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Family Business Act

Dated: [bxcode.pagedata.date]

’You don’t own it. You’re just watching it, guarding it, nurturing it, to hand it over to the next generation in as good a condition as possible’’

Patek Philippe

Family businesses are an indispensible asset for Malta's economy, generating economic growth and employment. However, the succession of family businesses may become a bone of contention. Statistics show that 80% to 90% of the family businesses in Malta retain family ownership, however the majority of which fail to transition successfully.

The Family Business Act, Chapter 565 of the Laws of Malta, has been introduced to encourage the regulation of family businesses, their governance and the  transfer  of  the  family  business  from  one  generation  to  the  next;  to encourage   and   assist   family   businesses   to   enhance   their   internal organisation  and  structure  with  the  aim  of  effectively  operating  the business  and  working  towards  a  successful  succession  of  the  family business; and for other matters consequential or ancillary thereto.

The Family Business Act clearly defines a ‘family business’ that may be registered in accordance with this Act to be those: -

Businesses which have direct ownership or involvement by family member/s  in:

  1. Listed companies;
  2. Public limited liability companies;
  • Limited liability companies;
  1. Registered partnerships - en nom collectif and those en commandite;
  2. Trusts whereby the family business is held by a trustee;
  3. Other unregistered forms of a family business.

Indirect ownerships such as holding companies, trustees of a trust which are set up for the benefit of family members and private foundations also qualify.

The legislation also lists those members of the family who are eligible under this legislation. To this effect the Act provides that family business owners include:

  1. The spouse
  2. Ascendants, descendants in the direct line and their relative spouses
  • Brothers or sisters and their descendants and
  1. The ultimate beneficiary natural person who directly or indirectly has a shareholding or other interest in a family business

The rule of thumb is that the business must be one which is established in Malta. Such business also include any foreign businesses that have a head office, an agency, branch or part of their business carried out in Malta. The inclusion of foreign business was included since Malta has become an international finance centre.

The Act proceeds to establish the qualifying criteria to possess ownership of a family business. This would include that the business must have at least 2 family members. No one of the family members can hold more than 80% of shares, capital contribution or interest. The shares must be issued shares which allow for dividends, voting rights as well as a right of the assets and profits. The business would still be considered a family business if up to 5% of the shares are handed over to 3rd parties as well as if 10% of the shares are transferred to full time employees. For the company to be eligible to be registered in accordance with the Act it would need to have been set up for at least 3 years prior to actually benefiting from the provisions found in the same legislation. Moreover it is also necessary that one of the family members must be involved in the general governance and in the decision making of the company.

The legislation proposes a set of government and financial incentives to assist the family throughout the transition process.

Government incentives

  • Those acquiring the business may take a loan of up to €500, 000 per business for the purpose of acquiring such business.
  • They are allowed micro investment with a maximum tax credit of €50,000over a 3 year period.
  • They are also given €2,500 over a 5 year period for any advisory, legal, notarial and accountancy services to assist them in the succession or business transfer.
  • Furthermore €1000 is payable annually per family business for any educational and training incentives.
  • Mediation through arbitration- financing of up to 5 arbitration sittings with a total  value of  €2,500 which have as an objective of establishing the fair value of the business
  • Positive consideration in so far as the renewal of leases of industrial government owned premises.

Fiscal incentives

The Act also provides for a number of fiscal incentives aimed at alleviating the burdens that are associated with the transfer of ownership. These include:

  • A reduction in the stamp duty rate on the value of the immovable property -the first €500,000 shall be charged at the reduced rate of 6%.
  • Exemptions of stamp duty on a capped value of shares- the first €150,000 shall not be taken into account
  • Parents transferring their family business to their children will benefit from a reduced stamp duty rate - 5% to 1.5% with no capping on the value to be transferred.

For more information contact us on +356 21221130 and +356 21221030

Contact Details

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Office: +356 2122 1030 | +356 2122 1130
Fax: +356 2122 1002

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