Malta Tax Consolidation Rules

New Malta Tax Consolidation Rules

The recently enacted legal notice 110 of 2019 has introduced consolidated group rules to the local tax scene.

Maltese holding-trading structures, where the parent has at least a 95% ownership in its subsidiary may opt to be treated as one fiscal unit, where one consolidated tax return is prepared. The 95% shareholding must include an equivalent right in respect of 2 of the following 3: votes, profits and assets upon winding up.

This is sure to create simplicity as well as an important tax advantage where the fiscal unit will be able to pay the net tax charge of 5% on profits instead of the current default set-up where the subsidiary pays a 35% charge with the parent later receiving the 6/7ths refund. The new provisions apply to companies and all other structures that have elected to be treated as such, however not to foundations.

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The consolidated group rules may be claimed and are effective for financial years ending in 2019 whilst the parent and subsidiary undertaking must have the same accounting reference period. If the structure involves minority shareholding, the latter’s approval is required for the two companies to elect to be treated as one fiscal unit. Notably, such an election may subsequently be revoked.

The effect of this decision is that chargeable income is computed and taxed as a whole rather than as separate legal entities. The fiscal unit needs to prepare consolidated financials which must be audited and delivered to the tax department, however individual audited financial statements are still required for Malta Business Registry purposes. Any individual company may form part of only one fiscal unit, however this does not exclude the possibility of having various fiscal units within the same Malta registered group of Companies.

Official guidance is expected to be issued shortly by the tax department and questions related to the need to declared dividends and tax payment deadlines, amongst others, are expected to be answered. Notwithstanding, the new legislation is sure to create substantial tax advantages to the Malta company formation landscape. The long waiting time for the receipt of the tax refunds will be eliminated, creating positive cash flow advantages to the tax payer.