Government Incentives to Family Businesses for Succession Planning

 

Family Business Act Introduction

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By means of ACT No. XLVIII of 2016, the Parliament of Malta has enacted the Family Business Act with the following aims in mind:

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• To encourage the regulation of family businesses and their governance;

• To assist in the transfer of family businesses from one generation to the next;

• To assist family businesses to operate their business in an efficient way and work towards a successful transfer of the business;

• To grant various incentives to family businesses to successfully transfer their business from one generation to the next.

 

The back drop against which this legislation was developed is with the knowledge that in Malta, around 98% of all businesses are micro, small and medium sized enterprises with the vast majority of them being family run businesses. More significantly 95% of these SMEs are classified as micro enterprises having less than 10 employees. These SMEs provide about 80% of all jobs in the business economy and create 71% of the overall value added: for both variables, this is about 14 percentage points more than the EU average.

 

To date there was no legislation on a European or International level that specifically seek to assist and encourage the regulation of family businesses, their governance and the transfer of the family business from one generation to the next. Henceforth the scope of the legislation is to encourage and assist family businesses to enhance their internal organisation and structure with the aim of effectively operating the business and working towards an effective succession of the family business.

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Fiscal Incentives

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• For the exclusive period of April 2017 – April 2018, parents transferring their family business to their children during this one year period will benefit from a reduced stamp duty of 5% to 1.5%.

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• Duty on immoveable property shall be chargeable on the first €500,000 of the value of the property transferred at the advantageous rate of three euro and fifty cents per one hundred euro or part thereof;

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• Duty on shares, interests in a partnership, trust or foundation; no account shall be taken of the first €150,000 or such other greater amount as may be prescribed of the value of the shares, or interests in a partnership, trust or foundation transferred, in assessing the duty chargeable.

 

Governance Incentives

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• Loan guarantees of up to €500,000 per business for the purpose of acquiring the business or parts thereof;

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• Micro Investment of a maximum tax credit of €50,000 over a three year period;

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• Legal, notarial and accountancy advisory services up to €2,500 per year, over a five year period for the purposes of assistance in the succession or business transfer of a family business;

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• Education and training for owners and their employees of up to €1,000 annually per family business;

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• Arbitration of up to five sittings with a value of €2,500 with the objective to establish the fair value of the business;

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• Lease renewal – The positive consideration of lease renewals occupying government premises; When a registered family business is occupying industrial government premises or land on lease or emphyteusis respectively as prescribed under Chapter 325 the Business Promotion Act and subject to the business satisfying all the conditions of the tenancy agreement, the Regulator shall recommend to the Malta Enterprise Corporation and, or Malta Industrial Parks to renew the tenancy, which renewal shall not be unreasonably withheld when the objectives of the renewal are to ensure the continuity of the family business between family members.

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• Investment Aid – The Incentive Guidelines for Investment Aid 2014 – 2020 launched by Malta Enterprise in 2014 specify that in the case of acquisition of the assets of an establishment only the costs of buying the assets from third parties unrelated to the buyer shall be taken into consideration. The transaction shall take place under market conditions. If aid has already been granted for the acquisition of assets prior to their purchase, the costs of those assets shall be deducted from the eligible costs related to the acquisition of an establishment. The Incentive Guidelines shall allow that where a member of the family of the original owner, or an employee, takes over an enterprise, the condition that the assets be bought from third parties unrelated to the buyer shall be waived. The acquisition of shares does not constitute initial investment. Following the launch of the Family Business Act, the eligibility for the latter provision will be linked to actual registration of the family business under the Act.

 

Registration of a Family Business under the Act

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A family business, whether set up in the form of a public limited liability company, a private limited liability company, a registered partnership, a trust or other registered forms of a family business can qualify for registration as a Family Business under the Act.

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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 for the company to be registered as a Family Business.

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In the case of a private limited liability company, for it to be registered as a Family Business, all the shares of the company must also 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.

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Shares which are held by non-family members including employees who have been in continuous full time employment with the family business for over 3 years shall be disregarded if the aggregate value of the shares does not exceed 10% of the issued share capital of the company in the case of employees and 5% in the case of other non-family members.  Similar conditions apply where the family business is set up in the form of a registered partnership, a trust or other forms.

