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Family Business Act- How can this help your family business?

1. Introduction


Effective date

1st January 2017


Scope

To promote the smooth transition and change of ownership in Maltese Family Businesses by creating tax and monitoring incentives to encourage growth, more professional setup and continuation of such businesses.


Important Definitions

‘FAMILY BUSINESS’

Should have been actively trading and or in operation for a continuous minimum period of 3 consecutive years.
The legal form shall be public limited company (Plc) or private limited company (Ltd) or partnership en nom collectif or partnership en commandite or trust.
The Family Business shall consist of at least 2 owners who are family members within the same family:

Plc-

1. Majority of shares including rights are held by at least directly or indirectly by two owners who are family members within the same family.

2. Not more than 80% of the issued share capital is directly or indirectly owned by same family member.

Ltd-

1.All shares should be held directly or indirectly by at least two owners who are family members within the same family. Shares held directly or indirectly by non-family members not exceeding the 5% of the total issued share capital should be disregarded for the purpose of this requirement. Shares not exceeding 10% of issued share capital held directly or indirectly by company employees that held continuous full time employment within the company for over 3 years are also disregarded.

2.At least one family member should be formally involved in the general governance, administration and management of the company (e.g. Company Director)

3.Where any business assets are held on lease, the family members should be the majority of the lessees in the lease agreement.

4.Not more than 80% of the issued share capital is directly or indirectly owned by same family member.

Partnerships-

1.Full capital contribution to the partnership should have been made at least two family members within the same family, directly or indirectly having the right to receive the majority of distributable profits. Any capital contributions not exceeding 5% of total contributions made directly or indirectly by non-family persons shall be disregarded. Capital contributions not exceeding 10% of the total contributions made directly or indirectly by employees that held continuous full time employment within the family business for over 3 years should be disregarded for the purpose of this requirement.

2.At least one of the family members holds the majority of decision making rights.

3.Family Business carried in forms of partnerships which are not en nom collectif or en commandite, the net assets of such business should be controlled directly or indirectly at least by two family members. Net assets not exceeding 5% held by non-family members should be disregarded. Similarly net assets not exceeding 10% and held by employees working with the family business more than 3 years should also be disregarded.

4.Where any business assets are held on lease, the family members should be the majority of the lessees in the lease agreement.

5.Not more than 80% of the partnership assets is directly or indirectly owned by same family member.

Trust-

1.A written instrument establishes that all the shares or interest are being held by a trustee under trust for the benefit of family members as beneficiaries. Trust beneficiaries other than family members holding benefit not more than 5% or if they are only residual beneficiaries (benefiting only upon termination of trust due to no existing family members are capable of benefiting) should be disregarded. Any beneficiaries holding not more than 10% benefit of the trust or if being only residual beneficiaries and who has been in employment for more than 3 years within the family business should also be disregarded.

2.Where any business assets are held on lease by the trustee, the trustee should be the majority of the lessees in the lease agreement.

3.Not more than 80% of the trust property is directly or indirectly owned by same family member.

For all the business legal forms above, indirect holding (shares, interest, assets, and contributions) should mean:

  • Interest held by Holding companies which are at least 85% beneficially owned by family members.
  • Interest held by trustee of a trust for the benefit of same family members (benefit not exceeding 5% held by non-family persons and benefit not exceeding 10% held by employees for more than 3 continuous years are disregarded)
  • Interest held by private foundations for the benefit of same family members (benefit not exceeding 5% held by non-family persons and benefit not exceeding 10% held by employees for more than three continuous years are disregarded).


‘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.

 

2.Benefits of Family Business status


Transfer of Family Business where there is immovable property

  • Transfer of immovable property part of a going concern, transferred from one family member to the family members (except to ascendants
  • Immovable property used in business at least 3 years before transfer.
  • For the first €500,000 property value, stamp duty of 3.5%.
  • Property value exceeding €500,000, stamp duty of 5%
  • Notary shall record in the deed that the property are transferred benefitting from the Family Business Act provisions. The Family Business should have all the fiscal returns and contributions submitted and paid up to the date of transfer. If transferred property is subsequently transferred inter vivos within 3 years by family members or family business or if the property ceases to be used in the business within 3 years, then the stamp duty relief benefited shall be remitted to the Commissioner of Revenue within 15 working days from the inter vivos transfer or when the property ceases to be used for business.

