New Malta Tax Rules – Fiscal Unit
The Consolidated Group & Fiscal Unit
In May 2019, the “Consolidated Group (Income Tax) Rules 2019” were published. Below are the key points and requirements to be met for a crucial change – the Maltese Company, forming a part of Fiscal Unit and according to the rules of Consolidation, would not be required to pay income tax at 35% after which its shareholder claims a 30% refund. Only effective tax at 5% has to be paid. Consequently, the funds that would otherwise be locked in will be readily available for reinvestment or distribution.
FISCAL UNIT CONCEPT EXPLAINED
A Fiscal unit comprises a parent company and its subsidiaries, where the parent company elects to compute and bring to charge their chargeable income or losses on a collective basis, filing a single tax return as a single body of persons.
A Fiscal Unit consists of a principal taxpayer (parent company) and its subsidiary (which could be either entity registered in Malta or an outside Malta) provided it meets any two of the following conditions:
• The parent company holds at least 95% of voting rights in the subsidiary
• The parent company has at least 95% of profit entitlement in a subsidiary
• The parent company would be entitled to at least 95% of any assets of the subsidiary in case of wining up
The Parent company which submits an election to form a fiscal unit will be deemed to be the principal taxpayer for the purposes of the GCR’s. Principal taxpayer maybe a Malta resident company, a Malta branch of a Foreign entity, as well as Trusts and Foundations that have the election to be treated as companies. All entities within a fiscal unit should have an accounting period beginning and ending the same date.
CHARGEABLE INCOME & TAX LIABILITIES
The chargeable income of a fiscal unit shall be computed as if such income was derived by the principal taxpayer and is to be charged to tax in the name of the principal taxpayer at the relevant rate of tax.
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. Furthermore dividends paid by a transparent subsidiary to its parent company out of taxed profits which were derived prior to the formation of the fiscal unit will not be ignored and these shall be deemed to be dividends derived by the principal tax payer.
Income or gains allocated to the principal taxpayer shall retain their character and source. Furthermore, any foreign income tax suffered by a company forming part of the fiscal unit, shall be deemed to have been incurred by the principal taxpayer, and relief from double taxation shall be allowed to the principal taxpayer.
When it comes to the payment of the tax due, the liability to tax is joint between the principal taxpayers and fully owned subsidiary (or subsidiaries), but may be apportioned as the principal taxpayer may determine.
The principal taxpayer is required to prepare each year an audited consolidated balance sheet and audited consolidated profit and loss account covering all fiscal unit members. Both entities in the fiscal unit will be filing a single tax return as a single body of persons
The principal payer who submits an election to form a fiscal unit is deemed to be a principal taxpayer. All income, gains, deductions allowance and credit are seen to be derived directly by the principal taxpayer.
The main advantage of fiscal unity is the cash flow advantage when compared to the current system of tax refunds. This is a time and money-saving solution. Plus it makes your paperwork easier, allowing to file only one tax return, instead of multiple. If paying 5% corporate tax suits you fine for your business, Malta company is for you. All you need to consider is which option suits you the best: using a foreign company and Malta Co? Or running two Malta companies? Setting up a subsidiary company in Malta forming a fiscal unit may
well fit the bill if you can utilize a suitable foreign company. With PROSPERA you shall get it right.
If you wish to know how to set-up your company in Malta, then be sure to contact us.