DF Advocates Malta

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Incentives to Family Businesses in Malta

Family businesses play a major role in the Maltese business sector and are the backbone of our economy, accounting for about 80% of local jobs. Unfortunately, many family businesses do not succeed to transfer their family business beyond the second generation, mainly due lack of succession and financial planning. The new Family Business Act (the “Act”), enacted by means of Act XLVIII of 2016, offers various governance incentives and fiscal incentives specifically addressed to encourage the regulation and governance of family businesses, to encourage and assist family businesses to enhance their internal organisation, and to encourage and facilitate the transfer of the registered family business from owners who are family members to other members within the same family inter vivos (during one’s lifetime), ensuring a smoother transition.

Who qualifies as a “family business”?

This Act provides a definition of a “family business” in Article 3, and extends the definition to direct modes of ownership (listed companies, limited liability companies, registered partnerships, trusts and unregistered partnerships), and to indirect modes of ownership (holding companies, businesses held in a trust and private foundations). The legislator has also adopted a very wide definition of a “family member” to include the spouse, descendants of the owner and spouse, brothers and sisters and the descendants of the brothers and sisters. The transfer of the business to ascendants does not qualify for the benefits described below.

However, the business must meet certain requirements to qualify as a family business in terms of the Act. Firstly, no family member may own, hold, contribute or benefit from (as the case may be) more than 80% in the business. This essentially requires the presence of at least two family members. In addition, the shares of the owners must also allow for rights to dividends, voting rights, and rights to assets and profits upon winding up, thus ensuring that the management of the business is always in the hands of the family members. Also, the business must have been actively trading or in operation for an uninterrupted period of at least three consecutive calendar years and must undertake to trade and operate the family business for three uninterrupted years following the grant of benefits.

Nonetheless, the business shall still qualify as a “family business” if third parties own, hold, contribute or benefit from, in the aggregate up to 5% of the business, or if employees that have been in continuous full-time employment in the family business for over 3 years own, hold, contribute or benefit from in the aggregate up to 10% of the family business. Here, the Maltese legislator has provided another incentive which allows owners to transfer a small percentage of the business to an employee to persuade him to stay in the family business rather than pursuing (larger) opportunities elsewhere.

Governance Incentives

Loan guarantee of up to €500,000 for the purpose of acquiring the family business.

An enhanced micro investment tax credit capped at €50,000 over a 3-year period (rather than €30,000 in respect of non-family businesses).

  • €2,500 covering the costs of legal, notarial and accountancy advisory services over a 5-year period relating to the succession or transfer of the business.
  • Funds of €1,000 annually for the education and training of owners and employees.
  • Funding of up to five sittings up to a value of €2,500 in disputes relating to the establishment of the fair value of the family business.
  • Family businesses occupying government premises or land on lease or emphyteusis shall be given favourable consideration by Malta Enterprise and/or Malta Industrial Parks to renew the tenancy when transferring the business between family members.
  • With regard to the “Investment Aid 2014-2020” incentive by Malta Enterprise, the condition that the tax credit only applies to assets bought from unrelated third parties is waived for family businesses (provided that the investment remains in Malta for at least 3 years).

Fiscal Incentives

The duty on the transfer of immovable property used in the family business for at least 3 years preceding the transfer shall be chargeable on the first €500,000 of the value of the property transferred at the rate of 3.5% rather than at 5%.

  • As regards duty chargeable on the transfer to family members of shares or interests in a partnership, trust or foundation, the first €150,000 are exempt from duty.

Foreign family businesses that set up a branch or office in Malta may have that branch or office registered as a family business in Malta and also benefit from the above incentives. This makes Malta an attractive jurisdiction for foreign family businesses wishing to restructure or expand.