New proposed legislation on trusts received the backing of both sides of the House of Representatives when it started being debated yesterday.

Parliamentary Secretary Tony Abela explained that the Bill to amend the Trusts Act integrated the Recognition of Trusts Act into one law and modernised the whole regime in line with the Hague Convention on trusts.

The law, he said, had so far had not allowed Maltese residents to set up a trust under Maltese law. Nor could immovable property in Malta be included in a trust set up under Maltese law but trusts set up under foreign law were recognised here. All this would change.

The new legislation would also eliminate the risk of harmful tax practices and gradually eliminate nominee companies, as requested by international organisations such as the OECD and the Financial Action Task Force (FATF). It would thus instil greater transparency and regulation and make fiduciaries subject to money laundering laws.

This modern law would also help make Malta attractive for trust administration.

Dr Abela said the drawing up of this bill was the fruit of wide ranging consultations, spearheaded by the MFSA, and examination of foreign laws, but this was a Maltese law, drawn up specifically to tally with existing legislation.

Its enactment was a continuation of the process started in 1994 where the "offshore" laws were eliminated and Malta re-directed to the development of on onshore regime, as agreed with international institutions including the EU.

Dr Abela said the trust property would be separate and distinct from the personal property of the trustee and personal creditors of the trustee could have no recourse against the trust property.

In order to be named as a trustee, one needed to be a person or an entity of sound reputation.

Notary Abela discussed various aspects of the law. He said trusts could help to assure settlers that once they passed away, their estate would be properly administered by trustees to the benefit of the designated beneficiaries who could not administer such property themselves.

Care had been taken to ensure that the setting up of trusts would not be used as a means, by Maltese residents, to bypass the Civil Code on issues such as inheritance. The legitim would be fully protected and when a trust affected legitim, it would be subject to reduction.

However trusts for foreign domiciled persons would not be subject to the mandatory rules of the Civil Code.

He said the new law established which courts could hear cases involving trusts. All trustees would be regulated in one way or another and action could be taken more effectively against those who abused of their trust.

The bill included a new definition of 'charitable trust' and 'commercial transaction' to avoid abuse and ensure there were no anomalies with other laws.

This bill, he said, amended various other laws, including the Income Tax Act, where it was being ensured that trusts would be tax transparent.

Trusts would not need to be registered, but trustees would have to be authorised whenever the trusts handled immovable property or shares.

He said the Duty on Documents Act was being amended and duty on documents would not be due when there was no beneficial change in ownership, such as transfer between trustees. But duty would be payable when there was a change of beneficial ownership.

Other laws that are being amended in consequence of this bill are the Notarial Profession and Notarial Archives Act, the External Transactions Act, the Merchant Shipping Act, the Immovable Property (Acquisition by Non-Residents) Act, the Land Registration Act, the Malta Financial Services Authority Act, the Duty on Documents and Transfers Act, The Investment Services Act, The Banking Act, the Income Tax Management Act, the Financial Institutions Act, the Companies Act, the Arbitration Act, the Insurance Business Act, the Value Added Tax Act and the Legal Procedures (Ratification of Conventions) Act.

Dr Abela said the enactment of this law would open new revenue-generating opportunities for the Maltese financial sector, particularly in the area of trusts administration, benefiting professionals such as lawyers, notaries, and accountants, among others. Once this sector was well regulated, it would function in parallel with the other financial services laws in order to attract more foreign investment.

Opposition finance spokesman Charles Mangion said the opposition agreed with this bill in principle and he welcomed the way it was drafted. Indeed the opposition had backed all the recent financial services legislation, which had been preceded by consultation which also involved the opposition.

In the private sector certain situations that gave rise to arguments on administration of inheritance could be solved through a legal and protected structure. Such an institution could also provide protection against the squandering of family wealth by spendthrift heirs.

Dr Mangion observed that the current political spin was on consensus. The government was expecting consensus on almost everything. But consensus now on issues that the opposition had long been warning about would only make the opposition partly responsible for the outcome. Such issues included waste management, the Mater Dei Hospital, and the economy. The opposition would continue to give sound reasons for its disagreement on various issues, but never renounce its responsibilities.

However, with its agreement on this bill the opposition was again proving that it would not fail to support any initiative in the country's best interests.

Turning back to the bill, Dr Mangion said the Maltese courts had handed down various judgments that reflected recognition of de facto trusts that had been set up.

Probably the first time the concept of a trust had been recognised at law in Malta was in 1988, when the Malta offshore financial centre was set up. The opposition's disagreement at the time was based on the possibilities of abuse and the probability that Malta would soon have to be turned around into an onshore financial centre, as had actually happened.

The concept of a protective trust came along in 1994. This had brought about a certain level of uniformity between Maltese and international legal parameters, which in turn enhanced development prospects.

Passage of the present bill would remove any lingering doubts that Maltese citizens could make use of the provisions of The Hague Convention on trusts.

A very important element in the bill was the heavy onus of responsibility on the trustee. It was important to distinguish between property being managed by a trustee and his own personal property, so much so that the trustee's personal creditors could never turn on the property in his trust.

Dr Mangion said a current problem was the lack of information on whether individual powers of attorney would have been repealed.

Similarly, he felt that any kind of trust should have to be notified to the Public Registry, and ways should be found of achieving this without creating too much bureaucracy.

Trusts could be important tools not only in individual private affairs but also in commercial matters.