By Legal Notice of 31 May 2019 – “Consolidated
Group (Income Tax) Rules” (the Rules) fiscal unity has been introduced in
Malta.
The Rules provide taxpayers with an option to
create a consolidated group for income tax purposes. Unlike the VAT grouping
rules, the income tax rules are applicable to all taxpayers, irrespective of
the sector they operate in.
Creation of a fiscal unit
A fiscal unit may consist of Maltese or foreign
companies. The parent company (the principal taxpayer) should, at all times, be
a company registered in Malta and hold at least 95% or more of any two of
the following three rights:
- voting
rights;
- right to
profits; and
- right to
assets available upon a winding up.
It is worth noting that under certain conditions
trust and foundations too may be considered as companies for the purpose of the
Rules.
Furthermore, all companies within a group should
have the same accounting year for the entire duration of the group’s existence.
In case of less than 100% shareholding, a minority shareholder’s approval is
required for a subsidiary to join the unit. A subsidiary is referred to as
‘transparent subsidiary’. Indirect subsidiaries of the principal taxpayers may
also form part of the group as long as the conditions mentioned above are met.
The rights, duties and obligations under the Income
Tax Act of the transparent subsidiaries are suspended and are instead assumed
by the principal taxpayer, who for instance, is liable for filing the tax
return covering all companies in the group.
A consolidated Balance Sheet and Profit and Loss Account of the fiscal unit should
be prepared and audited on an annual basis. However, there is no obligation to
file the financial statements with the authorities.
The principal taxpayer is responsible for paying
tax for the unit. Only when the transparent subsidiaries are 100% owned by the
principal taxpayer, are all the companies jointly and severally liable to the
payment of tax.
Benefits of a fiscal unit
The chargeable income of the unit should be
computed as if it were derived by the principal taxpayer. All income derived
and expenses incurred by companies forming part of the fiscal unit shall be
deemed to be respectively derived or incurred by the principal taxpayer.
Similarly, any foreign income tax incurred by a company within the fiscal unit,
should be deemed to have been incurred by the principal taxpayer. While
calculating the income tax due by the fiscal unit, intragroup transactions
(except for transfers of immovable property located in Malta and transfers of
property companies) are disregarded for tax purposes. Moreover, double taxation
relief is still applicable in accordance with the Income Tax Act provisions.
The Rules allow for any refund due under the Income
Tax Management Act to
a shareholder of a company forming part of a fiscal unit to be taken into
account in determining the applicable tax rate of the fiscal unit. Hence, the
lower effective tax rate may be immediately realised which does away with delays
resulting from the refund application.
The Rules contain detailed anti-abuse provisions
and apply with effect from financial periods starting on or after 1 January
2019.
