Consolidated Group (Income Tax) Rules, 2019
Author: Josef Cardona
On 31 May 2019, Malta published the “Consolidated Group (Income Tax) Rules”. The rules will come into force as from year of assessment 2020 and the rules introduce the concept of fiscal units into Maltese tax law.
A parent company (the principle taxpayer) may make an election for itself and its subsidiaries (both Maltese and oversea companies) to form a fiscal unit. The parent company must hold at least 95% of the following rights – voting rights; profits available for distribution; and assets available for distribution upon winding up. Moreover, both the parent and subsidiaries must have the same accounting year end. Upon election, subsidiaries are referred to as transparent subsidiaries. Entities which are not resident in Malta may form part of a fiscal unit and the principle taxpayer must always fall within the definition of “a company registered in Malta” as defined by the Income Tax Act (ITA). Once a fiscal unit is registered, the principle taxpayer will assume all rights, duties and obligations as defined under the ITA. A transparent subsidiary will no longer form part of a fiscal unit should the said subsidiary no longer remain a 95% subsidiary or no longer has its accounting period beginning and ending on the same dates as the principle taxpayer of the fiscal unit it forms part of.
Chargeable income of a fiscal unit
Any income or gains of a fiscal unit shall be deemed to be derived by the principal taxpayer and shall be chargeable to tax in the name of the principal taxpayer. All income derived and expenses incurred by companies forming part of the fiscal unit shall be deemed to be derived by the principal taxpayer. Any intercompany transactions (ignored transactions) occurring between two or more companies forming part of the fiscal unit shall not be included in the chargeable income of the fiscal unit, with exception to transfers of immovable property situated in Malta and/or transfer of property companies. Any foreign income tax suffered by a company forming part of the fiscal unit, shall be deemed to have been incurred by the principal taxpayer. Relief from double taxation in line with the ITA will be permissible.
Maintenance of a fiscal unit
Every principal taxpayer shall be required for each year to prepare an audited consolidated balance sheet and consolidated profit and loss account covering all the companies in the fiscal unit of which it is the principal taxpayer. Subsidiaries forming part of the fiscal unit will be exempt from preparing audited financial statements.
Every principal taxpayer shall file a self-assessment and return in respect of the fiscal unit of which it is the principal taxpayer. Where a company other than the principal taxpayer forms part of a fiscal unit, such company shall be exempted from the requirement to file a self-assessment and an income tax return. The entities forming the fiscal unit will be jointly and severally liable for the payment of tax.