Malta: New Incentives For Family Businesses

Last Updated: 10 October 2017
Article by Yasmine Aquilina

The Family Business Act (the "Act"), which came into effect on the 1st of January 2017, aims to regulate family businesses and the manner in which they are managed and operated. It also endeavours to ease the process of succession and transfer of the family business.  Through the Act, businesses can structure and register themselves as "family businesses". Once registered, family businesses will be eligible for benefits available under the Act, including assistance or relief given in terms of the Duty and Documents Transfers Act ("DDTA"), Malta Enterprise Act, Business Promotion Act and in terms of any other law as may be prescribed. The legislation includes an initial set of incentives which are immediately available to registered family businesses to assist them throughout their transition process.

The main provisions

The Act establishes a legal form for a family business. The term family business is defined and identifies the business models by which family businesses trade and operate.  The Act also enables foreign family businesses to benefit from this system if a part or all of the business is established in Malta.

The following entities may register as a family business:

These entities may only be registered as family businesses if they are owned by a minimum of 2 persons who are family members within the same family.

Registered Family Business

A business is registered as a family business once it has been accepted for registration by the Regulator. The Register of Family Business is maintained by the Regulator and contains information and data relevant to the registration process. The application to register as a family business must include information relating to the family business, such as contact details, the names of the shareholders, names of family members involved and the written consent of the relevant family members to hold office after registration.

Objective of Benefits & Conditions

The main goal of this Act is that of enabling the transfer of registered family businesses from owners who are family members to other family members within the same family. Transfers made by family members to family members who are ascendants are not eligible for any of the benefits. It is important to note that benefits received under this Act by a registered family business cannot be transferred or assigned to any other person or business.

The benefits

The initial governance and fiscal benefits are supported through Malta Enterprise. Programs include the Family Business Transfer of Ownership and the Family Business Support Service, amongst other forms of support mentioned below. These forms of support will range as follows subject to Malta Enterprise's terms and conditions:

  1. Micro Investment of a maximum tax credit of €50,000 over a three-year period. In order to qualify for this tax credit, the undertaking must have less than thirty full-time employees and a turnover or annual balance sheet of less than €10,000,000.
  2. Legal, notarial, or accountancy advisory services for assistance in the succession or business transfer of a family business. It is pertinent to note that the first €500 shall be fully covered by Malta Enterprise Corporation.
  3. Arbitration of up to five sittings with a value of €2,500.
  4. Education and training for owners and their employees of up to €1,000 annually per family business
  5. Loan guarantees of up to €500,000 per business for the purpose of acquiring the business or parts thereof.
  6. The Incentive Guidelines for Investment Aid 2014-2020 launched in 2014 specify that in the case of acquisition of the assets of an establishment only the cost of buying the assets from third parties unrelated to the buyer shall be taken into consideration. The Incentive guidelines shall allow that where a member of the family of the original owner, or an employee, takes over an enterprise, the condition that the assets be bought from third parties unrelated to the buyer shall be waived.
  7. If a registered family business is occupying industrial government premises or land on lease or emphyteusis as prescribed under the Business Promotion Act, the Regulator shall submit a recommendation for the renewal of the tenancy to the Malta Enterprise Corporation and/or the Malta Industrial Parks and such renewal shall not be unreasonably withheld if the objectives of the renewal are for the continuance of the family business.

The fiscal incentives will afford varying fiscal rates in cases where family businesses transfer shares or immovable property to other family members.  The fiscal incentives are the following:

  • With respect to duty on the transfer of shares, interests in a partnership, trust or foundation, no account shall be taken of the first €150,000 in assessing the duty chargeable; and
  • For the transfer of immoveable property which is a commercial tenement, only €3.50 duty is to be paid per €100 on the first €500,000 of the value of the property transferred.

For the year of 2017 there is a 12-month concession for family businesses. Those family businesses who transfer their business to their children will benefit from a reduction of tax from 5% reduced to 1.5%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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