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An owner who is also a family member cannot own more than 80% of the issued share capital of the company for such a company to be registered as Family Business.  The same applies whether the business is being run by a partnership, trust or other forms of a family business.  The percentage of 80% shall be calculated after deducting the 5% and 10% owned by non-family members as referred to above.

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For the proposes of the Act, a 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 owner is meant to be an individual who is the ultimate beneficiary who has a shareholding or other interest in a family business.

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For a business to be registered as a Family Business in terms of the Act, it must be established in Malta, which means that the head office, agency or branch is situated in Malta or part of a business is carried out in Malta.

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The benefits

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The intended objective of the benefits which are provided under the Act is the facilitation of the transfer of the registered family business from the owners who are family members to other family members within the same family.  Transfers made to ascendants do not qualify for any benefits. The Act contemplates a reduction in the stamp duty payable on the transfer of a family business, as a consequence of which a new Article 41C was introduced in the Duty on Documents and Transfers Act.

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Where a family business is transferred as a going concern 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, the rate of stamp duty on the first Eur500,000 will be of 3.5% instead of 5%.  The said property would have to be used by the family members or by the family business for at least three years starting from the date of transfer on which the reduced rate of stamp duty applies.  If the property is transferred by family members or by the family business or ceases to be used by the business, then the stamp duty relieved would have to be paid.  Should the property be transferred and is replaced within one year by another property which is used for a similar purpose, the duty chargeable on the replacement will be reduced by the stamp duty payable on the transfer of the property.

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If the individual , transfers shares in a company, interest in a partnership, trust or foundation, no stamp duty will be payable on the first Eur150,000.  This will only apply if 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 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.

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Are you eligible to register the business as a Family Business in terms of the Act ?    Contact us, and we will be happy to assist you by providing you with all the necessary information about the benefits which may be applicable to your Family Business. We can advise and assist you in the application process to register the business as a Family Business in terms of the Act,  and plan the transfer of your business in an organised tax-efficient way, and  in compliance with the Family Business Act. 

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(Dec 2017)

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Business Enhance Grant Schemes

​​€51 MILLION IN GRANTS TO SUPPORT ENTERPRISES​​​​​

 

The Business Enhance Grants Schemes, part-financed by the European Regional Development Fund 2014-2020, seek to support enterprises when undertaking investment projects aimed at securing sustainable business growth, by becoming more competitive, innovative and become more resilient to market challenges.

 

The Grant Schemes address a number of priorities under Operational Programme I 2014-2020 ‘Fostering a competitive and sustainable economy to meet our challenges’. These will fall under three main priority axis:

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Priority Axis 1: Investing in research, technological development and innovation

Priority Axis 2: Consolidating Investment within the ICT sector

Priority Axis 3: Enhancing Malta’s competitiveness through investment in SMEs    

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(Aug 2016)

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Seed Investment Scheme (SIS) 

 

The Seed Investment Scheme offers incentives in the form of tax credits to investors in return for investment in a qualifying Maltese start-up or early stage companies. The scheme offers young entrepreneurs a route to vital funding in the initial stages of their project by effectively minimising the risk to investors.

 

Scheme status: Accepting applications.

 

It is deemed to have come into effect as of 1st January 2016, while being officially launched as of 22nd July 2016. How long will the SIS last? SIS will remain effective until the 31st December 2018 (unless extended by the Minister for Finance) but shall also cease to be active upon the application of the scheme to €5 million. The total tax credit applicable to any investor shall not exceed €250,000 per year. Provided the total threshold for the Scheme is not exhausted. Investments in a qualifying company shall not, in aggregate, exceed €750,000.

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Are you eligible to apply for the Seed Investment Scheme?   Contact us, and we will be happy to assist you by providing you with all the necessary information about this Scheme and by assisting you in the application process. 

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(Aug 2016)

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Start-Up Investment Grant Scheme (Budget €7 Million) 

Maximum Grant Capped at  €300,000.

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The purpose of the Small start-up Grant aid scheme is to encourage the growth of newly formed undertakings. Malta relies heavily on the creation of Small and Medium Enterprises as this is the sector that will sustain future employment within the Country. This aid scheme is in line with Malta's National Reform Programme which envisages to encourage the promotion and support of innovative start-ups. The direct benefit to these enterprises benefiting from this incentive will include a grant to cover their operating costs amounting to a maximum of 25% for a maximum period of 24 months. This will assist a number of start ups overcome the financial limitations faced in the first few years from starting up ensuring that the start up succeeds and grows in the future ensuring an increase in employment in the future.  

