The subject matter can be quite intimidating, as most individuals tend to avoid contemplating their mortality, let alone preparing for it! In the context of a family business, the determination of successors, is critical to ensure a smooth transition from one generation to the next and also fundamental to ensure long term continuity.
Family businesses make up more than 60% of all companies in Europe. Locally, the figure stands at 75%, with the majority being SMEs. This makes family-run businesses important players in our local economy. Acknowledging the importance of succession planning to keep the business going for generations and to ensure economic growth and stable employment, fiscal benefits have been put in place to incentivise the transfer of family businesses to the next generation.
The Main Fiscal Benefits:
(i) Family Business Transfers: When an individual transfers by gratuitous title shares in a family business to a qualifying family member*, a reduced stamp duty from 5% to 1.5% will apply.
Family business owners who want to benefit from this incentive but would like to retain control of their business may still do so by retaining the usufruct the shares being transferred. The usufruct, which may be transferred at any time, even before ones’ demise, would trigger stamp duty on the value assigned to the usufruct.
(ii) Transfer of Immovable Property: When a family business registered with the Family Business Office, is transferred by gratuitous title as a going concern by an individual to a qualifying family member, and such business includes immovable property situated in Malta that has been used in the course of the business, the transfer of the immovable property will be subject to stamp duty on the first €500,000 of the value of the property transferred at 3.5% instead of the standard rate of 5%.
These incentives were first announced during the 2017 budget speech and have been extended year on year ever since. The reduced rate is applicable on any donations made up to 31 December 2024. In our opinion, this incentive should indeed be embedded within our legislation and extended indefinitely to aid the succession of family businesses and also act as an accelerated revenue collection tool for the Government.
For generations, family businesses have been the backbone of our Maltese economy. The fiscal benefits introduced will incentivise the family business owner to think ahead by better planning business continuity and considering succession planning earlier on. As a result, this will help to safeguard the sustainability of our future economy.
* Qualifying family member is deemed to be one’s spouse or partner in a civil union, descendants and ascendants in the direct line and their relative spouses or civil union partners, or in the absence of descendants, to one’s brothers or sisters and their descendants.
