Estate Planning

U.S. tax deferral savings plan in Malta

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By James Barber-Lomax and Prof. Robert Anthony, Anthony & Cie

For U.S. resident and non-resident taxpayers there has traditionally been limited means by which to save on a tax-efficient basis. Individuals can contribute to various types of insurance contracts and other recognised pension vehicles, with some offering tax relief on funding. However, there are a number of restrictions which can make these plans highly unattractive. These are noted below:

 Insurance based policies (such as deferred variable annuities):

  • Investment choices are severely limited due to diversification rules.
  • Policies are often expensive due to the life insurance component which also makes placing high value policies (USD 5 million /USD 10 million+) for older individuals difficult

Traditional pension vehicles (such as a 401(k) & IRAs)

  • For the under 50s, the maximum levels of member contributions to these plans are USD 17,500 to a 401(k) and USD 5,500 to an IRA (depending on earnings limitations)
  • Distributions from a 401(k) or traditional IRAs from age 59.5 are treated as income for U.S. tax purposes irrespective of where the member is resident.

Alternative savings strategy

An alternative savings strategy could be to utilise a pension plan domiciled in a jurisdiction which holds an appropriate tax treaty with the U.S., allowing for treaty claims to be made in order to obtain tax relief on generated income and gains within the plan, and separately on later distributions.

The advantages of such a pension arrangement (based in Malta) compared with insurance-based contracts and resident pension plans are:

  • Limitless funding of the plan from post-tax income
  • Ability to claim full U.S. federal tax relief on income and gains generated in the plan
  • Opportunity to invest, with no diversification rules on individual members, into PFICs – with full tax relief offered under the treaty
  • Individuals holding personal investment portfolios with unrealised capital gains can transfer these holdings to the plan, in-specie, which is not considered as a deemed disposal and therefore does not trigger a capital gains tax charge
  • Members can commence to take benefits from the age of 50
  • Distributions taken as lump sums, as permitted under Maltese domestic pension legislation, are not subject to Maltese or U.S. federal taxes.
  • Lower cost, more flexible, alternative to insurance-based contracts as there is no insurance element
  • Can be funded with single or regular contributions

Members can be secure in the knowledge that the trustee will continue to file the trust on an annual basis to ensure total transparency with the IRS.


James Barber-Lomax
Anthony & Cie, Valbonne, Sophia Antipolis, France
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: http://www.antco.com

Prof. Robert Anthony
Anthony & Cie, Valbonne, Sophia Antipolis, France
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: http://www.antco.com


published: September 2013

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