Effective as from 1 June 2018, Legal Notice 162 of 2018 – Value Added Tax (Registration as a Single Taxable Person) Regulations, 2018 has introduced the concept of VAT grouping to Maltese VAT legislation applicable only to legal persons licenced or recognised by the Malta Financial Services Authority (MFSA) or the Malta Gaming Authority (MGA).
A VAT group may be formed between two or more legal persons which are established in Malta for VAT purposes subject to the satisfaction of the following criteria:
- At least one of the applicants is a taxable person licenced by MFSA or MGA in terms of the Schedule to this regulation; and
- Applicants must be bound by financial, economic and organisational links.
A VAT group is allocated a single VAT number and VAT numbers previously pertaining to the separate legal persons are cancelled. A VAT Group must nominate a Group Reporting Entity from within the group, which company will be responsible for VAT reporting and payment of VAT. All companies within the VAT Group are held jointly and severally liable for any amounts of VAT due and interest thereon by the Group.
Legal persons forming part of a VAT group are considered as a single taxable person and supplies amongst group members should be disregarded for VAT purposes. Furthermore, supplies made by any company within the group to a person outside the VAT Group will be deemed to be carried out by the Group Reporting Entity. A legal person forming part of a VAT Group is prohibited from joining another VAT Group and companies bound to each other by financial, organisational and economic links may only form part of the same VAT Group.
VAT grouping is not automatic and an application form should be filed online to form or join a VAT group. Together with the application form, evidence supporting the financial, economic and organisational links should also be filed. Furthermore, in order to join a VAT group, applicants must be compliant with both their income tax and VAT compliance obligations.
Apart from the administrative simplification, VAT grouping also offers other benefits in terms of having situations where one company within the group is awaiting a VAT refund and another company is in a VAT payable position. Nonetheless, due consideration must be taken when deciding on whether a group should opt for a VAT grouping position and also depending under which VAT registration type the group should be registered as this might have other consequences on input VAT deductibility. Our VAT team can assist you in your group’s VAT consideration and VAT grouping decisions.
Contact Antoinette Scerri | Senior Manager | Tax Advisory Services for more information.