We hope that you got the chance to visit Fenlex Corporate Services at Freshers week in collaboration with ASCS. We thoroughly enjoyed meeting all students and discussing their future goals . Get on target and visit our careers page : https://ff-ontarget.mt/careers/.
Introduction to the Rules
The Tax Consolidation Rules in Malta have been recently introduced via Legal Notice 110 of 2019, Subsidiary Legislation 123.189.
The Rules aim to simplify the tax compliance obligations of companies forming part of a Group (as defined under the rules), whilst arriving at the same tax charge for the Group as a whole. These rules introduce the formation of a tax Group in Malta.
For the purposes of the Rules, the Parent Company of the Group (the Principal Taxpayer) must hold in its subsidiaries at least 95% of either:
The subsidiaries forming part of the Group (Fiscal Unit) would be considered as transparent for tax purposes.
Forming part of a Group and the application of these rules is optional and the choice to form a Fiscal Unit is to be made via an election made at the level of the parent company (holding 95% shareholding in its subsidiary), but must regardless be subject to the consent of the minority shareholders, if applicable.
The Rules in Practice
The Main outcome of the application of the Rules is the fact that intra-group transactions are ignored for tax purposes, and thus not included in the tax computation of the group, except for transfers related to Immovable Property situated in Malta. Based on the fact that it generally takes months for a shareholder to receive a refund, the main aim of these Rules is to provide a cash flow advantage in the instance where shareholder refunds may be claimed by non-resident shareholders. This is achieved by having the tax computation factor into the possibility of a refund and arriving at the net effective tax without having to claim the refund.
The Rules also have an affect on the Notional Interest Deduction (NID), whereby the application of the NID must be taken for the group as a whole, including the fact that the Risk Capital of the Group would be aggregated, whilst eliminating any intra-group debt.
With respect to Groups wholly owned by Maltese Resident shareholders, and thus with no tax refund availability, the rules are nonetheless beneficial in that they simplify the tax obligations without having to claim the imputation credits.
The Rules naturally include a number of obligations which need to be adhered to in order for a Group to be able to apply the said Rules. For example, the Principal Taxpayer shall be responsible for the payment of the tax and for the submission of the annual tax return. Furthermore, the Principal Taxpayer will be required to prepare an audited consolidated balance sheet and consolidated profit and loss account covering all the companies in the Fiscal Unit. On the other hand, the transparent subsidiaries will be exempt from preparing audited financial statements. It is important to note however that every entity forming part of the Fiscal Unit shall be jointly and severally liable for the payment of the tax.
Conclusion
Whilst the Rules seem to be providing a practical solution for the current cash flow disadvantage in claiming tax refunds, it is important to ensure that the benefits outweigh the costs applicable to create a Fiscal Unit. Furthermore, several aspects in the Rules are open to diverging interpretations and thus the Revenue may be issuing guidelines some time in the future for a better application of these Rules.
Author: Stephanie Aquilina Galea, Tax Supervisor, Tax Compliance Department
As was the case for remote gaming and (much more recently) distributed ledger technology and cryptocurrencies, Malta was the first EU member state to publish legislation for Electronic Money Institutions under the Financial Institutions Act in 2011.
An Electronic Money Institution, or e-Money Institution (“EMI”) is a financial institution that is authorised to issue electronic, or digital (including magnetically stored) money. Said authorisation may be obtained through a licence in line with the Financial Institutions Act or through a similar grant from another EU jurisdiction in accordance with the Electronic Money Directive.
In addition, licenced EMIs may provide certain payment services and the operation of payment systems. These include:
Since EMIs are not permitted to undertake lending or other bank related activities (hence the issuance of credit cards is not permitted), clients are not exposed to credit risk as would be the case with a normal bank. While EMIs may grant credit related to certain payment services, this is subject to the condition that any such credit shall not be granted from the funds received in exchange of e-money and held in accordance with the prescribed safeguarding requirements.
Similar to obligations imposed on licenced remote gaming companies in Malta, funds representing e-money must be ring-fenced and EMIs are liable for any shortfalls.
Fenlex Corporate Services Ltd. has a dedicated banking & compliance team with a working relationship with licenced EMIs in Malta. For more information to open an account with an EMI in Malta, kindly contact romina.camilleri@fenlex.com.
Fenech & Fenech Advocates and Fenlex Corporate Services have the pleasure to welcome this year’s participants to the Summer Internship Programme. Throughout an intensive 9-week programme the participants will have the opportunity to experience life in a very busy top-tier law firm as well as a reputable corporate service provider. This experience will serve them well as a hands-on and practical component to accompany their formal academic studies. Good luck to all!
The management and professional staff of Fenlex Corporate Services recently hosted a meeting with Mr. William Spiteri Bailey, President of the Malta Institute of Accountants, at their new offices in Marsa. The main aim of this meeting was to further explore and develop mutual co-operation between the company and the Institute as well as discussing the aspirations of the professionals who work within the company.
Following the ratification of Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘MLI’) back in end of 2018, the MLI came into force in Malta on the 1 April, 2019.
The MLI is an OECD project with the main objective being that of providing tangible solutions for governments to eliminate the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide. The MLI aims to lessen the opportunity for tax avoidance by multinational companies.
The MLI has resulted into modifications of some of the double tax treaties that Malta has entered into over the years. In this regard, the Commissioner for Revenue has already indicated which of the Double tax Treaties have so far been modified as a result of the MLI. Kindly refer to the below link indicating which treaties have been modified:
https://cfr.gov.mt/en/inlandrevenue/itu/Pages/Double-Taxation-Conventions.aspx
Author: Stephanie Aquilina Galea, Tax Supervisor, Tax Compliance Department