Malta: Income tax of group companies Facilitating payment and reporting

Malta: Income tax of group companies 

Facilitating payment and reporting

On 31 May 2019, the ‘Consolidated Group (Income Tax) Rules, 2019’ were published. Below are the most important points of these rules. One important point is that, in terms of these new rules, the Maltese company would not be required to pay income tax at the rate of 35% after which the shareholder must claim a full or partial refund.  Only the effective tax after refund would be paid.

The information contained herein is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

1. The rules: 

a. are intended to make income tax calculations and reporting of group companies easier;

b. apply with effect from financial periods starting on or after 1 January 2019;

c. are optional.

2. The rules provide that eligible group companies would be considered a ‘fiscal unit’ for income tax purposes. The fiscal unit consists of the ‘principal taxpayer’, being a parent company, and its direct and indirect subsidiaries called ‘transparent subsidiaries’. 

3. All companies within the unit must have the same accounting year end.   

4. In order for a transparent subsidiary to qualify as such and thus form part of the fiscal unit, its parent company must hold at least 95% or more of any two of the following three rights: (i) voting rights (ii) right to profits and (iii) right to assets available upon a winding up.  The election is subject to the approval of any minority shareholders of the transparent subsidiary. 

5. In terms of these rules, the principal taxpayer assumes the rights, duties and obligations under the Income Tax Acts of its transparent subsidiaries.  In turn, the rights, duties and obligations of the transparent subsidiaries will be suspended.  For example, the income tax return covering all companies forming part of the fiscal unit would be filed by the principal taxpayer. The other companies within the unit shall not be required to file their own separate return.  

6. Responsibility to pay tax (including any additional tax and interest) rests with the principal taxpayer unless the transparent subsidiaries are fully owned by the principal taxpayer, in which case the responsibility would be joint and several by all group companies. In calculating the income tax due by the fiscal unit, certain intra group transactions are ignored. 

7. Any refund due in terms of Article 48(4) or 48(4A) of the Income Tax Management Act to a shareholder of a company forming part of a fiscal unit shall be taken into account in determining the applicable tax rate of the fiscal unit.

8. Unlike the VAT grouping rules which are applicable only to specific industries such as banking and gaming, the scope of the income tax grouping rules is not limited to any particular sector or industry. 

9. In order to benefit from the advantages, a consolidated balance sheet and profit and loss account of the fiscal unit must be prepared and audited on an annual basis but not necessarily filed with the Maltese tax authorities. 

10. If an election is made, it is possible to eventually renounce being regulated under these rules, subject to any conditions that the Commissioner may require.

Source: KPMG Malta - Tax & Corporate Services