The Recent Introduction of Consolidated Group (Income Tax) Rules in Malta – The Legislators’ Continuous Pursuit to Ease the Burden from Taxpayers

Dr Josef Cachia and Dr John Caruana  -  15/July/2019

By virtue of Legal Notice 110 of 2019, on the 31st May 2019, Malta has facilitated income tax computations and the reporting of group companies. The introduced rules allow a parent company and its subsidiaries to join together in order to form one single fiscal unit. These rules are very wide in scope and unlike the provisions tackling VAT Grouping, they are not restricted to any specific industry.

The decision to form a fiscal unit always rests with the parent company. Notably, there are certain requisites which need to be satisfied in order for such unit to be formulated successfully. Primarily, the parent company must meet any of the two following requirements:

a)    It must hold at least 95% of the voting rights in the subsidiary company;

b)    It must be beneficially entitled to at least 95% of any profits available for distribution to the ordinary shareholders of the subsidiary company;

c)     It must be beneficially entitled to at least ninety-five per cent (95%) of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.

Another requirement is that the parent company’s subsidiary must have its accounting period beginning and ending on the same dates as the accounting period of the parent company in all the years in which it forms part of the fiscal unit. Furtherly, a company cannot form part of more than one fiscal unit at any one time.

The chief outcome of these rules is that if the fiscal unit is registered successfully, the parent company (which shall become known as the ‘principal taxpayer’) will assume all the rights, duties and obligations under the Income Tax Acts relative to that fiscal unit. Principally, the chargeable income of a fiscal unit for a year of assessment will be computed as if such income was derived by the principal taxpayer. Moreover, all outgoings and expenses incurred by companies forming part of the fiscal unit shall be deemed to have been incurred by the principal taxpayer.

In conclusion, these rules’ implementation is another incentive being given as a choice to companies to simplify their tax administration costs. In fact, parent companies satisfying the requirements of these rules can submit consolidated financial statements and avoid the burden of having to do separate tax declarations. They (the rules) demonstrate clearly the legislators’ work to continue improving upon existing tax legislation, by providing mechanisms through which taxpayers can simplify their burden.

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