The Consolidated Group (Income Tax) Rules & Guidelines on Registration Process

The Consolidated Group (Income Tax) Rules were published on 31 May 2019 through Legal Notice 110 of 2019. These rules became effective from year of assessment 2020 in relation to fiscal units having accounting periods commencing in 2019 and subsequent years.

Fiscal consolidation is completely optional and at the discretion of the entities whether to form a fiscal unit.

Conditions need to be fulfilled in order for entities to form a fiscal unit. These include: 

• The companies need to have the same accounting period;
• The parent company needs to hold at least 95% of the voting rights of its subsidiaries, must have the right to 95% of the profits available for distribution and/or the right to 95% of the assets upon winding up. Two out of three of the above must be satisfied;
• Consolidated Audited financial statements and Tax return would need to be prepared.

Tax consolidation provides for full integration of the tax position. One tax return would need to be prepared by the Principal taxpayer for all the group. The fiscal unit will be granted with an income tax number.

Although the Principal taxpayer pays the tax, all the entities remain jointly and severally liable for the payment of tax.

Benefits include:

• Cash flow advantages (due to time benefits of paying 5% effectively);
• No dividend distribution required;
• No intermediate holding company required;
• Any intra-group transactions are disregarded for income tax purposes.

Disadvantages:

• The requirement of preparing consolidated audited financial statements, despite the fact that it may not be required by the Maltese Companies Act.

Online Application & Guidelines on Registration Process

The Commissioner for Revenue (CFR) has announced that the Online Application for the Registration of a Fiscal Unit in terms of the Consolidated Group (Income Tax) Rules is available on the CFR income tax portal as from 18^th May 2020.

The Commissioner for Revenue has also published the below guidelines with respect to the registration process.

a. Eligibility to form part of a fiscal unit

In order to join a fiscal unit, all the entities need to be in order in their filings with respect to Tax returns, Vat returns & other VAT filings, FSS returns and cannot have balances due in relation to Income Tax, VAT and/or FSS.

Also for a company to join a previously established fiscal unit, the fiscal unit must also not have any overdue balances and/or penalties in relation to the above.

It is important to note that where a principal taxpayer elects to have its 95% subsidiary to form part of the fiscal unit, and the latter has already filed its income tax return for that year of assessment, this entity will only be able to join as from the following year of assessment.

In order to join a fiscal unit, a company must be 95% subsidiary throughout the entire basis year. However the provisions of article 18(2) of the Income Tax Act shall apply mutatis mutandis.

b. Timelines

The principal taxpayer has a period of 6 months to register a fiscal unit starting from the morrow of the accounting period end, but not before 1 August of the calendar year of the accounting period end. Refer to Schedule A below.

For subsequent years of assessment, the principal taxpayer has a period of 9 months to inform the CFR of any changes to the fiscal unit for that year of assessment. After these 6 months, the principal taxpayer may only remove transparent subsidiaries because there was a change in the structure. In this case, a request in writing to the CFR would be required.

c. Registration Process

Registration of a fiscal unit can only be done through the online profile of the principal taxpayer in the CFR portal. The registered tax representative would need to enter the number of transparent subsidiaries that will form part of the fiscal unit and in order to add a subsidiary, the majority shareholder of this subsidiary should already be included. In order to remove a parent company, all its subsidiaries would first have to be removed from the registration form of the fiscal unit.

d. Registered tax representative

The tax representative shall be common for the principal taxpayer and all the subsidiaries forming part of the fiscal unit. If a principal taxpayer changes its registered tax representative, the new representative shall be deemed to be the tax representative of all the subsidiaries forming part of the fiscal unit, for the purposes of the income tax return submission.

e. Approval of minority shareholder/(s)

In terms of Rule 3(1) and Rule 4(1) of the Rules, where the approval of the minority shareholders is required, the principal taxpayer should ensure such approval to be maintained in the case that this is requested by the CfR.

f. Non-resident company registration

In order for a foreign company to form part of the fiscal unit, whether as a principal taxpayer or as a transparent subsidiary, that foreign company needs to satisfy the definition of ‘a company registered in Malta’. This foreign company would need to become registered with the CFR and obtain a Maltese income registration number.

In the case of a foreign principal taxpayer, it would require to have a fiscal representative in Malta. The fiscal representative can be a Maltese resident transparent subsidiary forming part of the fiscal unit.

g. Termination of a fiscal unit

Before terminating a fiscal unit, all transparent subsidiaries need to be removed from the fiscal unit.

If the principal taxpayer exits in terms of Rule 5(1) of the Rules, the fiscal unit is deemed to cease to exist from the start of the basis year in which the principal taxpayer exits.

About the Author

This article has been authored by Christabelle Agius, CSB Group Senior Manager Client Accounting. For further information or any assistance required please contact us on [email protected].