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Stamp duty reductions and fiscal incentives for family businesses

03.05.2017

Legal Notice 131 of 2017 entitled ‘Duty on Donations of Marketable Securities and Immovable Property Used for Business (Exemption) Order, 2017, provides for stamp duty reductions upon the transfer of shares in family businesses and the transfers of commercial property that has been used in a family business. This further complements the Family Business Act which was introduced in 2016 and which provides for the recognition and registration of family businesses in order to benefit from other fiscal incentives.

The below is an overview of the requirements for the registration of family businesses and the benefits thereof.

 

Is my business eligible to acquire the status of a Family Business?

In order for a business to constitute a family business it must be one that is established in Malta and must include a minimum of 2 family members. Furthermore, it is important that no one family member holds more than 80% of the shares, capital contribution or interest.

As to the type of shares held by the family members, the shares must be issued and allow for dividends, voting rights, rights to assets and profits.

Another essential characteristic to be met is that at least one of the family members must be involved in the general governance or decision making rights.

Who is considered as a qualifying family member under the Family Business Act?

Under the Family Business Act, the family business owner’s spouse; ascendants in the direct line and their relative spouses; as well as brothers or sisters and their descendants qualify as eligible family members.

For how long must the business have been established?

To be able to obtain the family business status, the business must have been established for a minimum of 3 years. It is also important that there is the intention to retain the status of a family business for at least another 3 years.

What are the benefits of acquiring the status of a family business?

By acquiring the status of a family business, which is done by means of a registration procedure, a number of governance and fiscal incentives may be applied for.   

In addition to the governance incentives given to family businesses by the Malta Enterprise, and fiscal incentives in the form of a reduction in stamp duty on transfers of family businesses, Legal Notice 131 of 2017 issued on the 2 May 2017 has provided further reductions in stamp duty upon the transfer of family businesses. Further details are explained below.

 

What are the incentives that are available until the 31 May 2018?

On 2 May 2017 two new fiscal incentives relating to donations of shares and immovable property transferred between family members were introduced. These include:

  • A reduced rate of stamp duty of €1.50 on every one hundred Euro or part thereof of the real value of the shares transferred by gratuitous title to eligible family members.

 

In the absence of such incentive, the first €150,000 of the real value of the shares would be exempt from stamp duty with the remaining being taxed at the applicable rate of €2 or €5 per €100 or part thereof, regardless whether such transfer is gratuitous or for a consideration.

 

  • A reduced rate of stamp duty of €1.50 on every one hundred Euro or part thereof shall be chargeable on the gratuitous transfer of commercial immovable property to eligible family members where such property had been used in the family business for at least three years.

 

In the absence of such incentive the first €500,000 of the value of the property would be subject to stamp duty at €3.50 on every one hundred Euro or part thereof and the remaining amount taxed at €5 per €100 or part thereof, regardless whether such transfer is gratuitous or for a consideration.

These two incentives have no maximum capping and apply to transfers by gratuitous title made on or after the 1st of April 2017, but prior to 1st of April 2018.  Documentation in relation to such transfers must be submitted not later than the 31st May 2018.

What are the other governance incentives available?

In order to assist in the management and governance of family businesses, the following incentives have been made available through Malta Enterprise:

  1. A loan guarantee up to €500,000 per business for the purpose of acquiring the business;
  2. Micro Invest tax credit of a maximum tax credit of €50,000 over a three-year period, instead of the €30,000 available for regular businesses;
  3. A refund system on the costs of legal, notarial and accountancy advisory services up to €2,500 over a 5 year period to assist in succession and business transfer;
  4. Education and training for owners and their employees up to €1,000 annually per family business;
  5. Mediation through arbitration consisting of up to 5 sittings with a value of €2,500 and with the objective to establish the fair value of the business;
  6. Positive consideration of lease renewal of Industrial government leased premises; and
  7. Investment Aid 2014-2020 – A waiver of the condition that assets are to be bought from unrelated third parties is now applicable to family businesses, thus allowing greater access to investment aid.

 

Does the involvement of third parties prevent a business from acquiring the status of a family business?

Although third parties, or individuals that do not fall within the definition of “family member”, may be involved in a family business there are limitations in place. Only a maximum of 5% shares may be released to third parties.

Nonetheless, a further 10% of the family business’ shares may be released to full time employees of the business.

Therefore, taking into consideration the maximum percentage of shares that may be released to third parties, or employees, a minimum of 85% of the shares must be held by the family members in order to acquire or retain a family business status.

 

Can a foreign business acquire the status of a Family Business?

Although a family business must be established in Malta, this does not exclude a business activity whereby the head office, agency, branch, part of a business, or any permanent presence of that is carried out in Malta.  

How can we assist?

Nexia BT’s dedicated team of specialists may assist you in every step throughout the process by:

  • Establishing your business’ eligibility to register as a family business;
  • Handle the application process to register your business as a family business and acquire the respective Family Business Certificate;
  • Advise and assist with your business’ current and long-term tax and succession planning; and
  • Assist with the mediation and creation of a family business constitution.

Any family business related advisory services offered by Nexia BT may be claimed for a refund under the €2,500 advisory services benefit as mentioned above.   

 

For further information please contact:

Karl Cini | Partner

Antoinette Scerri | Senior Manager