VAT Grouping in Maltese law

Kristine Attard and John Caruana  -  24/April/2019

In 2018, Malta took the initiative to enhance its tax allure to businessmen by implementing new VAT Grouping provisions.  Even though VAT grouping is an innovative concept within Maltese law, it can already be found in other Member States’ VAT legislation.

Who is eligible?

Essentially, a VAT group allows persons who are closely linked to each other by financial, economic and organisational links (FEO links) to the extent that they can be regarded as a single VAT person. In Malta, this scheme is available to all legal persons established in Malta, but at least one of the applicants must be licensed or recognised in the financial services and gaming industries, in terms of one of the following laws: the Banking Act, the Financial Institutions Act, the Insurance Business Act, the Insurance Distribution Act, the Investment Services Act, the Retirement Pensions Act, the Securitisation Act, and the Gaming Act. Moreover, at the time of the application, all applicants must have submitted all their VAT and Income Tax Returns, and settled any amounts of tax, interest and administrative penalties due.

What do the FEO links entail?

For the purpose of VAT grouping, legal persons are considered to be financially linked to each other where any two or more of the following are, directly or indirectly, held as to more than 90% by the same person or persons (whether a legal person or an individual): (i) the voting rights or equivalent interests; (ii) the entitlement to profits available for distribution; or (iii) the entitlement to surplus assets available for distribution on a winding up or equivalent event;

Secondly, organisational links are deemed to exist where the applicants have a shared management structure, whether in whole or in part;

Finally, the requisite for economic links are met when: (i) the activity of each of the applicants is of the same nature or within the same industry; or (ii) where the applicants’ activities are interdependent or complementary, or (iii) where a group member carries out activities which are wholly or substantially to the benefit of any one or more of the other members.

Once the VAT group is formed all members’ individual VAT numbers will be deactivated and a Group VAT Number will be issued.

 What are the advantages?

  • Simplification of the compliance burden and administrative simplification for tax payers, since only one consolidated VAT return is required to be submitted for the entire group.
  • Charges between members of the same group will be out of scope of the VAT legislation;  Cash flow advantage as input VAT incurred by one member of the group can be set off against the VAT due by other members;
  • Financial Security for the Tax Authorities given that members of the VAT Group are jointly and severally liable between them for any tax, interests and administrative penalties due.

KSi Malta has a dedicated team with significant experience that will help you decide on whether this is appropriate to your business or not.  Please contact us should you wish to discuss further.


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