1. What are the key advantages of your jurisdiction in terms of privacy & asset protection for a Chinese HNWI or Family (etc.) looking to succeed their assets to the next generation?
At an international level, Malta provides a family-friendly environment for business governance and wealth management, complimented by a legal framework and professional infrastructure providing an opportunity for the family to work on an asset protection plan with their advisors in order to segregate assets and achieve maximum protection in a confidential environment. Malta is essentially a civil law jurisdiction and therefore has a strong tradition of foundations but it also offers a solid legal base where to setup a trust since 2004 when a specific law was enacted in order to allow for the setting up of domestic trusts.
The advantage of using Malta for an asset protection plan is the fact that it’s an EU jurisdiction and is part of the Eurozone. Apart from this it offers very flexible institutes such as the private foundation, the trust (including family trusts) and the limited liability company that enable the family to retain the required degree of confidentiality but at the same time operate in an onshore environment and continue investing in a safe European environment.
The Trusts and Trustees Act and Malta's law on foundations provide flexible tools for asset protection and the running of family businesses on an international scale. Furthermore, Malta's favourable tax environment includes the absence of withholding taxes on dividends, royalties and interests, as well as tax exemptions for dividend income and capital gains arising on the transfer of participating holdings. A similar exemption also applies to stamp duty otherwise applicable on the acquisition of shares in Maltese companies.
Malta has clearly established itself as an attractive platform for family-business governance and family-office management. Malta’s parliament will also be enacting a Family Business Act which will be the first of its kind in the world and aims to provide tools for the assistance of family businesses that have taken reasonable identifiable steps in the direction of proper governance and succession.
2. In terms of cost, how is the cost of a setting up a trust/foundation in your jurisdiction compare to other jurisdictions? If it’s more expensive, what is the additional value that a client receives for this?
Compared to other jurisdictions the cost of setting up an asset protection plan together with the setting up of the necessary structures is very competitive. When comparing Malta to the other popular trust jurisdictions like Jersey and Luxembourg, Malta is the winner in terms of contained costs and ease of doing business. Malta tends to be more cost effecitve than other jurisdictions in view of the fact that it has a large number of specialised and highly skilled people working in the financial services sector. Although standard of living is of a high level in Malta, salaries have been kept stable and therefore costs are maintained as well. Official registration costs for foundations with the authorities are also very reasonable and trusts do not have the requirement of registration and therefore there is no additional official cost.
3. What are some of the biggest issues & challenges you come across when planning for Chinese or Asian clients in general? What are the solutions that your jurisdiction provides for these issues?
Cultural misunderstandings arising from miscommunication are one of the biggest challenges faced when dealing with Asian clients, in particular Chinese. Although there are an increasing number of Chinese people highly proficient in English, it is still a challenge to possess a strong enough understanding of both Chinese and western culture to navigate delicate business negotiations. To overcome such problems, we have built an international team in place which can bridge Chinese and western cultural differences.
The importance of building strong relationships (Guanxi) in business is not a novel concept for western businesses. However, in China, guanxi plays a far more important role than it does in the West. While in the other parts of the world, you may be able to seal a deal just through formal business meetings, in China it is necessary to spend time getting to know your Chinese counterparts outside the boardroom during tea sessions and lunches or dinners.
As for both countries in general, China and Malta established diplomatic relations on 31st January 1972. Over the last 4 decades bilateral relations have covered a long distance and have become a model of how two countries of different sizes and social systems can develop friendship and cooperation together. Last year, the Government of Malta and the Government of China have signed a 5-year Medium-Term Cooperation Plan which will take the already well-established cooperation between the two countries to another level. The two sides discussed various topics including investment in aviation, improvement of double-taxation agreements, financial services and new financial instruments for Chinese funding of projects in Malta. Malta has over the past years operated and still continues to operate very successfully a number of immigration programmes in order to enable international businessman to take up residence or citizenship in Malta. This would be attractive for Asian clients and provides a solution required for ease of travelling. Obtaining residence or citizenship in Malta means that one would have access to the Schengen area without the requirement of applying each and every time for a travel visa.
4. What are some of the major features of the law that make the trust/foundation in your jurisdiction particularly attractive to investors?
Trusts are used for property ownership, securitisations and tax planning, amongst others. The instrument setting up the trust is drafted to cater for the specific needs of the investors and to ensure the utmost confidentiality for the investors. Malta provides for licensing of professional trustees, so investors can have the peace of mind that their assets are duly managed in the most professional manner. Moreover, the investor may appoint a person of his trust to act as a protector, with whom the trustee would need to consult and potentially attain the prior approval, before deciding on certain matters. Malta trusts offer an advantageous tax treatment. - where all the beneficiaries of the trust are not resident in Malta, and where all the income attributable to the trust does not arise in Malta, there are no tax implications which arise under Maltese law. Income attributable to a trust which is not distributed to the beneficiaries is taxed in the hands of the trustees at a rate of 35%.
Private foundations under Maltese law are vested with legal personality once registered. The investor would donate assets to the foundation, and administrators who manage the foundation. Malta provides for licensing of professional administrators, ensuring greater professionalism. A supervisory council may also be set to monitor the acts of the administrators. Foundations may be taxed under the same provisions as companies or trusts Should the foundation opt to be taxed as a trust, where all the beneficiaries of the foundation are not resident in Malta, and where all the income attributable to the trust does not arise in Malta, there are no tax implications which arise under Maltese law, provided that the administrators need to provide the Commissioner of Inland Revenue with a certificate that the beneficiaries benefiting from the foundation are all not resident in Malta.
5. Are there any recent developments in trust/foundation law in your jurisdiction that investors should be aware of?
The Maltese legislation on Trusts and Trustees has recently been amended, providing a more flexible product to the benefit of investors. The perpetuity period applicable to a trust, which was previously 100 years, has been extended to 125 years. Moreover, Maltese legislation now provides that the settlor may reserve powers to ‘appoint, add or remove trustees, protector or beneficiaries’ and powers to appoint any ‘investment adviser or investment manager’ without effecting the validity of the trust or delaying the taking effect of the trust. This may provide the investor with further peace of mind as it does allow him to appoint people in his trust to carry out roles within the trust.
A recent development was the introduction of a light touch regime for ‘family trusts’. In case where a trustee is set up as a company whose objects and activities are limited to acting as trustee in relation to a specific settlor or settlors and providing administrative services in respect of a specific family trust or trusts, and which does not otherwise hold itself out as trustee to the public, and which does not act habitually as a trustee, the trustee need not attain a license from the MFSA to act as such, but simply register as a family trustee with the MFSA. The MFSA has also published in April of this year the rules relating to the trustees of such family trusts. These PTC’s (Private Trust Companies) are required to register with the MFSA through a simpler process rather than a full authorisation process. An investor, therefore, who wishes to set up a trust but does not wish to appoint a professional trustee as the trustee of the trust, may opt to set up a company purposely to act as trustee for the specific family trust or trusts.
Contributed by: Chetcuti Cauchi Advocates