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:
- To encourage the regulation of family businesses and their governance;
- To assist in the transfer of family businesses from one generation to the next;
- To assist family businesses to operate their business in an efficient way and work towards a successful transfer of the business;
- 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 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:
- Understand the benefits which may be applicable to their Family Business
- Register the business as a Family Business in terms of the Act
- Advice and assistance to the family business in their ongoing compliance in terms of the Act
- 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
- Tax advice both in terms of planning and compliance