MALTA Law and Practice Contributed by: Donald Vella and Kirsten Debono Huskinson, Camilleri Preziosi Advocates
2.6 Consolidated Tax Grouping Legal Notice 110 of 2019 introduced the possibility of income tax consolidation in Malta. Companies that form part of a group may elect to be treated as a single taxpayer if they satisfy certain conditions. Upon suc - cessful registration, a parent company is considered the “principal taxpayer” of the fiscal unit, thus becom - ing the sole chargeable fiscal unit for the entire group. Transactions taking place between persons form - ing part of the “fiscal unit” (excluding those involving immovable property in Malta) fall wholly outside the scope of Maltese income tax. The ITA also contemplates group relief provisions. Companies resident in Malta can form a company group for the purpose of setting off losses against the profits of other companies forming part of the same group. Two companies are deemed to be part of the same company group when such companies are both resi - dent in Malta and are not deemed to be resident for tax purposes in any other jurisdiction. Furthermore, one company must be a 51% subsidiary of the other company, or both companies must be the 51% sub - sidiary of a third mother company, which also must be resident in Malta. The 51% holding that the parent company must retain in the subsidiary should entitle the parent company to more than 50% of the voting rights in the subsidiary, more than 50% of the profits available for distribu - tion to the ordinary shareholders of the subsidiary and more than 50% of any assets of the subsidiary upon liquidation of the subsidiary. Once the requirements to classify as a group of com - panies have been met, allowable losses from one company within the group can be surrendered to another company, which can set off the surrendered losses against its profits. These group relief provisions contain certain general and specific anti-abuse provisions, which, inter alia, restrict the surrendering of losses made by companies whose activities are related to immovable property situated in Malta.
ible under the condition that such loss would have been assessable under the ITA if it had been a profit. A loss is calculated in the same way as a profit and therefore can be deemed to be a negative profit for the purposes of deductibility. Where a loss cannot be (wholly) set off against capital gains or income for a given year, it may – to the extent to which it cannot be set off – be carried forward and set off against the income and capital gains for sub - sequent years. It should be noted that a capital gain is brought to charge as part of the total chargeable income of a company. However, a capital loss can - not be set off against other income for the year of assessment; it must be carried forward and set off against capital gains in respect of subsequent years of assessment until the full loss is absorbed. Losses cannot be set off against types of company income that stand to be allocated to the final tax account (FTA), such as any investment income subject to 15% final withholding tax. Losses that are gener - ated from sources of income that are to be allocated to the FTA are excluded from the scope of this provi - sion and can therefore not be deducted. The group relief provisions contemplated by the ITA also allow the surrendering of losses between com - panies that are considered to form part of the same group, and which are exclusively resident in Malta. 2.5 Deduction of Interest The ITA allows the deduction of interest from the income of a local company, if it can be shown to the Commissioner for Tax and Customs that the interest was payable on capital employed in the production of income by that company. This initial test constitutes the most notable limitation imposed on local compa - nies regarding the deductibility of interest expenses: the underlying loan must be used in the production of income that, under normal circumstances, should give rise to taxability under the ITA. The Anti-Tax Avoidance Directive (ATAD) has also introduced interest limitation rules that limit the deductibility of borrowing costs, detailed in 7.1 Over- arching Provisions .
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