On the 31st May 2019 by virtue of Legal Notice 110 of 2019, Malta has introduced rules to facilitate income tax computations and the reporting of group companies, by opting to elect to form one single fiscal unit.
Unlike the provisions tackling VAT Grouping, which are solely applicable to the banking and gaming industries, they are not restricted to any specific industry.
Fiscal Unity – Forming a Fiscal Unit
Subject that the parent company is registered in Malta, and all companies within the group share the same accounting year end, the parent company may elect to form a fiscal unit with its subsidiary companies. In this regard, 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 95% of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.
It is important to note that subsidiary companies not resident in Malta may also form part of the fiscal unity, subject to the parent company (principal taxpayer) being a registered company in Malta.
In the event the fiscal unit is registered successfully, the parent company will undertake all the rights, responsibilities and duties under the Income Tax Acts relative to that fiscal unit.
The principal benefit arises from the cash flow advantage when compared to the current tax refund regime. Upon election, the fiscal unit may achieve an identical effective tax rate without the interval between the payment of the standard corporate tax rate of 35%, and the receipt of the shareholder refund at the level of the shareholder, as the new rules will immediately reduce the tax due.
CSA Group can assist you understand the changes to the income tax rules and how these can impact your business.
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