E.g. in 2016 property of €500,000 transferred and benefitting from reduced stamp duty rate of 3.5% under the Business Family Act. €7,500 stamp duty is saved. If in 2018 the property is sold, then saved stamp duty of €7,500 should be paid.

  • If a property was transferred inter vivos by the family member or Family Business, is replaced within 1 year by another immovable property used solely for Family Business purposes, in assessing the duty chargeable, any duty paid on the inter vivos transfer shall be allowed as a deduction. 
  • Transfer of immovable property between family members (including to ascendants) as defined in the Family Business Act is exempt from capital gains tax. Exemption upon transfer to brother or sister or their descendent is only permitted when the transferor has no descendants. 
  • On the non-immovable property value on transfer of Family Business, no stamp duty is charged. 
  • Transfer between family members (including to ascendants) as defined in the Family Business Act is exempt from capital gains tax.
  • Exemption upon transfer to brother or sister or their descendent is only permitted when the transferor has no descendants.

 

Transfer of Family Business where there is no immovable property

  • No stamp duty is chargeable on the value of shares, interest in partnership, trust or foundation transferred to family members (except to ascendants).
  • The transferred Family Business should be owned more than 85% directly or indirectly by family members.  
  • The Family Business should have all the fiscal returns and contributions submitted and paid up to the date of transfer.
  • Transfer between family members (including to ascendants) as defined in the Family Business Act is exempt from capital gains tax.
  • Exemption upon transfer to brother or sister or their descendent is only permitted when the transferor has no descendants.


Cash grant by Malta Enterprise (ME)


As from 1 January 2017, Family Businesses are entitled a cash grant not exceeding €4,500 per annum.

Aid purpose

Annual aid amount

Aid duration

 

Legal, notarial, accountancy advisory services for transfer of business to family members

 

First 500 cost fully covered by ME.

 

Additional cost, 75% supported by ME up to a maximum of 2,500.

 

 

Up to 5 consecutive years

 

Arbitrator fees appointed by Regulator to assist in the valuation of business being transferred

 

 

First 5 sittings to a maximum of 2,500

 

One time

 

Training to owners and their employees to develop, for growth, better administration and management of business. Training should be endorsed by Regulator

 

 

1,000 per Family Business

 

 

  • For Advisory and arbitration support, Family Business shall request such support from ME. Upon approval, a support voucher is issued to the applicant (valid for 12 months). Following delivery of services, the beneficiary shall submit the claim.
  • For training support, beneficiary shall attend training seminars or providers that are published on the ME. After attending the training events, the Family Business may submit the refund claim during January or July of any year. If total training claims received by ME exceeds €100,000 during a claim period, the aid to each beneficiary is reduced to a percentage whereby all applicants receive same level of support.
  • For all aid schemes the beneficiary shall submit claim documentation including:

          -de minimis declaration,

          -Family Business status certificate;

          -VAT, Income tax, Social security compliance certificate;

  • For advisory and arbitrator scheme documentary evidence of the services provided by advisor/arbitrator;

          -fiscal invoice or receipt issued by supplier/s identified in the voucher or approved list of training;

          -proof of payment (enchased cheques or bank transaction documentation)

  • Terms and conditions will be set out by Guidelines issued by Malta Enterprise.
  • Assistance applications should be submitted by 31st December 2020.

 

3. Registration documentation and compliance


Registration for Family Business status


1. Submission of application form (details of business such as name, address, telephone, email)


2. Where applicable

-Registration number

-Vat number

-Trading License number

-Names of shareholders in the business and the number of shares held

-Names of family members involved in the governance of the business and certified copy evidence.

-Written consent of relevant family members to hold office after registration as Family Business.

-Resolution signed by the family members of the business to register the business with the Regulator.

