By virtue of LN 110 of 2019, the Maltese income tax system introduces the consolidation of income tax returns of the parent and its subsidiaries.
Subject to certain conditions being met, a parent and its subsidiaries will become one “Fiscal Unit” for income tax purposes and file only a single tax return with the parent becoming the “Principal Tax Payer” for income tax purposes only. This does not apply to taxes due under the FSS regime where each subsidiary remains a separate entity.
The main conditions to be satisfied for the consolidation of the companies for tax purposes are as follows:
- Parent company must hold a minimum of 95% in the subsidiary company;
- Both Parent and Subsidiary companies must have the same financial year end;
- Unless the parent owns 100% of the subsidiary, the approval of the minority shareholding would be needed;
Upon becoming a fiscal unit, all unabsorbed balances as well as tax account categorizations are taken over by the parent unless a subsidiary opts out in which case these remain attached to the individual subsidiary;
As expected the “Principal Tax Payer” and all its individual companies forming part of the Fiscal Unit are jointly and severally liable for any tax, additional tax, penalties and interest. Consolidated accounts shall be necessary for each Fiscal Unit.
Where the shareholder of the “Principal Tax Payer” is registered for Income Tax Refund Purposes, the fiscal unit may offset any refund due to shareholders against income tax due by the company, without having to distribute a dividend.
These rules may be applied with effect from Year of assessment 2020.