The Maltese tax authorities have introduced a framework allowing companies within the same group to elect to be treated as a single taxpayer. This development presents a significant opportunity for eligible corporate groups to streamline their tax compliance and potentially achieve more efficient tax outcomes.
Our Malta Trusts and Corporate Services Director, Janice Copperstone, has prepared a helpful Q&A that breaks down the key provisions, eligibility criteria, and practical implications of forming a “fiscal unit” under the new rules.
Q: What does the enactment provide for companies forming part of a group?
A:
- It allows companies to elect to be treated as a single taxpayer, subject to certain statutory obligations.
Q: What do the new rules allow?
A:
- Bodies or persons under common ownership can compute and report chargeable income or losses on a collective basis.
- Compliance with the provisions of the Income Tax Act as if they were a single body of persons.
Q: What happens upon successful registration as a “fiscal unit”?
A:
- The parent company becomes the principal taxpayer.
- All chargeable income of the subsidiaries is taxable solely in the hands of the principal taxpayer.
- Intra-group transactions are disregarded, except for transfers of immovable property in Malta.
- Dividends from profits earned before joining the fiscal unit are not disregarded.
Q: What are the eligibility conditions for forming a fiscal unit?
A:
- The unit must include a parent company and its 95% subsidiaries (i.e., subsidiaries of which the parent company holds at least 95% of voting rights, profits, and assets).
- The parent elects to compute their chargeable income (or losses) on a collective basis, filing a single tax return as one unit.
- All members must have the same accounting period.
- No entity can belong to more than one fiscal unit at the same time.
- Election for a non-100% subsidiary (i.e., the parent company holds less than 100% of the subsidiary) must be approved by minority shareholders.
Q: What happens to existing balances upon joining a fiscal unit?
A:
- Carried-forward items and tax account balances are transferred to the principal taxpayer.
- Non-100% subsidiaries may opt out, with balances held in abeyance until they leave the fiscal unit.
Q: What responsibilities does the principal taxpayer assume?
A: All rights, duties, and obligations under the Income Tax Act with respect to subsidiaries within the fiscal unit, except those arising under the Final Settlement System rules.
Q: What liability do members of a fiscal unit have?
A: Joint and several liability for payment of any tax, administrative penalties, and interest arising under the Income Tax Act.
Q: What financial statements must be prepared?
A: Audited consolidated financial statements on an annual basis, covering only entities within the fiscal unit.
Q: How is the chargeable income computed?
A: As if derived by the principal taxpayer, taxed in their name at relevant rates, retaining the same character and source, and allocated to the same tax account.
Q: What rules apply to expense deductibility?
A: General rules under the Income Tax Act.
Q: How can the fiscal unit achieve tax efficiency?
A: By offsetting shareholder refunds against company tax liabilities, without the need to distribute dividends.
Q: How are interests held by a transparent subsidiary treated?
A: Deemed to be held directly by the principal taxpayer.
Q: Who receives double tax relief, if applicable?
A: The principal taxpayer, provided satisfactory evidence of foreign tax paid is available.
For more information, please reach out to Janice.
This Q&A is intended for informational purposes only and does not constitute tax or legal advice. Readers should consult with a qualified advisor regarding their specific circumstances and obligations under Maltese tax law.