Any income or gains derived by members of the fiscal unit will be attributable to the principal taxpayer and will be taxable in the hands of the principal taxpayer at the rate applicable thereto.
Transactions occurring between members of the fiscal unit will not be taken into account in the calculation of the taxable income, expect for the transfers of immovable property situated in Malta and shares in property companies.
All expenses incurred by members of the fiscal unit (which are not ignored transactions) will be deemed to be incurred by the principal taxpayer and will only be deductible against the income attributable thereto.
Furthermore, any tax refund due to a shareholder of a member of a fiscal unit will be considered when determining the tax rate applicable to the fiscal unit.
In practice this means that when the fiscal unit is created, the principal taxpayer takes responsibility for duties and obligations of its subsidiaries. On the other hand, duties and obligations of these subsidiaries are suspended. Therefore, the principal taxpayer will be required to file a self-assessment and tax return for all entities within the fiscal unit.
The principal taxpayer is also responsible for the payment of tax, any additional tax and interest due by the fiscal unit, jointly and severally with its 100% owned members of the fiscal unit.
Moreover, the principal taxpayer is required to prepare each year audited consolidated balance sheet and audited consolidated profit and loss account covering members of all fiscal unit.
Where the final tax payable by the principal taxpayer is lower than 95% of the aggregate of the tax that would have been payable by all members of the fiscal unit (should they not form the fiscal unit), then the difference between the tax otherwise payable and the actual tax paid will be considered as an advance made to the shareholders of the principal taxpayer.
That advance will be deemed to be an untaxed distribution of a dividend to the shareholders of the principal taxpayer and subject to tax accordingly.
Benefits of the regime
These rules create a cash flow advantage in comparison with the application of the tax refund system. When opting for the fiscal unit, the shareholders of a Malta company will be allowed to avail of the same effective tax rate without the requirement that the Malta subsidiaries pay tax at 35% rate and without waiting for the tax refund to be received. As a result, the cash that would otherwise be needed whilst waiting for the refund will be readily available for reinjection in the business or even distribution to the shareholders.
Another benefit of these rules is that the fiscal unit will be able to account for potential tax refunds and benefit from the attractive consolidated tax rate even if the members of the fiscal unit do not distribute any dividend.