Malta trust taxation and U.S. reporting

Malta describes trust tax treatment and administrative obligations for a trust with at least one Malta-resident trustee. IRS forms apply separately to U.S. persons.

Scope of Malta's trust guidance

Malta's guidance applies to a trust that has at least one Malta-resident trustee within its stated scope. It sets out tax treatment and administrative obligations, including rules for distributions from trusts administered in or from Malta.^[2]

The guidance is issued for purposes of Article 96(2) of the Income Tax Act. It addresses trusts that meet the residency condition, including certain retirement schemes administered by licensed retirement scheme administrators.^[2]

Trust registration and returns

Trustees have a registration obligation under the Trusts (Income Tax) Regulations when a trust falls within the specified registration provisions. A trustee may also request tax registration for a trust outside those provisions, and that registration is treated as irrevocable until termination or until no trustee is Malta-resident.^[2]

A trust registered for income tax purposes has a return filing obligation.^[2]

A separate registration rule applies to certain resident trustees with authorization under the Trusts and Trustees Act, or an exemption from that authorization requirement, when they have made an election under Article 27D(1) of the Income Tax Act. Those trustees must register the trust to meet Regulation 5 requirements.^[2]

Income and distributions

A distribution to a beneficiary may constitute income taxable in Malta. When it does, the beneficiary is required to register for income tax and submit an annual return.^[2]

For a licensed, registered or authorized retirement fund or scheme, Malta's guidance generally characterizes the fund's income as trading income under Article 4(1)(a) of the Income Tax Act. The same characterization applies when the retirement fund or scheme is constituted as a trust.^[2]

Where income attributable to such a trust is trading income, the trustee cannot make the Article 27D(1) election.^[2]

For a covered retirement scheme, distributions of income to individual beneficiaries are characterized as pensions under Article 4(1)(d).^[2]

The beneficiary's return must include details of tax withheld at source by trustees. If a distribution is made without withholding under a double tax treaty, the return must include the treaty benefit claimed and evidence of the recipient's tax residence.^[2]

A tax residence certificate from the beneficiary's tax authority is one example of evidence of tax residence. If that certificate cannot be obtained, a beneficiary declaration to the trustee supported by relevant documents is accepted.^[2]

Malta-resident trustees have a duty to inform relevant beneficiaries when tax registration is required. A beneficiary may authorize the trustee in writing to register the beneficiary and complete required income tax returns on the beneficiary's behalf.^[2]

U.S. reporting for foreign trust connections

The IRS describes a U.S. person as including a citizen or resident of the United States. Information reporting can apply to U.S. persons who transfer property to, transact with, own, or receive distributions from a foreign trust.^[6]

The IRS says Form 3520 is generally required for specified connections, including creating or funding a foreign trust and receiving a distribution. Form 3520-A is the annual information return for a foreign trust with a U.S. owner under the grantor trust rules.^[6]

A U.S. owner must ensure the foreign trust files a complete and accurate Form 3520-A and provides required annual statements. If the trust does not file, the IRS describes a substitute filing attached to the owner's timely Form 3520, together with furnishing required statements.^[6]

The IRS also lists other possible reporting obligations, depending on the facts. These include Form 8938 for specified foreign financial assets and FinCEN Form 114 for a financial interest in, or signature authority over, a foreign financial account.^[6]

Questions and answers

When does Malta's trust tax guidance apply?

It applies to a trust within its stated scope that has at least one trustee resident in Malta.^[2]

Who registers a trust for Malta income tax purposes?

The guidance places registration obligations on trustees for trusts covered by the relevant regulations. Trustees may request registration for other trusts, with that registration treated as irrevocable under the stated conditions.^[2]

Does a Malta-registered trust file an income tax return?

Yes. The trustee of a trust registered for income tax purposes is required to submit a return under Malta's provisions.^[2]

When does a Malta beneficiary file an annual return?

A beneficiary whose distribution constitutes income taxable in Malta must register for income tax and submit an annual return.

Which U.S. form relates to transfers to or distributions from a foreign trust?

The IRS says Form 3520 is generally required for specified transactions, including creating or transferring property to a foreign trust and receiving distributions. The filing requirements depend on the reported transaction and applicable rules.^[6]

What U.S. form applies to a foreign trust with a U.S. owner?

The IRS identifies Form 3520-A as the annual information return for a foreign trust with a U.S. owner under the grantor trust rules. The U.S. owner has a role in ensuring a complete and timely return and required statements.^[6]

Related glossary terms

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.
U.S. owner of a foreign trust: A U.S. owner is a person treated as owning trust assets under the grantor trust rules. Ownership can apply to part of a trust.