Succession planning within family businesses is key to ensure continuity and that the entity has the right leaders in place to enable the business to be resilient in the face of changing business conditions.
Thinking ahead in terms of succession allows for a degree of competitive advantage. Family businesses with a succession plan in place, that are involving the next generation of leaders early on in the business, tend to have a smoother changeover once operations are inherited. Planning ahead also helps in maintaining the identity of the brand throughout.
Well-thought-out succession planning is in fact crucial in avoiding circumstances of crises that may impact the ongoing operations of the business.
Despite the various benefits of thinking ahead through succession planning, various studies indicate that the majority of Maltese family businesses still remain without a succession plan.
Benefit to incentivise succession planning
Acknowledging the importance of succession planning, fiscal benefits have been put in place to incentivise the transition of family businesses to the next generation.
As a general rule, transfers of marketable securities are subject to stamp duty at the rate of 2% of the 'real value' (calculated in terms of the Duty on Documents and Transfers Act). The rate increases to 5% in the case of companies satisfying certain property holding thresholds.
The stamp duty rate has been temporarily reduced to 1.5% of the 'real value' subject to stamp duty, in case of donation of shares from parents to their children or in the absence of children, to the children of brothers and sisters. The reduced 1.5% rate also applies in case of donations of commercial property that has been used in a family business for the previous three years.
This temporary reduction is currently available for donations carried out up to 31 December 2023. No capping is applicable on this benefit and such benefit also applies where the applicable stamp duty rate would have been 5%.
Should you require further information, please do not hesitate to reach out to us.
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