Earlier this year, Malta introduced fiscal unity rules that enable related Maltese and foreign companies to form part of a tax group for Maltese income tax purposes.
Under the new legislation, groups of companies may elect to be treated as a single fiscal unit. The chargeable income of the group would then be taxable only at the parent entity—or principal taxpayer—level.
This fiscal unity creates a cash flow advantage for groups of companies when compared to the current operation of the partial shareholder tax refunds. Under the new rules, the fiscal unit may apply the lower effective income tax rate when calculating its tax liability, rather than applying and paying income tax at the 35% rate and subsequently applying for a partial tax refund when a dividend is paid to shareholders. The lower effective tax rate is therefore achieved without the need for a dividend distribution.
The application of this tax consolidation is subject to the conditions and requirements set out in the legal notice (L.N. 110 of 2019). The main requirements are that the parent entity must hold at least 95% of two of the following rights’ voting rights, profits available for distribution, or assets available for distribution upon winding up. Additionally, the accounting periods of all members in the group must begin and end on the same date.
These new rules will come into force from the year of assessment 2020 (basis year 2019).
Alter Domus can help your business determine if you are eligible for the consolidated group scheme, prepare consolidated profit and loss accounts and consolidated balance sheets, and file relevant tax returns.
For further information about how Alter Domus can assist, kindly contact Mariestell Dalli.