Global minimum tax of 15 per cent from 2023 - impact on Malta?

The Fiscal Unit becomes the regular model in Malta

Which companies are affected?

Large international groups of companies with an annual turnover combined financial revenues of more than €750 million are to be subject to a minimum income tax of 15 per cent from 2023. Such a tax regime would in Malta probably only affect some 18 to 20 large international players from the gaming and financial/corporate services sectors.

For all other companies that do not reach such a high annual revenue of €750 million, taxation under Maltese tax law will remain the same in the future.

The change in tax law goes back to the global agreement on international company taxation of the OECD (Organisation for Economic Cooperation and Development). The European Commission has proposed a directive on 22nd December 2021 for the implementation.

The agreement is primarily intended to prevent large groups, mainly the so-called digital giants, from being able to reduce their profits in a targeted manner. Internationally active parent companies that have subsidiaries in tax havens sometimes try to shift profits in order to benefit from low corporate taxes of for example 10% there. In such cases, the global effective minimum tax of 15% should take effect. This is because the state in which the parent company is domiciled, can now tax the profits subsequently. In the example, the state of residence of the parent company could demand a further 5% income tax in order to realise the global minimum tax of 15% (Untertaxed Payments Rule).

Maltese Company Taxation for Small and Medium Sized Firms - The Benefits of the 'Fiscal Unit'

Company taxation in Malta is based on clear legal principles and efficient application practice by the Maltese tax authorities and fully complies with international best practice principles.

Since 2021 (for the first time for the year of assessment 2020), the tax model preferred by most clients is usually the so-called 'Fiscal Unit'. This offers simplified and faster tax processing in the regular Maltese 'holding - trading structure'.

In the event that the parent company chooses the fiscal unit option, each subsidiary becomes a member of the fiscal unit. The subsidiaries are from then on referred to as 'transparent entities' within the tax unity.

Under these rules, a company that is a member of a tax unit is no longer required to pay the 35% income tax that could be recovered in whole or in part (usually 6/7 = 30%) from its shareholders at a later date (Tax Refund Model). Rather, the tax refund due to the company is taken into account when calculating the final tax liability of the fiscal unit and is settled by the main tax payer of such unit, namely the holding company.

This attractive consolidated tax rate is applied even if the members of the fiscal unity do not distribute the dividends. As a result, the profit of the entire tax unit is then taxed at the low tax rate of 5 %.

What are the requirements for the 'Fiscal Unit'

In order to form a tax unit for the consolidation of company taxes, the parent company must be resident in Malta. In addition, all companies must have the same financial year. Furthermore, all companies must be companies registered in Malta.

Besides this, the parent company has to fulfil at least two of the following requirements:

• hold 95% of the shares in the subsidiary;
• be entitled to at least 95% of the profits;
• in the event of liquidation - be entitled to 95% of the assets.

At this point, it is important to emphasize a further mandatory prerequisite:

For the establishment of the 'Fiscal Unit' it is of decisive importance that all tax liabilities from the past have been settled and that especially the quarterly VAT payments have been made regularly and on time as well.

With the Fiscal Unit, Malta offers a legally secure, efficient and highly attractive way of handling corporate taxation within a group of companies.