Why Helping Out Family Businesses Is Crucial To Malta's Economy

12th March 2019

Many family businesses fail simply because the owners failed to have a long-term plan, not managing to transfer to the next generation.

Family businesses dominate all free enterprise economies and have been crucial in the global economy’s survival during the most recent recession.  Locally, Malta owes a lot to its family-led companies, who have been the bedrock of its economy for decades – their success continues to provide stability and economic growth.

The key to family businesses’ lasting growth and success is multifaceted, the world over. Each family business has a unique recipe on how to mix business with family, embracing tradition, and a long-term vision that can build on previous generations’ successes, yet adapting to new and ever-evolving market trends.

Family companies can be vulnerable, plus tricky to lead and manage – is it the eldest in the family who should run the company, or the family member most qualified? Or an external professional? Their unique structures are often their handicap to success, or even demise. In fact, many family businesses did not fail because of increased competition or technological transformations, but because the owners failed to have a long-term plan, not managing to transfer to the next generation.

Dr Nadine Lia

Dr Nadine Lia

“The Family Business Act legislation and the Family Business Office were set up two years ago so that family businesses can get advice, have a sector representative, attend organised events for them and benefit from the numerous incentives and schemes designed to ensure businesses have long-term success,” says Family Business Regulator Dr Nadine Lia.

“As a rule, only a small minority of highly successful business-owning families have excelled and thrived through the generations. Many fall prey to the ‘third-generation curse’.  Although 49 per cent of businesses transferred to the second generation, only 21 per cent make it to the third, and just 12 per cent to the fourth.

Dr Lia says that these figures are alarming when local studies show that around 80 per cent of Malta’s businesses are family-run, and only 20 per cent of these businesses have a robust, documented, ad communicated succession plan in place. 

“Malta is the first jurisdiction to specifically legislate and assist family business.  As well as defining the family business model it paves the way for the successful transfer of family business in Europe and creates a cross-border scale up opportunity for small and medium enterprises.  This has in addition increased Malta’s attractiveness as a jurisdiction for the restructuring of international family businesses and relocation.”

The Family Business Office Incentives and Benefits

1. Bank Finance Scheme

i. In collaboration with the newly established Malta Development Bank and Bank of Valletta, family businesses are offered advantageous loan debt financing up to a value of €750,000 – this is the first ever incentive by a local bank to specifically cater for family businesses;

2. Fiscal Incentives

i. Family members transferring their family business to their children will benefit from a reduced stamp duty of 5 per cent to 1.5 per cent with no capping on the amount to be transferred;

ii. When transferring a family business duty on immovable property shall be chargeable on the first 500,000 of the value of the property transferred at the reduced stamp duty of 5 per cent to 3.5 per cent;

iii. When transferring shares, interests in a partnership, trust or foundation no account of duty shall be taken of the first €150,000;

3. Governance Incentives

i. Micro Loan Guarantee of up to €500,000 per business for business enhancement, growth and development;

ii. Legal, Notarial and Accountancy advisory services up to €12,500 for the purposes of assistance in the succession, governance or business transfer of a family business;

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

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

v. Lease Renewal - The positive consideration of lease renewals occupying government industrial premises.

4. Tax Credits

i. Micro invest of a maximum of €70,000 to encourage business investment, innovation, expansion and implementation of compliance directives to develop operations;

ii. Investment Aid - Tax credit provided to family business whenever they take over an enterprise and assets from related family members.

For further information, you can contact the Family Business Office through their website, on Facebook, via email or by calling 22209524.

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Why Helping Out Family Businesses Is Crucial To Malta's Economy