Have you missed part 1 of this mini-series which delved into the pros and cons of forming a Fiscal Unit? Check it out here!

Statutory conditions

1. The Consolidated Group (Income Tax) Rules (the “Rules”) have introduced the possibility for a group of companies (as defined) to elect to be treated as one single taxpayer, a fiscal unit, subject to the satisfaction of certain conditions as specified in the Legal Notice 110 of 2019.

More specifically, for a parent company (as defined) to make an election in order for itself and its subsidiary to form part of a fiscal unit, the following statutory conditions shall be satisfied:

• The entities involved meet the definition of a “company” as set out in Article 2(1) of the Maltese Income Tax Act (“ITA”).
• The parent company holds at least 95% of the shares in the subsidiary as at the end of the accounting year end, with the said holding giving the parent company a right to at least 95% of two of the following three rights: (i) voting rights; (ii) right to any profits available for distribution; and (iii) a right to any assets available for distribution on a winding up.
• The subsidiary has the same accounting period as its parent company in all years in which it forms part of the fiscal unit.
• The entities forming part of the fiscal unit must not have any outstanding balance due or any outstanding filings required in terms of the ITA, the Maltese Value Added Tax Act (“VATA”) and the Maltese Final Settlement System Rules (“FSS Rules”).
• No company shall form part of more than one fiscal unit at any time.
• In addition to the above statutory conditions, a subsidiary, not being a 100% subsidiary, requires the approval of the holders of the equity shares which are not owned, directly or indirectly, by the parent company.

Other conditions and procedural aspects which ensure the correct creation of a fiscal unit shall also be considered in line with the Rules.

2. Registration timeline

The principal taxpayer is granted a 6-month period to register a fiscal unit, starting from the morrow of the financial period end, but not before 1 August of the calendar year of the financial period end. By way of example, if the financial period end is 31 December 2023, the time window for applying for fiscal unity would be between 1 January 2024 and 30 June 2024. If, however, the financial period end is 31 March 2024, the time window for applying for fiscal unity would be between 1 August 2024 and 31 January 2025.

Subsequent to the initial registration of the fiscal unit, in the event that there is any change to the composition of the fiscal unit for the applicable year of assessment, the principal taxpayer shall be granted a 6-month period in order to inform the Malta Tax and Customs Administration (“MTCA”) of such changes, starting from the morrow of the financial period end, but not before 1 August of the calendar year of the financial period end.

Following the lapse of the 6-month period, the principal taxpayer may not add or remove any subsidiary companies to the fiscal unit and may only remove existing transparent subsidiaries in instances where a change is affected in the structure. If such change is affected in the structure, a request in writing would need to be made to the MTCA. The obligation to notify the Commissioner for Tax and Customs (“CfTC”) of any change rests with the principal taxpayer.

How can Fenlex help?

We would be pleased to discuss these Rules with you in further detail, particularly with regards to their applicability and the possible opportunities that such Rules may present in the context of your group of companies. Please reach out to us on taxenquiries@fenlex.com if you would like to discuss further.

Please note that this article is being published for information purposes only and therefore, it does not constitute or should not be interpreted or construed as legal advice or guidance.