Malta trusts and U.S. reporting requirements

Trust legislation

The Trusts and Trustees Act is the legislation under which the Malta Financial Services Authority regulates professional trustees and other fiduciary service providers. The MFSA describes this group as including people acting as mandataries and administrators of private interest foundations.^[2]

The Act also provides the regulatory basis for family trustees and the appointment of qualified persons. The MFSA identifies a separate legal notice, SL 331.05, concerning registration of notaries who act as qualified persons.^[2]

Trust arrangements and participant roles

Malta distinguishes family trustees, professional trustee services and retirement arrangements constituted as trusts. Family trustees follow a specific MFSA registration process, and Malta tax rules also cover retirement funds or schemes that use a trust structure.^[2][5]

A trustee's tax administration responsibilities can include registration of the trust and submission of its return. Where beneficiaries have a tax registration obligation, Malta resident trustees are required to inform them of that obligation.^[5]

Beneficiaries may give a trustee written authority to handle their registration and required income tax returns.

Regulation and the public register

The Malta Financial Services Authority authorises financial services activities and regulates professional trustees and other fiduciary providers. Its authorisation assessment addresses whether the criteria in the applicable financial services legislation are satisfied when authorisation is granted and remain satisfied during the business's operation.^[2]

Professional trustees and the other fiduciary providers described by the MFSA require licensing under the Trusts and Trustees Act.

Notaries may register as qualified persons for trustees who lack MFSA authorisation in specified circumstances. Those circumstances concern holdings of securities or interests connected with a commercial partnership registered in Malta, or immovable property in Malta.^[2]

The MFSA Financial Services Register provides public information about firms that the Authority licenses and regulates.

Malta tax treatment and administration

The Malta Tax and Customs Administration's trust guidance addresses tax administration and distributions from trusts administered in or from Malta. Its scope covers trusts with at least one trustee resident in Malta, subject to a specified temporal scope.^[5]

Trust registration obligations arise under Regulation 2(1) of the Trusts (Income Tax) Regulations. The guidance also permits trustees to request tax registration for trusts outside that provision, with the registration remaining irrevocable until termination or until the trust has no Malta resident trustees.^[5]

For a trust registered for income tax, the trustee has a return obligation under Article 24A of the Income Tax Management Act and Regulation 6 of the trust tax regulations. Beneficiaries receiving distributions taxable in Malta have their own registration and annual return obligations.^[5]

Income of a retirement fund or scheme authorised under the Special Funds (Regulation) Act is typically classified as trading income, including where the arrangement is a trust. Where that authorised trust arrangement has trading income, its trustee cannot make the Article 27D(1) election.^[5]

Beneficiaries whose distributions are classified as pensions arising in Malta are required to register and submit annual income tax returns. Those returns include details of tax withheld by trustees or, where a treaty removes withholding, the treaty treatment claimed and evidence of the recipient's tax residence.^[5]

CRS and FATCA information exchange

Malta's revenue authority describes automatic financial account information exchange through CRS and FATCA. DAC 2 is linked with the OECD Common Reporting Standard, and Malta exchanges CRS information with jurisdictions for which it has activated exchange relationships.^[6]

Treasury lists Malta's FATCA agreement as Model 1 and in force. The Malta revenue authority describes the agreement more specifically as a Model 1A intergovernmental agreement given legal effect in Malta through the Exchange of Information (United States of America) (FATCA) Order.^[6][8]

Entity classification determines a financial institution's CRS and FATCA reporting obligations. Financial institutions can fall into custodial, depository, investment entity or specified insurance company categories, and the information reported depends on the financial account maintained.^[6]

A financial institution that classifies itself within CRS and FATCA scope is required to proceed with registration. The revenue authority then supplies access details for submissions, and registered institutions submit reports through the AEOI Reporting Portal using the specified XML or Excel formats.^[6]

Financial institutions in Malta within FATCA and CRS scope also complete an annual self-compliance questionnaire. Treasury explains that FATCA reporting covers accounts held by U.S. taxpayers and accounts of foreign entities in which U.S. taxpayers have a substantial ownership interest.^[6][8]

U.S. foreign trust tax and reporting

A U.S. citizen falls within the IRS definition of a U.S. person for foreign trust reporting. The IRS identifies potential income tax consequences and information returns for people creating a foreign trust, transacting with one, owning it under grantor trust rules or receiving distributions.^[10]

Under the general grantor trust rule described by the IRS, a U.S. owner is taxed on the trust's income. A U.S. beneficiary receiving a distribution from a foreign nongrantor trust generally reports the beneficiary's share of distributable net income, with beneficiary statements supplying information about distribution taxability.^[10]

Form 3520 generally reports trust creation, transfers, loans, distributions and ownership under grantor trust rules. The instructions require Part II from a U.S. owner even when the trust has had no transactions during the tax period.^[10][11]

Distribution reporting can apply even where the amount received is not taxable. The Form 3520 instructions address actual and constructive receipts, direct and indirect distributions, loans and uncompensated use of trust property, with separate reporting treatment for the categories specified in those instructions.^[11]

A U.S. owner has responsibility for ensuring that the foreign trust files a complete, accurate Form 3520-A and supplies the required annual statements. If the trust does not file, the IRS requires a substitute Form 3520-A attached to the owner's timely Form 3520.^[10]

Form 8938 can apply where the aggregate value of specified foreign financial assets exceeds the applicable reporting thresholds. FBAR can apply to a financial interest in, or signature authority over, a foreign financial account.^[10][11]

Certain eligible individuals and qualifying foreign retirement or other savings trusts fall within specified exceptions to Forms 3520 and 3520-A reporting. The IRS states that those exceptions leave other reporting obligations intact, including any applicable Form 8938 and FBAR requirements.^[10][11]

Judicial structure

Malta's judicial system comprises several courts and tribunals.^[4]

More on Malta

Questions and answers

Related resources

Related glossary terms

• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. It treats some property transfers as ownership when the trust has a U.S. beneficiary.
• Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.

Related articles and guides

• BVI trust tax rules and U.S. reporting: The British Virgin Islands Trustee Act describes income tax treatment for trusts and beneficiaries. IRS rules address U.S. person reporting for foreign trusts.
• Switzerland reporting and foreign trust rules: Switzerland exchanges account information under AEOI and FATCA arrangements, with Swiss trustee rules and IRS reporting for foreign trusts set out alongside.
• Mauritius Trust Tax and Reporting Rules: Mauritius legislation on trusts and trustee residence, with the IRS guidance on foreign trust reporting by U.S. persons who own or benefit from such trusts.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.