Income Tax Consolidation in Malta
If you benefited from Malta’s advantageous tax refund system, or are eligible to do so, keep reading. For those who cannot benefit from the tax refund, unfortunately you cannot benefit from this either.
Legal notice 110 of 2019 was introduced with the aim to improve the waiting times required to process tax refunds, making Malta an even more attractive tax friendly and beneficial jurisdiction. This notice introduced the Consolidated Group regulations as a subsidiary legislation of the Income Tax Act (Chap 123 of the Laws of Malta). In a nutshell this notice allows a group of companies to pay the effective tax rate immediately and avoids having to pay the full tax and get the refund.
To be able to pay the effective tax rate immediately and benefit from this, companies have to form what is referred to as a fiscal unit. A fiscal unit means a group of companies which is typically portraited as a holding company and its subsidiaries. To be able to create a fiscal unit, a few criteria have to be meet. The 2 main ones are: –
1) The parent company holds at least 95% shareholding in the subsidiaries; and
2) The accounting period of the members of the fiscal unit starts and ends on the same date.
In the first instance, all companies can be part of the fiscal unit. However, in the second instance, subsidiary 3 cannot join the fiscal unit as the parent only holds 80% of the shareholding. In this case, the fiscal unit can only be made up of the holding, Subsidiary 1 and Subsidiary 2.
- The parent company will be considered as a the ‘principal taxpayer’ which means that it will be responsible for lodging all taxation documents.
- Companies can only form part of 1 fiscal unit.
- The total tax paid as a fiscal unit should be the same as if separate computations were done. This scheme should not deem to be more beneficial for companies
- When a parent company does not own 100% of the shareholding, it needs the written approval of the minority shareholding.
- Audited consolidation are required for the fiscal unit
How can we help?
Do you have any query on how to apply the consolidated tax or on how to form a fiscal unit? At Borg Galea & Associates we have a number of tax experts who would be able to advise on the structure you need as well as help you set up the fiscal unit so that you will start benefiting from paying the effective tax rate immediately.
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