodigal, may be interdicted and incapacitated from carrying out certain acts.

The disability of persons interdicted is either general (ie, covering all acts) or specific. Persons who are interdicted are deemed incapable of making wills unless the interdiction is on the ground of prodigality, in which case the court ordering the interdiction may authorise the interdicted person to dispose of their property. Similarly, persons who are incapable of understanding and volition or are of unsound mind at the time of the will’s creation are also deemed incapable of making a will, even if not interdicted.

If the person subject to incapacity makes a will, such will is null notwithstanding that the person’s incapacity may cease before their death. The law also lays down numerous disability provisions regarding those who cannot receive by will, among whom are persons deemed legally unworthy of receiving by will, owing to some fraudulent or wilfully wrongful behaviour towards the testator. Further, where a tutor or curator has been appointed to administer the property of another person, the tutor or curator cannot benefit under a will made by the person under their charge during the tutorship or curatorship, unless the tutor or curator is the ascendant or descendant, brother, uncle, nephew, cousin or spouse of the person making the will. Likewise, members of monastic orders or religious corporations of regulars may not dispose by or receive under a will after taking vows in their religious order or corporation, unless they are lawfully released from their vows.

To what extent are foreign wills recognised? Do any special rules and procedures apply to establishing their validity in your jurisdiction?

To be recognised as valid under Maltese law, a will made abroad must follow the form prescribed by the law of the country of origin. The rules regarding the reserved portion are considered to be of a public policy nature; therefore, dispositions that are contrary to those rules will not be given effect in Malta if the will is challenged.

Estate administration

What rules and procedures govern:

(a) The appointment of estate administrators?

The appointment of an administrator is not mandatory. The administration of the estate of a deceased person may be vested in:

• a testamentary executor;
• the heirs (in absence of an executor); or
• a court-appointed executor (with the consent of the heirs or on the demand of any interested party).

(b) Consolidation and administration of the estate?

Administration procedures are similar to probate, a legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property under a will that has been declared valid by a probate court.

Probate administration is not in itself regulated in terms of Maltese law. Nevertheless, Maltese law contains certain formalities and procedures which must be observed when drawing up wills and disposing of an inheritance. As such, there are provisions addressing:

• the validity of wills;
• opening and publication of wills;
• testate and intestate succession;
• testamentary executors;
• vacant inheritance and the appointment of curators;
• the reserved portion; and
• the rights of the surviving spouse.

(c) Distribution of the estate to heirs?

Where no testamentary executor is appointed in a will, heirs of the testator step into the shoes of the testator by default, in terms of the legal representation of the estate. Thus, the heir acquires the deceased’s property subject to the same burdens to which it was subject prior to death. Where an administrator or testamentary executor has been appointed, they must draw up an inventory of the inheritance. They will:

• exercise and promote the rights of that inheritance by answering any judicial claims brought against the inheritance;
• administer under the obligation to deposit any moneys included in the inheritance or received for the sale of movable or immovable property; and
• render account to the person concerned.

(d) Settlement of the decedent’s debts and payment of any taxes and fees?

Where a testamentary executor or administrator takes on the administration of the deceased’s inheritance, they are entrusted with the power to collect sums owing to the estate and sell property thereof to satisfy the debts of the estate or discharge legacies. Such power is limited to instances of absence or insufficiency of funds in the estate, and the executor may not dispose of the estate arbitrarily. Further, the testamentary executor must render an account of their administration, which is secured by the hypothecation of the executor’s property.

Planning considerations

Are there any special considerations specific to your jurisdiction that individuals should bear in mind during succession planning?

There are no inheritance or gift taxes in Malta. Further, no duty is chargeable on the transfer causa mortis of movable property. However, duty is chargeable on the transfer causa mortis of immovable property and of securities.

Capacity and power of attorney

Loss of capacity

What rules, restrictions and procedures govern the management of an individual’s affairs where he or she loses capacity and the grant of power of attorney in such cases?

The legal notion of power of attorney has been part of Malta’s civil law heritage for years. However, the notion of enduring power of attorney was only introduced in 2016, through the addition of Article 1864A to the Civil Code. In an enduring power of attorney, a mandate is given by a person of full age, in anticipation of their incapacity, to a mandatary.

This mandate must be drawn before a notary public in the prescribed form and in the presence of two witnesses and must be registered with the director of the Public Registry. Before registering the mandate, the mandator must obtain a medical declaration that circumstances require them to draw up this mandate to ensure their best interest.

