Contributed by: LexPractis, Malta

On May 31, 2019, by virtue of Legal Notice 110 of 2019, the ‘Consolidated Group (Income Tax) Rules’, Malta introduced a ruleset enabling the formation of a fiscal unit for the purposes of Maltese income tax.

A parent company may make an election in order for itself and its 95% subsidiary to form a fiscal unit, provided that, in the year prior to the year of assessment in which the election is made, it meets any two of the following conditions:

  • the parent company holds at least 95% of the voting rights in the subsidiary company;
  • the parent company is beneficially entitled to at least 95% of any profits available for distribution to the ordinary shareholders of the subsidiary company;
  • the parent company would be beneficially entitled to at least 95% of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.

Where a parent company has made an election in terms of the Rules in respect of its 95% subsidiary (or in respect of more than one 95% subsidiary) – referred to as “transparent subsidiaries” – each subsidiary in respect of which the election is made shall form part of the same fiscal unit of its parent company.

As a result, the chargeable income of a fiscal unit for a year of assessment shall be computed as if such income was derived by the principal taxpayer and shall be chargeable to tax in the name of the principal taxpayer at the rate/s applicable thereto.

Tax Consolidation implies that all transactions occurring between two or more companies forming part of the fiscal unit in the year preceding the year of assessment shall be deemed not to have occurred – so however that transactions falling within the purport of Article 5A of the ITA (transfers or immovable property situated in Malta) or transactions involving the transfer of shares in a property company shall in no case be deemed “ignored transactions”.

Generally, therefore,  

  • All income derived by companies forming part of the fiscal unit in the year preceding the year of assessment and which are not ignored transactions shall be deemed to be derived by the principal taxpayer – such income shall retain the same character and shall be deemed to have been derived from the same source and the same country and be allocated to the same tax account as if the said income was received by the principal taxpayer.
  • All outgoings and expenses incurred by companies forming part of the fiscal unit in the year preceding the year of assessment and which are not ignored transactions shall be deemed to be incurred by the principal taxpayer.

The "principal taxpayer" means company which:

A. is not a transparent subsidiary; and
B. is the parent company of one or more transparent subsidiaries; and
C. shall at all times be one that satisfies the conditions applicable to "a company registered in Malta" as set out in Article 2(1) of the ITA

Furthermore, any foreign tax suffered by a company forming part of the fiscal unit shall be deemed to have been incurred by the principal taxpayer, also enabling the principal taxpayer to claim double taxation relief in accordance with the ITA.

The regime is optional and while it is likely that there may be additional and more stringent compliance obligations, we envisage a significant number of groups opting to form a fiscal unit, namely for its cash-flow advantage.

Dated: [bxcode.pagedata.date]