On the 1^st January 2017, the Family Business Act (Chapter 565 of the laws of Malta) came into force in Malta with the aim of, inter alia, encouraging the regulation of family businesses, their governance and the transfer of the family business from one generation to the next, thereby assisting family businesses to enhance their internal organisation and structure with a view to working towards a seamless and effective succession of the family business.

For the purposes of the Family Business Act, “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 Family Business Act provides that a family business can qualify for registration as such whether it is set up in the form of a public limited liability company, a private limited liability company, a registered partnership or a trust.

The intended objective of the benefits provided under the Family Business Act is the facilitation of the transfer of the registered family business from the owners who are family members to other family members

In order to qualify for registration under the Family Business 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;
• in the case of a private limited liability company, all the shares must 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;
• in the case of partnerships en nom collectif and partnerships en commandite (i) the full capital contribution to the partnership must be made, directly or indirectly, by at least two owners who are family members within the same family having, directly or indirectly, the right to receive the majority of distributable profits; and (ii) at least one of whom holds the majority of the decision-making rights;
• in the case of a trust all the shares or the interest must be held by a trustee under trust for the benefit of members of a family as beneficiaries, and which has been established by a written instrument and all the beneficiaries are owners and family members within the same family.

The intended objective of the benefits provided under the Family Business Act is the facilitation of the transfer of the registered family business from the owners who are family members to other family members. Transfers made by family members to family members who are ascendants are not eligible for any of the benefits. Moreover, upon receiving benefits it shall not be possible for the registered family business or the family member to transfer or assign, in whole or in part, the benefits of an incentive granted by virtue of the Family Business Act, to any other person or business. When a registered family business intends to apply for any benefits, the family business shall obtain the issue of an updated certificate from the Regulator for Family Businesses (duly appointed in terms of the Act to manage, supervise and administer the Register of Family Businesses in Malta) attesting that the family business still qualifies as a registered family business.

The Family Business Act contemplates a reduction in the stamp duty payable on the transfer of a family business

The Family Business Act contemplates a reduction in the stamp duty payable on the transfer of a family business. Accordingly, a new Article 41C was introduced in the Duty on Documents and Transfers Act in terms of which (subject to certain conditions) the stamp duty on the first Eur500,000 of the transfer price will be charged at the rate of 3.5% instead of 5% in the case of a transfer of a family business 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.

This pioneering new law represents a conscious effort on the part of the Maltese legislature to regulate, incentivise and preserve Malta’s vast family business sector, emphasising the importance of family businesses for the local economy

If an individual transfers shares in a company, interest in a partnership, trust or foundation, no stamp duty is chargeable on the first Eur150,000 of the acquisition value subject to the condition that: (i) 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; (ii) 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.

This pioneering new law represents a conscious effort on the part of the Maltese legislature to regulate, incentivise and preserve Malta’s vast family business sector, emphasising the importance of family businesses for the local economy and facilitating their chances of success and survival from one generation to the next.