Exploring Tax Consolidation: A Comprehensive Overview of Malta's Fiscal Unity Regime

Corporate Tax

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Malta’s fiscal unity regime offers a number of advantages to group of companies such as simplified tax management, enhanced efficiency and improved cash flow.

Our team of tax specialists stands ready to provide comprehensive support throughout the entire process of forming a Fiscal Unit. This includes evaluating the eligibility of the group for consolidated group rules, proposing potential restructuring solutions to optimise fiscal unity benefits, guiding through registration procedures, and preparing and submitting the consolidated income tax return for the fiscal unit.

Malta's Fiscal Unity Regime 

Malta's fiscal unity regime, established through the Consolidated Group (Income Tax) Rules (hereinafter referred to as “the Rules”) introduced in Legal Notice 110 of 2019, represents a significant development in the country's tax framework.

As from the year of assessment 2020, this regime allows related companies within a group to elect to be treated as a single taxpayer for income tax purposes.

Companies would opt to forming a fiscal unit as companies can streamline their tax calculations and reporting, leading to greater efficiency and clarity in tax management.

How to Form a Fiscal Unit

Under the Rules, companies forming part of a group have the option to consolidate their income tax returns.

A parent company, holding at least a 95% shareholding in its subsidiaries, can elect to form a fiscal unit, resulting in the subsidiaries being treated as transparent entities for tax purposes. In this case, a 95% shareholder is defined within the Rules as having more than 95% in two out of the following three criteria relating to its subsidiaries:

  • The parent company holds at least ninety-five percent (95%) of the voting rights in the subsidiary company;
  • The parent company is beneficially entitled to at least ninety-five percent (95%) of any profits available for distribution to the ordinary shareholders of the subsidiary company;
  • The parent company would be beneficially entitled to at least ninety-five percent (95%) of any assets of the subsidiary company available for distribution to its ordinary shareholders on a winding up.

Under the Rules, for a non-resident company to be included within a fiscal unit and function as the Principal Taxpayer, it must meet the criteria of being "a company registered in Malta". To meet the definition provided within the Rules, a foreign principal taxpayer must engage a fiscal representative in Malta. This fiscal representative could be Maltese-resident transparent subsidiary forming part of the fiscal unit.

In addition to the above, any non-resident company intending to form part of a fiscal unit would be required to register with the Commissioner for Revenue in order to obtain a Maltese income tax registration number before becoming part of the fiscal unit.

Registration Process

To register as a fiscal unit, certain conditions must be met. These include:

  • Ensuring that the accounting periods of all members of the fiscal unit coincide; and
  • There are no pending tax liabilities with the tax authorities, including VAT and FSS.

The registration process is facilitated through the electronic portal of the Commissioner for Revenue, with the group's tax practitioner overseeing the registration procedure.

The principal taxpayer has a 6-month period from the start of the next financial year to register the fiscal unit. For example, companies with accounting periods between January 1, 2023, and December 31, 2023, must register the fiscal unit by June 30, 2024.

Principal Taxpayer and Obligations

Upon successful registration, the parent company becomes the 'principal taxpayer' of the fiscal unit. As the principal taxpayer, the parent company assumes all rights, duties, and obligations under the Maltese Income Tax Act for all subsidiaries within the fiscal unit. This includes the responsibility for filing consolidated income tax returns and ensuring compliance with tax regulations. Additionally, all members of the fiscal unit are jointly and severally liable for tax payments.

Additional Financial Reporting Obligations

The fiscal unity regime imposes specific financial reporting requirements on members of the fiscal unit. Audited consolidated financial statements must be prepared annually for all entities within the fiscal unit.

Specific Tax Treatment for Fiscal Units

Transactions between members of the fiscal unit are generally disregarded for tax purposes, except for certain transfers relating to immovable property and transfers of property companies. The chargeable income of the fiscal unit is taxable solely in the hands of the principal taxpayer, streamlining the tax assessment process.

Refund Mechanism

One notable feature of Malta's fiscal unity regime is the provision for an efficient tax refund mechanism. If shareholders of the principal taxpayer are eligible for tax refunds, these refunds can be offset against the income tax due by the fiscal unit. This mechanism allows for the optimization of tax efficiency, providing additional flexibility for the group.

Termination of Membership

Membership in a fiscal unit may be terminated under certain circumstances, such as when the conditions for registration are no longer met. The rules governing the termination of membership ensure that the fiscal unity regime remains aligned with the evolving needs and dynamics of the group.

Benefits of Malta's Fiscal Unity Regime

  1. Simplified Tax Management: Consolidating income tax returns for related companies simplifies tax management, reducing administrative burden and costs associated with individual tax filings.
  2. Enhanced Efficiency: By treating related companies as a single taxpayer, the regime streamlines tax calculations and reporting processes, leading to greater operational efficiency.
  3. Improved Cash Flow: The regime can improve cash flow by allowing for immediate payment of the effective tax rate, eliminating delays associated with shareholder tax refunds.
  4. Transparency and Accountability: Mandatory preparation of audited consolidated financial statements enhances transparency and accountability, providing stakeholders with a clear view of the group's financial position.
  5. Flexibility for Group Structures: The regime accommodates different group structures, allowing for the inclusion of both Malta-incorporated and foreign subsidiaries within a fiscal unit.

Disadvantages of Malta's Fiscal Unity Regime

  1. Joint and Several Liability: All members of the fiscal unit are jointly and severally liable for tax payments, which could expose financially healthy subsidiaries to the risks associated with the tax liabilities of other group members.
  2. Complexity in Registration: Meeting the conditions for registration, such as aligning accounting periods and obtaining shareholder approval, can be complex and time-consuming, especially for large and diverse groups.
  3. Regulatory Compliance Burden: Compliance with the regime's financial reporting requirements, including the preparation of audited consolidated financial statements, adds to the regulatory burden for group companies.

Smarter Business starts with CSB Group. Contact us today to streamline your group's tax management and enhance operational efficiency. Our team of leading tax specialists is here to provide you with the necessary guidance through the process of forming a Fiscal Unit in Malta. From evaluating the eligibility of the structure and proposing restructuring solutions, to navigating the various registration procedures and preparing and submitting the required consolidated income tax returns, we ensure comprehensive support every step of the way.

Key Contacts

Sacha J. Farrugia

Director & Senior Manager - Business Development

Malcolm Manara

Tax & Business Development Manager



Need our assistance with Tax services?

CSB Group has more than 35 years of experience and the expertise needed to help you with all your tax service needs.

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T: +356 2557 2557

F: +356 2557 2558

E: [email protected]

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