BOV Launches Investor Education Sessions

by Bank of Valletta
15th May 2023
I. A little bit of history:
– Existed in Greek and Roman times, at times used to honour deities
– In the Middle Ages, the Roman Catholic Church used foundations for religious purposes
– Around the same time, in Arabia, with the growth of Islam, a pious donation called a “waqf” developed
– Laws and regulations became more sophisticated during the early 20th century.
– Liechtenstein was the pioneer with respect to private foundations.
– In the early 20th Century it moulded a solid foundations legislation.
– Panama followed suit, and also created a strong legislation for Private foundations.
II. Definition:
“A foundation is an organisation consisting of a universality of things constituted in writing, including by means of a will, by a founder or founders whereby assets are destined either –
a. For the fulfilment of a specified purpose; or
b. For the benefit of a named person or class of persons, and are entrusted to the administration of a designated person or persons. The patrimony, namely assets and liabilities, of the foundation is kept distinct from that of its founder, administrators or any beneficiaries.”
Art 26 (1) Second Schedule Civil Code Cap 16 of Laws of Malta.
III. Players:
– May be any person, including a body corporate or other business entity.
– May be more than one in a private foundation.
– Details are public on the deed of the foundation.
– May have various powers as per the Deed of the Foundation, including removing the administrator, winding up the foundation and authorising distributions to the beneficiaries.
– For a private foundation, has to be at least one person.
– Can be a natural person or body corporate.
– Has to be authorised in Malta by the MFSA.
– Has duties akin to a director of a company, albeit having also fiduciary duties.
– Can be an individual or any body of persons (including companies, foundations etc).
– Can be a group of individuals or class of persons.
– Can be appointed in a discretionary fashion by the administrator if so provided in the Deed.
– Can be a person or person who is not yet born.
– Becomes legally a beneficiary when so appointed, notified, and accepts in writing.
– The Deed may provide that the beneficiary may deal in his entitlement, including transferring it to third parties.
– The Deed may provide that the beneficial entitlement in a foundation is inheritable.
– Can remain anonymous on public documents, since a Beneficiary Statement need not be annexed to the Deed. However, in terms of Beneficial Ownership rules the identity of the ultimate beneficial owners is to be communicated to the Malta Business Registry.
– Borrows from trust law, in that a Founder has an option to appoint a Protector or Protectors also known as Supervisory Council.
– Can be an individual, a group of individuals or body corporate.
IV. Investing private foundation assets and Activities:
Typical assets:
Shares, stocks, bonds, currencies, immovable and intellectual property, art, precious metals, private equity, life insurance policies, etc.
Restriction to Trade:
The Civil code contains a general provision that foundation “may not be established to trade or carry on commercial activities.”
Exceptions to the Restriction:
– Hold commercial property or a shareholding in a profit making enterprise, franchise, trade mark, or other asset which gives rise to income, including ships (provided it is the passive owner thereof)
– Act as a collective investment scheme, subject to MFSA licenses
– Be used for the purpose of securitisation transactions, borrow monies against the issue of bonds and do the relative ancillary acts.
– Other practical uses:
Hold terms deposit accounts, bonds, stocks, shares and similar financial instruments;
Jewellery, works of art, fines wines, physical gold and silver, etc.
V. Foundation vs Trust.
Foundation:
– A foundation is a body corporate with separate juridical personality.
– A foundation holds assets in its own legal name.
– A foundation is administered by an administrator/s, who has a quasi directorial and fiduciary role.
– The founder can keep control on the assets of a foundation, without effecting the legal status if the foundation.
Trust:
– A trust is a contractual agreement.
– A trust’s assets are held and owned legally by the trustee.
– A trust is administered by the trustee who is also the owner of the assets.
– For trusts, this is more difficult and sham trusts have been proven in law courts around the world.
VI. Setting up a foundation.
Step I: A detailed meeting held with client in which all the various angles of foundation law are explained, and all the wishes of the client are taken note of in order to draft the Deed of Foundation.
Step II: In conjunction with 1, request due diligence documentation on client.
Step III: Draft deed of Foundation and beneficiary statement, including also first letter of wishes.
Contents of the Deed of Foundation (minimum requirements):
Step IV: Obtain client approval, and upon such monies of initial endowment. For a private foundation, the minimum initial endowment size is of EUR 1,164.69.
Step V: Obtain Power of Attorney from Founder to sign on Deed.
Step VI: Appear in the presence of notary public in Malta an execute Deed.
Step VII: Deed registered, with other documents and form, with the Malta Business Registry.
Step VIII: Payment of registration fee upon incorporation.
Step IX: Provided with a registration number (PFLP) and Certificate of Incorporation.
VII. Consequences of incorporation:
VIII. Taxation aspects:
Foundation Treated as a Company for Income Tax:
Foundation Treated as a Trust for income Tax purposes:
IX. Final comment:
X. Maltese Segregated Cells of Foundations:
The Civil code has an innovative feature to allow Private Foundations to have Cells. In such cases it is a single legal entity, but which has separate compartments, referred to as cells, that essentially ring-fence the assets and liabilities of a cell from other cells within the Foundation. Each Cell has its own beneficiary or potential beneficiary, which may be completely unrelated to the beneficiaries of other cells within the structure.
This feature has been transposed into Maltese Foundations to create a unique wealth structuring opportunity for large High Net Worth Families whose foundation has multiple generations of beneficiaries, each with their own risk profile and investment outlook. It may be possible to establish multiple cells within their foundation, each catering to a particular beneficiary or group of beneficiaries. Whilst the segregated cell does not enjoy its own separate legal personality, it is designated its own distinct name and constitutes a distinct patrimony from all other assets and liabilities of the foundation. Hence the general assets of the foundation or other cells will not be available to settle any liabilities due by a specific cell. It is also possible in terms of the Civil Code for cells to be able to “migrate” from the component foundation, and become a foundation in its own right with separate juridical personality.
What Griffiths + Associates offers.
We will help to plan a tax efficient family office in Malta or to plan for your estate in order to consolidate investments into a structure that is suitable for the goals of the particular family.
Ready to assist you with:
– Establishing foundations & trusts;
– Acting as administrator;
– Protection & management of assets; and
– Private banking & brokerage accounts.
Also, our services do not stop at family office design & set-up. Our approach addresses both the family office as a business and the private client’s family wealth as an ongoing enterprise. In this regard, we also provide the following services:
– Business Advisory Services;
– Malta Funds Collective Investment Schemes;
– Company Formation Services Malta & Management;
– Assisting in buying a business in Malta;
– Malta Maritime & Aviation Services; and
– Financial & Accounting.
Get in touch with Griffiths + Associates Legal team today.