Malta introduces rules on tax consolidation

Fiscal unity concept introduced in Malta

Dr. Priscilla Mifsud Parker | Published on 22 Jul 2019

Malta introduces rules on tax consolidation

By virtue of Legal Notice 110 of 2019 the possibility of consolidation for tax purposes was introduced into Maltese law. With effect from year of assessment 2020, subject to satisfying certain conditions, a parent company, as defined, and its subsidiaries may elect to be treated as a single entity for tax purposes.

For the purposes of the Consolidated Group (Income Tax) Rules, a parent company is a company that holds shares in another company (“the subsidiary company”) where the holding meets any two of the following conditions:

  • the parent company holds at least 95% of the voting rights in the subsidiary company;
  • the parent company is beneficially entitled to at least 95% of any profits available for distribution to the ordinary shareholders of the subsidiary;
  • the parent company would 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.

Consolidation is at the option of the parent company (referred to as “the principal taxpayer”). In order for consolidation to take place, the accounting periods of all the members of the fiscal group must be the same and where there are minority shareholders, their consent musts be obtained.

Once the election has been exercised, the principal taxpayer would be taxed on all the chargeable income of the members of the fiscal unit. The general rules regarding deductibility of expenses will apply to the fiscal unit. Given that tax consolidation provides for full integration of the tax position of the group, for the purposes of the consolidation, intragroup transfers (excluding transfers of immovable property situated in Malta) are disregarded for tax purposes. 

In calculating the tax liability of a fiscal group, where the shareholders of one of the companies that forms part of the fiscal unit are registered for tax refund purposes, the taxable income of the unit shall be subject to a tax rate which is broadly equivalent to the effective tax rate achieved by offsetting the tax refund against the corporate income tax. Thus, a principle advantage of applying the consolidation regime would be the cash flow benefit derived by eliminating the time lapse for the receipt of the tax refund.

One tax return shall be filed and tax shall be payable by the principal taxpayer on behalf of the fiscal group, however each member of the fiscal unit shall be jointly and severally liable for the payment of tax (if any), additional tax and interest. The principal taxpayer shall also be responsible for the preparation of a consolidated balance sheet and consolidated profit and loss account to cover all the companies in the fiscal unit and for all rights, duties and obligations under the Income Tax Acts with respect to the subsidiaries forming part of the fiscal group, except for those rights, duties and obligations arising under the FSS.

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