Following the announcement made by the Minister of Finance during the budget speech in October 2015, a legal notice (L.N. 162 of 2018) was finally published to introduce VAT Grouping. However, this new concept is not being made available to all groups which may exist for other purposes, such as the Income Tax Act.

 

VAT Grouping is quite common in other EU Member States however, it appears that Malta is reluctant to introduce this concept across the board and therefore the new regulations are only applicable to groups wherein at least one member is a licensed or regulated entity within the gaming sector or the financial services industry such as banks, financial institutions, insurance, investment services, securitisation etc, the services of which are usually exempt without credit.

 

To form a VAT Group, the following conditions must be satisfied:

 

  • All members of the VAT Group are legal persons established in Malta;
  • At least one of the members of the VAT Group is a taxable person licenced or regulated under any of the following Acts:
    • The Banking Act;
    • The Financial Institutions Act;
    • The Gaming Act;
    • The Insurance Business Act;
    • The Insurance Intermediaries Act;
    • The Investment Services Act;
    • The Lotteries and Other Games Act;
    • The Retirement Pensions Act;
    • The Securitisation Act.
  • Members of the VAT Group are financially, organisationally and economically linked to each other.  A financial link exists when two or more entities are directly or indirectly held by at least 90% by the same person or persons.   The financial link may be established on the basis of voting rights, profit entitlement or access to winding up distributions.  An organisational link exists when two or more entities share their management structure whilst an economic link exists when entities are linked to each other by virtue of the industry they operate in, or provide services which are interdependent or complementary to each other.  An economic link also exists when group members carry out activities which are wholly or substantially carried out for the benefit of the other Group Members.
  • All Members of the VAT Group are up to date with their VAT filing requirements and VAT payments.

 

Members of a VAT Group may only form part of one VAT Group.  Approval must be obtained from the VAT Department and such approval may be done by any member.  An application may also be made by a person to join an existing VAT Group.

 

Application for the registration of a VAT Group as well as the addition of new members must be made electronically however, the details are not yet available.

 

Members within a VAT Group must nominate a Group Reporting Entity. Such entity is responsible of fulfilling all the obligations arising under the regulations.   Once an entity forms part of the VAT Group, any supply (including supplies and/ or Intra-community acquisitions as well as any importation made under Article 4 of the VAT Act) made by the members are deemed to have been supplied made by the Group Reporting Entity and therefore reported as such.  The VAT status of members within the group (whether taxable persons or non-taxable legal persons) becomes irrelevant as the VAT Group itself is regarded as a taxable person.

 

Approved VAT Groups are notified by the VAT Department with the date from when the VAT Group is deemed to have been formed. The Group Reporting Entity and the other members of the group are also approved by the VAT Department.  The VAT Group will also have a separate Group VAT number.

 

The VAT registration number of the members of a VAT Group is cancelled once a member becomes an approved member of a VAT Group.  This is done because all the transactions entered into by any of the VAT Group Members is deemed to be made by the Group Reporting Entity.   The regulations contain provisions to regulate the cancellation of the VAT number of individual VAT Group Members where the assets of the economic activity include capital goods.

 

Members within the same VAT Group have joint and several liability for the payment of any tax as well as any administrative penalties and interest due.    Such liability will continue to apply even after a Member leaves the VAT group if such payments arose during the period when such Member was still part of the VAT Group.

 

The Group Reporting Entity is required to inform the Commissioner for Revenue should any of its members cease or will cease to satisfy the conditions to form part of the VAT Group.  Such notification should be made within 15 days from the changes in circumstances.

 

The VAT Group may also be dissolved after the lapse of 24 months from its registration.  The members of a ‘former’ VAT Group may reconstitute the VAT Group only after the lapse of 24 months from the cancellation of such VAT Group.

 

Supplies between members of a VAT Group

 

Any supplies made between VAT Group Members are disregarded for VAT purposes.   The regulations include an anti-abuse provision whereby the Commissioner for Revenue is granted the necessary powers to bring to tax supplies made within the VAT Group should the transactions be deemed as being tax avoidance or tax evasion.

 

The ‘exemption’ for intra-group supplies does not apply when the supply of services is made by or to an establishment situated outside Malta (including for example a branch or a permanent establishment of a Maltese company which forms part of a Maltese VAT Group), if that establishment forms part of a foreign EU VAT Group.

 

Through the introduction of VAT Grouping provisions, separate legal entities may now operate as a single taxable person thus reducing the administrative burden on the various group companies as well as reducing cash flow issues associated with the payment and recovery of VAT.  It is a pity that the group definition for VAT grouping is very restrictive and not all groups may benefit from such provisions.