The performance of the enduring power of attorney is conditional on the occurrence of incapacity and obtaining the necessary approval from the Court of Voluntary Jurisdiction. The law also provides that an enduring power of attorney may be terminated if the mandator is no longer incapacitated.

Minors

What rules, restrictions and procedures govern the holding and management of a minor’s assets until the minor reaches the age of capacity?

A minor’s parents usually act as custodians and may represent and make decisions on behalf of the child. As a rule, the custodians of a child are also their guardians; as such, they can administrate the child’s property and represent the child in financial affairs.

Any inheritance devolving on children can be accepted by their parents with the benefit of inventory, unless that inventory is dispensed with by the court. If one of the parents is unable or unwilling to accept the inheritance, it may be accepted by the other parent with the authority of the court. If both parents are unable or unwilling to accept the inheritance the court may, on the demand of the child or of any of their relatives, authorise the acceptance thereof by the child, if they have attained the age of 14 years, or by a special curator appointed by the court.

Any minor whose parents have died or forfeited parental authority, and who has not married, is subject to be placed under tutorship until they become of age or marry.

Family links

Marriage and civil partnerships

What matrimonial property regimes are recognised in your jurisdiction?

Community of acquests By default, and unless a marriage contract establishing otherwise is in place, Maltese law applies the principle of community of acquests to the assets and liabilities of the spouses from the moment the marriage is celebrated. Under this regime all assets and liabilities acquired on the date of the wedding and thereafter are deemed to belong to both spouses equally. This means that if the spouses decide to separate, assets and liabilities acquired during the marriage will be divided equally between the two. However, there are exceptions:

• the assets which fall outside the scope of the community of acquests are those assets acquired by either spouse prior to getting married (ie, paraphernal property);
• inheritances; and
• donations.

Nevertheless, the fruits derived from paraphernal property do not fall within the exception and become part of the community of acquests.

Separation of estates

In order for this regime to apply, the spouses must enter into a marriage contract. If the spouses opt for the separation of estates, anything acquired during marriage remains paraphernal property. Thus, such property would belong exclusively to the spouse who acquired it and be managed by them. Should the spouses acquire any assets jointly, their relationship with regard to that property would be regulated by the provisions dealing with co-ownership.

Community of residue under separate administration

This regime is the least common of the three. The spouses have separate estates regarding anything acquired by them individually during the marriage. Conversely, anything acquired jointly will be deemed to be administered and held jointly. Should the marriage be terminated, the paraphernal property of each spouse is separated from those assets which fall under the regime, and the assets and liabilities which fall under the community of acquests (ie, the ‘residue’) will be divided equally between the spouses.

Are same-sex marriages and/or civil partnerships recognised in your jurisdiction?

Thanks to the Marriage Act and other Laws (Amendment) Act, same-sex couples may inter into civil marriages as of 1 September 2017. By removing all discrepancies between ‘husband’ and ‘wife’, couples contracting a civil marriage after that date are free to adopt or take on their partner’s surname without distinction and to choose a family surname for all their children to take.

The Civil Unions Act was enacted in 2014, providing an option for two persons of the same or of different sex to enter into a legally recognised union that was effectively equivalent to marriage in all but name. In fact, once registered, a civil union has the corresponding effects and consequences in law of civil marriages contracted under the Marriage Act (Chapter 255 of the Laws of Malta). Notwithstanding the 2017 introduction of the marriage equality law, couples can still enter into a civil union, irrespective of gender.

Following the recent changes to the Marriage Act, couples who had already entered into a civil union have until 2022 to convert their civil union into marriage, if they choose. In this case the civil union shall end, and the resulting marriage shall be deemed to have subsisted from the date when the civil union was formed.

Children

Is there a legal distinction between legitimate and illegitimate children in terms of estate and succession planning?

References to legitimate and illegitimate children have been removed from the Maltese Civil Code and replaced with the words “conceived or born in wedlock and conceived and born out of wedlock”. In addition, the reserved portion due to all children applies, regardless of whether they are conceived or born in or out of wedlock.

In intestate succession, if the deceased has left children or their descendants but no spouse behind, their entire succession will devolve upon the children and other descendants without any distinction.

Is there a legal distinction between natural and adopted children in terms of estate and succession planning?

No. Natural children and adopted children are all equal in the eyes of the law.

source: https://www.lexology.com/library/detail.aspx?g=7f638111-5851-4fb7-821e-e9162c5d5a35