Consolidated Group (Income Tax) Rules 2019
Malta has on the 31st May 2019, by means of Legal Notice 110 of 2019, introduced rules by virtue of which a parent company and its subsidiaries may elect to form one fiscal unit. The Rules shall enter into force as from year of assessment 2020. Unlike the vat grouping rules which are only applicable to the gaming and banking industries, the scope of the income tax grouping rules are much wider and are not limited to any particular industry.
A parent company may elect to form a fiscal unit which will be comprised of itself and its subsidiaries, provided that all companies will have the same accounting year end. For all companies to form part of the same fiscal unit, the parent company must be a company holding shares in the subsidiaries and satisfying any two of the following conditions:
- The parent company must hold at least 95% of the voting rights in the subsidiary companies;
- The parent company must be beneficially entitled to at least 95% of any profits available for distribution to the ordinary shareholders of the subsidiary companies;
- The parent company must be beneficially entitled to at least 95% of any assets of the subsidiary companies available for distribution to its ordinary shareholders on a winding up.
All members of the fiscal unit (with the exception of the principal taxpayer), shall be transparent entities for Malta income tax purposes and any income and gains derived by such transparent subsidiaries shall be directly allocated to the principal taxpayer. Similarly, expenditure and capital allowances incurred by the transparent subsidiaries will be directly allocated to the principal taxpayer. Transactions between members of the fiscal unit shall be disregarded, with the exception of transfers of immovable property situated in Malta, and transfers of shares in property companies.
The principal taxpayer shall, for each year, be required to prepare a consolidated balance sheet and consolidated profit and loss account for all companies within the fiscal unit, which must be audited by a Certified Public Auditor. The principal taxpayer shall also be responsible for filing the tax return of the fiscal unit, while the other members of the fiscal unit will be exempted from preparing audited financial statements and from filing their respective tax returns. The Members of the fiscal unit shall be jointly and severally liable for the payment of tax, additional tax and interest due by the fiscal unit. The rules provide for apportionment mechanisms to take into account instances where the transparent subsidiary will not be wholly owned by the principal taxpayer or by a parent company.