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The enactment of the Consolidated Group (Income Tax) Rules (Legal Notice 110 of 2019) introduced the possibility of income tax return consolidation for group companies. As from the year of assessment 2020, companies forming part of a group of companies may elect to be treated as a single taxpayer meaning, the parent company together with its subsidiaries may elect to be treated as one fiscal unit, resulting in the subsidiaries being considered as fiscally transparent for tax purposes.

What are the conditions for registration?

  • The parent company must hold at least 95% in two out of three following criteria of its subsidiaries:
    • Actual percentage holding
    • Voting rights
    • Profits available for distribution
  • The accounting period of the companies concerned must have coterminous year ends.
  • The entities forming part of the fiscal unit must not have any Income Tax, VAT, or FSS pending liability with the Commissioner for Revenue.

Registration process

If the abovementioned criteria are met the tax practitioner of the group will register the fiscal unit via the electronic portal of the Commissioner for Revenue.

Foreign companies may form part of the fiscal unit together with Malta incorporated subsidiaries.  However, in order to avail themselves of this regime they should be registered for tax purposes in Malta before proceeding with the registration of the fiscal unit.

The principal taxpayer shall be granted a 6-month period in order to register a fiscal unit, starting from the first day of the next financial year. For example, companies with account periods falling between 1st January 2021 and 31st December 2021 need to register the fiscal unit by 30th June of 2022.

Upon successful registration of the fiscal unit, the parent entity will be considered as the ‘principal taxpayer’.  All chargeable income of all members of the fiscal unit would be deemed to have been generated by the principal taxpayer of the group. Any intra-group transactions between members of the fiscal unit are ignored for tax purposes.

What are the obligations of the principal taxpayer?

Principal taxpayers shall be responsible for filing the consolidated income tax return together with the supplementary document as requested by the Commissioner for Revenue. Additionally, for the purposes of submitting the consolidated income tax return, a consolidated set of audited financial statement need to be prepared for the fiscal unit. Individual members of the fiscal unit will not be required to submit individual tax returns however, all member of the fiscal unit shall be jointly and severally liable for the payment of the tax

What is the main benefit of the fiscal unity?

Essentially, the fiscal unit improves taxpayers’ liquidity position since it allows for the immediate payment of the effective of tax rate, thereby addressing cashflow problems of the normal regime stemming from the time lag between the date of the tax payment by the taxpayers and the date of receipt of refund by their shareholders.

How can Zampa Debattista assist?

Our team of tax specialists can assist with the whole process, starting from understanding whether the group is eligible for consolidated group rules, propose possible restructuring to the group to be able to benefit from fiscal unity, assistance with registration and preparation and submission of the consolidated income tax return for the fiscal unit.

Please note that this article is being published for information purposes only. As such, it does not constitute or should not be interpreted or construed as legal advice or guidance. Zampa Debattista does not accept responsibility or liability for any damages arising as a result of using this information as legal advice or guidance.

Markita Falzon

Direct Taxation

Luke Aquilina

Direct Taxation

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