In 2017, the Malta Minister of Finance announced the introduction of VAT Grouping in the 2018 Budget Speech. New Maltese VAT Grouping provisions shall enter into force on the 1st of June 2018. The regulations were published on 22 May of 2018 and will introduce the possibility of VAT Grouping for regulated financial services and gaming sectors. Legal entities which have fixed establishments in Malta and which have financial, economic and organisational ties between them, can register as a single person for VAT purposes. The highlights of the new regulations are outlined in this briefing note.

VAT Grouping: An option for companies within the financial services, insurance and gaming industries.

The EU VAT Directive allows an option for member states to regard multiple taxable persons as one taxable person for the purpose of the VAT (the VAT Group). In Malta, this option has been exercised to allow for entities licensed/recognised by the Malta Financial Services Authority (MFSA) or the Malta Gaming Authority (MGA) to set up a VAT Group.

A key benefit of VAT Grouping is that supplies between group members are disregarded for VAT purposes, thereby enabling operators to outsource internally, including, if that is an option, from foreign entities e.g. overseas head office) without incurring irrecoverable VAT.

Eligibility criteria

Two or more persons, established as legal entities in Malta for VAT purposes, are eligible to apply to the Commissioner for Revenue to form a new VAT Group and be registered as a single taxable person, subject to the fulfilment of the following conditions:

a) At least one of the applicants that are to form a VAT Group must be a taxable person licensed or recognised by the Malta Financial Services Authority or the Malta Gaming Authority in terms of applicable legislation.

b) Applicants who intend to form a new VAT Group or applicants who want to join an existing VAT Group must be bound to each other by financial, economic and organisational links:

(i) Financial links are deemed to be present where the same person holds directly or indirectly more than 90% of any two or more of the following:

  • The voting rights (or equivalent interests) in the other person;
  • The entitlement to the profits of the other person, which are available for distribution
  • The entitlement to surplus assets available for distribution on a winding up or equivalent event.

(ii) Economic links shall be deemed to exist when:

  • the activities conducted by the persons who are to form a VAT Group are similar in nature or can be categorized within the same industry
  • The activities carried out by one person are wholly or substantially for the benefit of any of the other (potential) group members;
  • The activities conducted by the persons involved are interdependent or complementary.

(iii) Organisational links are deemed to exist where the applicants have a shared management structure (whether in whole or in part).

Persons cannot be a member of more than one VAT Group at the same time. Persons bound to each other by financial links, organisational links and economic links may only form part of the same VAT Group.

Following the receipt of the application by the applicants who meet these conditions, the Commissioner of Revenue shall register them as a VAT Group.

Main Implications of the VAT Group

Upon registration, the VAT Group in its entirety will be considered to be one taxable person for VAT purposes.The individual VAT numbers of the members of the Group will be cancelled and the Group will receive one new unique number.

Within the VAT Group, charges relating to internal supplies of goods and services will generally be out of scope of VAT legislation. This is especially favourable for those entities that provide exempt without credit supplies, leading to a possibility of having irrecoverable VAT costs. In addition, supplies made by any person forming part of the VAT Group to other persons which do not form part of such group will be deemed to have been carried out by the Group Reporting Entity, thereby having an effect on the input VAT recoverability position of the Group Reporting Entity, and in turn, of the VAT Group in general.

Simplification of the compliance and administrative burdens of the taxable persons forming part of the VAT Group is also a welcome benefit of this regime.

Persons forming part of the VAT Group will be jointly and severally liable for the payment of VAT (including any related interest and administrative penalties) due and payable by the Group Reporting Entity.