-Vat and income tax compliance certificate

-Organisation chart certified by accountant or lawyer. This should include organizational structure, family relationship within the structure, job designation of each family member, indication of who is responsible of the day to day operations, indication of the ultimate owners of the business.

-Bank reference letter.

-Certified copy of declaration of business assets and contributions confirmed on oath. (relevant for partnerships)

-Certified copy of documentary evidence including names of family members holding decision-making powers in the business confirmed on oath. (relevant for partnerships)

-Where family business is owned by trustee of a trust, authenticated copy of the trust deed including the list of beneficiaries.

-Where family business is owned by private foundation, authenticated copy of the foundation deed including any addendum amending the original deed and beneficiary statement t be delivered by the administrator.

-Lease agreements of the business


3.Submission by each family member

-Name of family member

-Designation

-Passport/ID Card number including certified copies.

-Address

-Family relationship in relation to the founder of the business

-Any other details that may be required by Regulator.

 

4.Signed Declaration by each family members that the family business have been actively trading or in operation without interruption for at least 3 consecutive years.

 

5.Signed Declaration of completeness by each family members.

 

6.Non-refundable administration fee of €100.

 

  • Once the Regulator accepts the application, a unique registration number commencing with the letters ‘FB’ is allocated to the family business.This number can be quoted on any documents issued by the business. Regulator also issues a certificate stating that the business is registered and has a Family Business status.
  • Regulator also issues a certificate stating that the business is registered and has a Family Business status.

 

Ongoing compliance to maintain Family Business status

 

  • Family Business benefiting from an incentive by virtue of its Family Business registration shall submit an annual return as per below.
    • Registration date as Family Business

       

      First annual return covering period

      First annual return submission Deadline

       

      Subsequent annual returns period

      Subsequent returns submission deadline

       

      1 Jan-30 Sep

       

       

       

      Registration date till 31 Dec

       

       

      30 Apr

       

       

      1 Jan-31 Dec

       

      30 Apr

       

       

       

       

       

       

       

       

      1 Oct – 31 Dec

       

       

       

      Registration date till 31 Dec of following year

       

       

      30 Apr of following year

       

       

      1 Jan-31 Dec

       

      30 Apr

  • Failure to submit annual return incur a penalty of €25 for each month of delay.
  • Changes in family business structure shall be notified to the Regulator within 10 days from such change.


Registered Family Business which claimed benefits from this status, shall remain constituted and registered as Family Business for at least 3 consecutive years after the benefit, otherwise the business shall refund the benefits obtained. If a business does not remain constituted as a Family Business due to unexpected death of a family member, in that case if the business was owned directly or indirectly by only two family members, the business shall not refund the benefits obtained. The Regulator shall be informed by the surviving family member within 60 days from the date of deceased.

 

4. 3a’s role

 

Each Family Business client has its own scenario and the provisions of the Family Business Act should be applied for such scenario. We can assist clients in these particular areas:

- Family Business Registration

-Tax planning consultancy

-Business valuations

-Assist in transfer of business/immovable property

-Consultancy for opportunities of restructuring and composition of setup

-Assistance in cash grants applications

-Ongoing compliance

 

The following is a typical step plan to follow:

Step 1: Access if a client qualifies for the Family Business status and what benefits can obtain.

Step2: Organise a brief information session with the client highlighting what is involved mentioning the benefits (short and long term) and the costs involved.

Step 3: Once a client accepts to have the Family Business status, draw a plan to follow for the work involved - including staff that will be involved and the timeframe.Similarly if a transfer of business/property will be involved prepare proper plan such as further discussions required with client, any accounting information, forms filling, valuations etc

Step 4: Prepare all the documentation for the registration of Family Business status. A certificate will be issued by the Registrar confirming this status.

Step 5: If a transfer of business/immovable property is involved, prepare a valuation exercise and/or obtain architect’s valuation of the immovable property.

Step 6: Prepare and submit the documentation required for the business/immovable property transfer.

Step 7: If applicable, prepare and submit the applications for cash grants with Malta Enterprise.