Fiscal Consolidation

Introduction to Malta’s Fiscal Unity Rules

Malta introduced fiscal unity rules enabling the creation of a tax group for income tax purposes and this with effect from basis year 2019 (year of assessment 2020). In order to join a fiscal unit, a company should have no outstanding balances or outstanding filings with respect to income tax, VAT and FSS. The main conditions to be satisfied to be part of a fiscal unit are (i) that the parent company holds more than 95% shareholding of the subsidiary company, (ii) that the companies have the same financial periods, and (iii) that the companies have the same tax representative.

Registration Requirements and Process

The parent company (also referred to as the principal taxpayer) is given a six-month period from the end of the financial period in order to do the registration but such registration cannot be done before 1 August of the calendar year of the financial period. Registration may only be done online. Where the parent company does not hold 100% shareholding, approval is required from the minority shareholder for the subsidiary to join the fiscal unit. Where a company is not resident in Malta, the company must be registered in Malta and have an income tax registration number obtained from the Maltese tax authorities.

Membership Rules and Tax Treatment

No company may be a member of more than one fiscal unit at the same time. Upon joining the fiscal unit, the balance of any item allowed to be carried forward in terms of the Income Tax Act such as unabsorbed capital allowances, as well as the profits allocated to the tax accounts but excluding the untaxed account, are treated as a balance of the principal taxpayer (since the subsidiary company becomes transparent for income tax purposes). The fiscal unit must prepare and submit audited consolidated financial statements on an annual basis. In calculating the chargeable income of the fiscal unit, the general rules with respect to deductibility of expenses must continue to be adhered to. However, intragroup transactions are disregarded for income tax purposes although this does not apply to transfer of immovable property situated in Malta.

Benefits of Fiscal Consolidation

The main advantage of a fiscal unit is a cash flow benefit since the rules allow the fiscal unit to apply a rate of income tax which results from the offset of the refund due to the shareholders against the income tax due by the company. Therefore, one may achieve a tax-efficient result without the need to distribute a dividend, pay the full tax liability and wait for the tax refund due to the shareholder to be processed by the tax authorities.

How we can help

EMCS may assist with all aspects of the group consolidation rules including the initial application and termination, filing requirements, acting as tax representative, and advising on the tax rules to ensure a smooth operation of the fiscal unit.