Applications now open for consolidating income tax in Malta


17 Aug 2020

Ramona Azzopardi, Fiorella San Martin and Arthur Henrique Pasquini evaluate the key benefits of the Consolidated Group (Income Tax) Rules in Malta in an article for International Tax Review.

This article was first published in International Tax Review

The registration process for the new Consolidated Group (Income Tax) Rules has opened and applications can be submitted until the end of September 2020 for the year of assessment 2020. The Consolidated Group (Income Tax) Rules were first introduced in Malta in 2019 and allow companies that are part of the same group to be treated as a ‘fiscal unit’ for income tax reporting purposes. Companies which are located outside of Malta may also form part of the Consolidated Group Rules, upon certain conditions being satisfied.

Key benefits: Improved cashflow and easier tax compliance

Benefits of forming a fiscal unit include a cash flow advantage obtained through the payment of an overall combined effective tax rate and an easier tax compliance for the group given that any income, outgoings and expenses will be considered as incurred solely by one entity. The fiscal unit will be constituted by the principal taxpayer, who will assume the rights, duties, and obligations of the group under the Income Tax Act, and by the transparent subsidiaries.

The fiscal unit will also have to submit only one income tax return for the group of companies. Moreover, any transactions which take place between the principal taxpayer and its subsidiaries will be disregarded for income tax purposes.

How it works 

In order to form a fiscal unit for income tax purposes, the principal taxpayer needs to hold at least 95% of any two of the following rights in the subsidiary/subsidiaries: (i) voting rights; (ii) profits available for distribution; and (iii) assets of the subsidiary company available for distribution. Additionally, the companies opting for this regime will be required to have the same accounting periods and the principal taxpayer needs to be a company registered in Malta, as established by the Income Tax Act.

Requirements to access this regime include: 

  • Eligibility: Companies should not have any outstanding balances due nor any outstanding filings required in terms of the Income Tax Act, the VAT Act and the Final Settlement System rules, and neither overdue balances and/or penalties due to the Commissioner for Revenue (CfR).
  • Approval of minority shareholder(s): The principal taxpayer must request the authorisation of the minority shareholders (if applicable) and have it available in case the CfR requires it.
  • Registration process and registered tax representative: The registration process will be carried out through an online application, which will have to be submitted by the registered tax representative. The change of tax representative will not be available during the period in which a transparent subsidiary forms part of a fiscal unit.
  • Non-resident company registration: In order to be able to register a non-Maltese-resident company, as part of the fiscal unit, it must fall within the definition of a “company registered in Malta”, as established in the Income Tax Act. Additionally, this entity will have to be registered with the CfR in order to have a Maltese income tax registration number and would need a fiscal representative in Malta.

In any case, groups of companies are diverse and need to be assessed on a case-by-case basis in order to apply for the fiscal unit. There are other considerations to be reviewed for purposes of opting for this regime such as the review of the corporate structure of the group and other accounting information such as the financial statements in order to verify the reserves available for distribution, among others. In some cases, the conclusion to apply for the fiscal unit for year of assessment 2020 will be materialised, while in others, they will have to postpone their decision for the next year. 

The deadline for the registration process of the fiscal unit for year of assessment 2020 is September 30 2020.