When opting to report under the fiscal consolidation regime, groups may settle the net tax due by the group, which would broadly represent the tax due by the group members after considering any refunds of tax due to other members of the group. Apart from bridging the time gap between the tax settlement and the refund receipt, and thus improving the group’s cash flow management, administrative burdens tied to paying tax and receiving refunds separately are also avoided.
A fiscal unit benefits from a reduced reporting burden since the principal taxpayer is required to submit only one tax return for the whole fiscal unit. Separate tax computations should still be prepared at the level of each fiscal unit member, to cater for anti-tax avoidance provisions. Moreover, a single tax payment for each financial year is made by the principal taxpayer on behalf of the fiscal unit, notwithstanding the fact that all members of the fiscal unit are jointly and severally liable for such payments.
Although the fiscal unit is required to prepare consolidated financial statements, encompassing the results of all of the fiscal unit members, many parent companies already prepare consolidated financial statements for statutory purposes. Therefore, the group may benefit from forming part of a fiscal unit without much added financial and reporting burdens.
The fiscal consolidation regime may be availed of by groups of all sizes and is not solely restricted to entities which are registered in Malta, although certain criteria would need to be met upon registration.
A parent company, referred to as the principal taxpayer, may elect to form a fiscal unit with its subsidiaries. Such subsidiaries would then be treated as transparent for Maltese income tax purposes.
The following conditions should be satisfied for a successful registration:
The parent company must hold at least a 95% shareholding in each subsidiary joining the fiscal unit;
Where the principal taxpayer holds less than 100% shareholding in a subsidiary, approval from the minority shareholder/s should be obtained for the subsidiary to join the fiscal unit;
All of the fiscal unit members must have an accounting period which starts and ends on the same date;
None of the fiscal unit members may be a member of more than one fiscal unit at the same time; and
Overdue balances or outstanding filing requirements in terms of the Income Tax Act, the VAT Act and the FSS Rules must be addressed before the application is submitted.
Legislation lays out a specific time window for registering a fiscal unit, therefore an appropriate timeline should be set up to allow for all of the eligibility criteria to be addressed.
