Malta has introduced legislation to allow for the possibility of Income Tax consolidation for corporate entities. A parent company with a subsidiary both situated in Malta can now elect to take advantage of this change in tax legislation which allows for an efficiency in the payment of the effective tax rate of 5% for trading companies or 10% for companies with non-trading activity.
Generally, a corporate entity in Malta is taxed the corporate tax rate of 35% on its trading profits and then the shareholders can claim a tax refund of 6/7th of the tax paid, which left an effective tax rate of 5%. Whilst this was efficient for tax purposes the fact the tax charged at 35% had to be paid and a refund then received back for the 30% had to be received in its entirety, this still represented an inefficiency for cash flow purposes. Although this was mitigated by the fact that the tax refund was fully refunded within 14 days by the Income Tax Department if all filings were carried out in a timely manner.
The new legislation allows for a parent company and a subsidiary situated in Malta to be able to file an election to inform the Inland Revenue Department of Malta that they wish to form a fiscal unit for tax purposes subject to satisfying some anti-abuse conditions. It should be that noted that both companies should have the same financial reporting year end. The parent company should also have at least two of the three following entitlements:
- 95% from voting rights
- 95% rights to profits on distribution
- 95% rights to assets on liquidation
The companies within the fiscal unit would need to be up to date with all filings with no penalties outstanding. Consolidated financials would need to be submitted for the companies within the fiscal unit. The fiscal unit for tax purposes would file a consolidated corporate tax return for all entities with the actual tax to settle by the corporate entity being the effective tax rate of 5%.
Subject to some anti-abuse conditions the fiscal unit for tax purposes could also be applied to non-trading entities that derive their income from more passive sources such as interest income, investment income (not actively trading) and some forms of intellectual property income which is taxed at the effective tax rate of 10%.
InterGest Malta is able to assist with the setting up of businesses in Malta for trading purposes, advise on setting up tax efficient structures for a variety of asset classes and assist on setting up tax efficient structures in relation to trading across numerous EU member states.
