Following the announcement in the last Government Budget Speech, Legal Notice 162 of 2018 has introduced the possibility of VAT Grouping in Malta.
VAT Grouping is a tool, available in various EU Member States, which is mainly used to prevent having irrecoverable VAT on charges made on intra-group transactions.
Eligibility criteria
VAT Grouping applies when two or more legal persons established in Malta for VAT purposes apply to be registered as a single taxable person. For a group of companies to be eligible to apply to be treated as a “VAT Group” the following conditions must be satisfied:
- At least one of the entities must be a taxable person licensed or recognised by the MFSA or the MGA.
- At the time of application, all entities must be up-to-date with their VAT and income tax filings and must have settled all related dues.
- The entities within the VAT Group must be bound to each of the others by financial links, economic links and organisational links.
A Financial link shall be deemed to exist where the same person holds directly or indirectly more than 90% of any two or more of the following:
- voting rights/equivalent interests;
- entitlement to profits available for distribution;
- entitlement to surplus assets available for distribution on a winding up/equivalent event.
An Organisational link shall be deemed to exist if the entities have a shared management structure, even if this is in part.
An Economic link shall be deemed to exist when:
- the activity of each of the entities is of the same nature or falls within the same industry; or
- the activities of the entities are complementary or interdependent; or
- one member of the VAT Group carries out activities which are wholly or substantially to the benefit of any one or more of the other members.
Other conditions
No person may be a member of more than one VAT Group at the same time.
Members of the VAT Group are required to appoint from amongst themselves a Group Reporting Entity. This entity will exercise any and all rights and discharge any and all obligations arising to the VAT Group under VAT legislation. Generally, this means that any importation, intra-community acquisition or supply made by or to a member of the VAT Group will be treated as an operation made by or to the Group Reporting Entity.
Notwithstanding the appointment of a Group Reporting Entity, all the members of the VAT Group would still remain jointly liable for any VAT, interest or penalties due.
Benefits of VAT Grouping
VAT Grouping can result in a much simpler VAT compliance process for groups having operations in the regulated financial services, insurance and gaming sectors. We recommend that groups operating in these sectors assess their eligibility to apply VAT Grouping as well as the potential VAT benefits and other consequences of registering as a VAT Group.