 

The Small Start-up Grant Scheme aims to increase entrepreneurial activity through the formation of new, high value adding enterprises. Of interest will be business start-ups engaged in areas related to: manufacturing, Information and Communication Technology, Research and Development and Innovation, waste treatment and environmental solutions, biotechnology and the production of innovative products and services. Newly created start-up enterprises face higher costs per unit to develop an initial offering and to position themselves in the market. For this reason, beneficiaries are to be granted an aid, set at a co-financing rate of 25%, to cover initial operating costs such as consultancy and advisory services, wages, utilities and rent/leasing.

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Are you eligible to apply for the Start-Up Investment Grant Scheme?   Contact us, and we will be happy to assist you by providing you with all the necessary information about this Scheme and by assisting you in the application process. 

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(Aug 2016)

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SME Growth Grant Scheme (Budget €8 Million) 

Maximum Grant Capped at  €500,000.

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This scheme seeks to assist SMEs to address this gap by providing support in the form of non-repayable Grants to part-finance investments towards the implementation of their growth strategies related to the extension of the capacity of an existing establishment, or the setting up of a new establishment.​

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Aid Intensity :

Size of Undertaking : Micro & Small

Up to 31 December 2017 : 35 %

As of 1st January 2018 : 30 %

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Size of Undertaking : Medium

Up to 31 December 2017 :25%

As of 1st January 2018 : 20%

 

T​arget Group

• Micro Enterprises

• Small Enterprises

• Medium-sized Enterprises 

 

For many SMEs, achieving growth is an important business objective.  Market demands require rapid response from enterprises to sustain their competitiveness and grow.  As they pursue growth in sales and earnings, SMEs are putting in place a variety of measures to ensure they are well positioned to exploit growth opportunities.  Such challenges push SMEs to take up initiatives to increase their market share, enter new markets and internationalise to overcome regional challenges.

SMEs have limited financial resources and encounter difficulties in accessing finance to generate the required capital to take-up investment projects.  The lack of readily available financing options pose greater difficulty to SMEs to react to market demands requiring them to undertake rapid and timely intervention through investment on expansion projects to enable them to secure the adequate capacity levels to re-align and secure their supply levels.​

 
 

Eligible Actions

Initial Investment in tangible and intangible assets related to:

• the extension of the capacity of an existing establishment, 

• the setting up of a new establishment. 

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​The investment should result in the growth of the Undertaking, and an increase in the number of employees (full-time equivalent) employed by the Undertaking.

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Eligible Costs

• ​Lease of private operational premises

• Construction/up-grades on private operational premises

• Purchasing of new equipment, machinery and plant

• Patents and licenses 

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This Scheme shall be administered through a series of competitive calls. 

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Are you eligible to apply for the SME Growth Grant Scheme?   Contact us, and we will be happy to assist you by providing you with all the necessary information about this Scheme and by assisting you in the application process. 

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(Aug 2016)

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Micro Invest Tax Credits 2015 

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The deadline for the application for the micro invest tax credits in respect of eligible expenditure incurred in 2015 is the 30th March 2016.

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Eligible businesses should:

 

Not employ more than 30 persons; and

Not have turnover exceeding € 10 million

 

Eligible expenditure includes the following:

 

a. Costs subcontracted to third parties in relation to furbishing, refurbishing and upgrading of premises including extensions or modifications to premises.

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b. Capital Investment costs in new (or first time used in Malta ) machinery and technology which enhance the operations including Information & Communication Technology solutions and systems which help to save energy or to produce alternative energy.

 

c. Over a period of 3 years, investment in one new motor vehicle (or first time used in Malta) as long as such vehicle is involved in the carrying of goods (category N1, N2 or N3 motor vehicle) and Special Purpose Motor Vehicles.

 

d. Wages costs covering the 12 month period pertaining to new full-time jobs created as from 1st January 2015 as long as this constitutes a net increase in the total number of full-time employees of the applicant when compared to the employment figure of the previous years. Part-time employment is eligible when such employment required the employee to work in excess of 20 hours per week.

 

Are you eligible to apply for the Micro Invest Tax Credit?   Contact us, and we will be happy to assist you.  

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(Jan 2016)