Ecovis Malta

Internal Control in Family Businesses

In the development of family businesses, it is important to review the complexities involved, beyond family desires, which can cover the business’s own concerns, needs, and interests, which must be based on three important pillars in society, such as family, ownership, and business. Although the family is the most important pillar, since it is there where all the feelings of each of its members converge, and that in most of them are superimposed to the other elements that make up a family.

Before talking about control in family businesses, it is necessary to define what a family business, or a family business is. According to the Office 220-16368 of March 21, 1997 “for a company to have the nature of a family, there must be between two or more partners a relationship of consanguinity up to the second degree (father, mother or children and siblings) or only civil (adoptive father or mother or adopted child), or be united among themselves in marriage, provided that the partners so related, exercise, over the company, an economic, financial or administrative control “(Office 220-16368 of March 21, 1997)”.

Based on the above, it is necessary to consider some criteria that directly affect internal control in family businesses, such as capital control, the participation of family members in organizational management, and the close bond that exists between all members. To this must be added that the administrative control of family businesses is mostly in the hands of the first generation and very little until its third generation, since they do not have adequate procedures or mechanisms that allow for the timely succession of these responsibilities, and also of the changes that arise of a regulatory and compliance nature for societies in general.

Family businesses face several problems due to the lack of formal internal control mechanisms, which has become the subject of study for their evolutionary process, where it guarantees the family’s assets and economic security. The internal control system must ensure that it allows the family business to anticipate possible losses, where the most significant risks can be mitigated and that affect the interests of each of its members.

Although the implementation of an internal control system within a family business must guarantee that good business practices are followed, it must be capable of receiving the different questions that might be made regarding the policies of the management team, and the decisions that can be taken around the interests of both the family business and each member of the family.

For further information please contact:

Sindy Lorena Vargas, Audit Supervisor, ECOVIS Colombia, Bogotá, Colombia
Jahir Macias, Senior Auditor , ECOVIS Colombia, Bogotá, Colombia

Employer of record in Brazil: Operate in the country without setting up there

Companies can become active on the Brazilian market without setting up a business there. This is possible with the concept of the “employer of record” (EOR). Brazilian companies take over the activities of the company wanting to settle there. The Ecovis experts explain exactly how this works and how to create legal certainty.

One outcome of the social isolation brought about by the pandemic (2019-2021) was undoubtedly the removal of physical borders and the disappearance of distance in working relationships. This elimination of barriers between employers and employees around the world, which was driven by the technological advances made during that period, has broken all the paradigms related to physical distance and has become a possible competitive advantage.

Against this background, the solutions and concept of the employer of record (EOR) have gained global prominence. EOR is an expertise through which a company takes over the local execution of operations and assumes legal responsibilities on behalf of another company – the client – in a country where the client does not have a presence. This ensures compliance with the local country’s legislation and regulations.

We show you a legally secure and cost-effective way to expand in the Brazilian market.

Julhi Almiron Bonespírito, Vaz de Almeida Advogados – Member of ECOVIS International, São Paulo, Brazil

The concept of EOR

In simpler terms, an EOR is a solution that enables a company to expand its business globally by establishing its operational presence in a new country, without physically setting up a presence there or directly hiring local professionals under its own name. Instead, it establishes its presence through remote management, entrusting the local operational responsibility to a specialised EOR provider. In essence, this provider acts as the “legal” employer, assuming all legal responsibilities and obligations related to workforce and applicable taxes, while the company maintains control over the remote operations.

This has been one of the most compelling structures established in Brazil, particularly for small and medium-sized foreign enterprises, companies seeking to develop specific projects, and large enterprises interested in lightweight “entry formats” prior to making more substantial investments.

The advantages of an EOR

There are many advantages to hiring an EOR. While establishing legal branches (or new corporate entities) and building internal workforces in target countries offer substantial benefits for an expanding business, many companies adopt hiring an EOR as an entry strategy. It can even be a stable solution for small and medium-sized enterprises. It allows them to swiftly overcome local bureaucracy inertia and minimise the expenditure of time and resources devoted to in-depth understanding, for instance, of applicable legislation, agreements with local unions, and customary administrative procedures.

The EOR solution enables a company to establish its presence primarily through operational control – which in the end is the only thing that really matters – as well as overseeing local production capacity and the performance of professionals contracted through the EOR.

For further information please contact:

Julhi Almiron Bonespírito, Vaz de Almeida Advogados – Member of ECOVIS International, São Paulo, Brazil
Email: saopaulo-law@ecovis.com

EU Minimum Tax Directive: Malta delays implementation of minimum 15% corporate tax

Malta is making use of the Minimum Tax Directive exemption and postponing the application of the income inclusion rule (IIR) and the undertaxed profits rule (UTPR) beyond 2024. Additionally, the Maltese government will not introduce a qualified domestic top-up tax (QDTT) in 2024.

On 30 October 2023, the Maltese Finance Minister Clyde Caruana presented the government’s national budget for 2024. During the budgetary speech, he declared that Malta will be applying the derogation afforded by the Council Directive (EU) 2022/2523 of December 2022 – the Minimum Tax Directive – and will therefore delay the application of the income inclusion rule (IIR) and the undertaxed profits rule (UTPR) in 2024. Moreover, the Maltese government will not be introducing a qualified domestic top-up tax (QDTT) in 2024. Under this derogation, EU Member States are afforded the possibility to delay the introduction of a minimum 15% corporate tax for a maximum period of six consecutive years.

Planned tax relief for foreign companies

While Malta’s corporate tax rate stands at 35%, the local tax system allows foreign companies to benefit from substantial tax rebates by applying the imputation system and reducing their effective tax rate to 5%. This makes the island state a most attractive jurisdiction for foreign companies. The Minister went on to declare that no major changes to Malta’s tax system are envisaged for the coming year and confirmed that the current full imputation system will remain in place. However, he did recognise that the government is entering into a phase of transition, from the current set up to the minimum corporate tax of 15% under the EU Directive.

Malta offers tax measures, grants and incentives to assist, FDI startups and SMEs.

Anthony Vella, CPA Senior Partner / Director, ECOVIS Malta, Mosta, Malta

In preparation for this, the government is working on creating tax incentives which would align with Malta’s obligations under the Directive while securing the country’s attractive tax system for foreign companies.

Other measures in the 2024 budget to incentivise foreign investment in Malta, include:

• Grants and tax credits conforming with EU and OECD regulations
• Continuation of the ‘iSkills Development’ scheme, the ‘Rent Subsidy’ scheme, the ‘Innovate’ scheme, the ‘Smart & Sustainable’ scheme and the ‘Investment Aid for Energy Efficiency Projects’ scheme
• Support to SMEs for consultancy services
• A ‘Competence Centre’ for the semi-conductor sector to improve foreign direct investment
• A new complex and facilities for SMEs operating in the manufacturing industry
• Extended facilities for aircraft parking
• A revamped and improved MBR portal, which will facilitate the processes for overseas companies to register and submit documents online

For further information please contact:

Anthony Vella, CPA Senior Partner / Director, ECOVIS Malta, Mosta, Malta
Email: malta@ecovis.com