The Family Business Act

Family Business Act Introduction

By means of ACT No. XLVIII of 2016, the Parliament of Malta has enacted the Family Business Act with the following aims in mind:

  1. To encourage the regulation of family businesses and their governance;

  2. To assist in the transfer of family businesses from one generation to the next;

  3. To assist family businesses to operate their business in an efficient way and work towards a successful transfer of the business;

  4. To grant various incentives to family businesses to successfully transfer their business from one generation to the next.

Registration of a Family Business under the Act

A family business, whether set up in the form of a public limited liability company, a private limited liability company, a registered partnership, a trust or other registered forms of a family business can qualify for registration as a Family Business under the Act.

In the case of a public limited liability company, the majority of the shares have to be owned by at least two owners who are family members within the same family for the company to be registered as a Family Business.

In the case of a private limited liability company, for it to be registered as a Family Business, all the shares of the company must also be held by at least two owners who are family members within the same family and at least one family member is formally involved in the general governance, its proper administration and management of the company.

Shares which are held by non-family members including employees who have been in continuous full time employment with the family business for over 3 years shall be disregarded if the aggregate value of the shares does not exceed 10% of the issued share capital of the company in the case of employees and 5% in the case of other non-family members.  Similar conditions apply where the family business is set up in the form of a registered partnership, a trust or other forms.

An owner who is also a family member cannot own more than 80% of the issued share capital of the company for such a company to be registered as Family Business.  The same applies whether the business is being run by a partnership, trust or other forms of a family business.  The percentage of 80% shall be calculated after deducting the 5% and 10% owned by non-family members as referred to above.

For the proposes of the Act, a family member means the family business owner’s spouse, ascendants, descendants in the direct line and their relative spouses, brothers or sisters and their descendants. The owner is meant to be an individual who is the ultimate beneficiary who has a shareholding or other interest in a family business.

For a business to be registered as a Family Business in terms of the Act, it must be established in Malta, which means that the head office, agency or branch is situated in Malta or part of a business is carried out in Malta.

The benefits

The intended objective of the benefits which are provided under the Act is the facilitation of the transfer of the registered family business from the owners who are family members to other family members within the same family.  Transfers made to ascendants do not qualify for any benefits.

The Act contemplates a reduction in the stamp duty payable on the transfer of a family business, as a consequence of which a new Article 41C was introduced in the Duty on Documents and Transfers Act.

Where a family business is transferred as a going concern by an individual to family members, which includes the transfer of a commercial tenement that has been used in the business for a period of at least 3 years preceding the transfer, the rate of stamp duty on the first Eur500,000 will be of 3.5% instead of 5%. 

The said property would have to be used by the family members or by the family business for at least three years starting from the date of transfer on which the reduced rate of stamp duty applies.  If the property is transferred by family members or by the family business or ceases to be used by the business, then the stamp duty relieved would have to be paid.

Should the property be transferred and is replaced within one year by another property which is used for a similar purpose, the duty chargeable on the replacement will be reduced by the stamp duty payable on the transfer of the property.

On the other hand, if the individual transfers shares in a company, interest in a partnership, trust or foundation, no stamp duty will be payable on the first Eur150,000.  This will only apply if the said family business does not own directly or indirectly any immovable property other than property which has been used in the family business for at least 3 years preceding the transfer and the said family business is controlled and beneficially owned, directly or indirectly, to the extent of more than 85% by the said individuals or family members.

How can we help?

ACT is in a position to advise and assist family businesses in the following:

  1. Understand the benefits which may be applicable to their Family Business

  2. Register the business as a Family Business in terms of the Act

  3. Advice and assistance to the family business in their ongoing compliance in terms of the Act

  4. Advice and assistance to the family business to plan the transfer of their business in advance and understand the legal and tax implications of doing so

  5. Tax advice both in terms of planning and compliance

For further information, please contact either Stephen Balzan on sbalzan@act.com.mt or Elaine Camilleri on ecamilleri@act.com.mt.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on info@act.com.mt.

Disclaimer  

This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.  

16th January 2017

Corporate Taxation
in Malta

Maltese companies are subject to tax at the rate of 35% on their world wide income and capital gains.   Malta grants various fiscal incentives to both companies and their shareholders upon distribution of a dividend.  Malta is a membe...

Learn More

Setting up a Company
in Malta

Setting up a company in Malta is a relatively straight forward procedure and can be set up within 2 working days, provided we are in receipt of all the information, funds and due diligence documentation we need. The Act that regulates Malte...

Learn More

Taking up Residence
in Malta

Warm climate, friendly people, excellent communication infrastructures, low criminality and many other features of the Maltese islands have made Malta an excellent destination for people to take up residence in. Moreover low rates of taxati...

Learn More

Remote Gaming
in Malta

In the last few years, a large number of remote gaming operators have established themselves in Malta and the Malta Gaming Authority has to date issued over 400 licenses. The Gaming Licenses  There are four (4) different gaming licenses that a prospective applicant may apply for, being:&nb...

Learn More

Payment Institutions
in Malta

Malta has become a destination of choice for the setting up of Payment Institutions (also referred to as Payment Services Providers or PSPs).  A number of advantages has contributed to this success, mainly but not limited to the fiscal incentives granted not only to the payment institutions ...

Learn More

Electronic Money Institutions
in Malta

Malta has recently seen an increase in the number of Electronic Money Institutions (EMIs) looking to set up their operations in Malta.  This has been largely due to the growth in the e-commerce and the i-gaming industries.  Such EMIs are regulated by the Financial Institutions Act and t...

Learn More

Initial Coin Offering (ICO) Services
in Malta

Malta has always been on the forefront of technology and innovation.  In the past months, a number of initiatives have been launched, aimed at establishing an innovative and attractive regulatory framework for entities operating in blockchain (and distributed ledger technologies), virtual cu...

Learn More

Prospects Services of a Corporate Advisor
in Malta

‘Prospects’ is a new platform set up by the Malta Stock Exchange in line with its commitment to open up new capital market opportunities, create economies of scale and to afford businesses more competitiveness and sustainability.  Through ‘Prospects’, SME’s wil...

Learn More

Assistance to Family Businesses
in Malta

Malta has recently introduced legislation to encourage good governance in the management of family businesses, to assist family businesses to operate their business in an efficient way and to assist such family businesses to transfer their business from one generation to the other.  Malta is...

Learn More

Members of