VAT Grouping in Malta - A practical scenario

With the publication of the Maltese Value Added Tax (Registration as a Single Taxable Person) Regulations effective from 1 June 2018, two or more persons may choose to be registered as a single taxable person for Maltese VAT purposes (“VAT Grouping”). Fast forward some months and it is understood that numerous applications have been processed and accepted by the Commissioner for Revenue which has enabled several businesses to reap the benefits of these Regulations.  

But what are the requirements to be able to apply for VAT Grouping and what are some of the additional matters one should be aware of? The following practical example aims to tackle both questions.

Background

A multinational group of companies (“the group”) operates primarily in the retail sector and has the following structure:

The main facts

  • All holdings are 100% shareholding 

  • TradeCo. is a taxable person  that provides supplies globally including to the other 2 Maltese established companies;

  • HoldCo. is a non-taxable legal person;

  • Ins. CaptiveCo. is a taxable person acting as a captive insurance company for the group that is licensed as such with the MFSA.

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Does the group satisfy the necessary requirements to apply for a VAT group in Malta? 

Maltese VAT implication of forming part of a VAT group on intra-group transactions: 

Without a VAT group, Maltese VAT should be charged on intra-group transactions which result in unrecoverable VAT for Hold Co. and Ins. Captive Co.  

However, the 3 Maltese companies may opt to be registered as a VAT group. The group would undertake both taxable and exempt supplies and would therefore be obliged to register in terms of article 10 of the Maltese VAT Act. Any intra-group transactions will be outside the scope of VAT, thus, eliminating the previously unrecoverable VAT. 

Furthermore, input tax deductions would need to be undertaken on a group basis and would therefore likely differ from the aggregated VAT position of the separate companies.

What else should be taken into consideration? 

  • Ideally an initial analysis is carried to assess the VAT position of the group when compared to the aggregate VAT position of the same individual entities considered on a stand-alone basis.

  • The members of the VAT group are required to nominate a Group Reporting Entity (“GRE”) amongst themselves which will be required to exercise any and all rights and discharge any and all obligations arising to the VAT group. Any supply made by / to a member of a VAT group shall be treated, as a supply made by / to the GRE.  The GRE would also be obliged to undertake the VAT compliance obligations of the group. 

  • HoldCo will need to apply for a temporary Maltese VAT number as all taxable persons included in a VAT group are required to be registered for VAT purposes in Malta prior to being allowed to join a VAT group.

  • Other non-VAT implications should also be considered including updating invoice templates, reviewing VAT controls of the entities within the VAT group, the impact to the financial statements of being jointly and severely liable for VAT of a VAT group and the VAT reporting procedure as a group since transactions will still need to be reported on a standalone level. 

  • A VAT group cannot be voluntarily cancelled prior to the lapse of 24 months from the formation of the VAT group.

In conclusion, the application of VAT grouping may provide a number of benefits ranging from a reduced VAT cost to cash-flow advantages. However, one should also ensure that applying to form part of a VAT-group does not create an excessive burden that outweighs the benefits of such application. Indeed, the implications of applying for a VAT group may vary drastically depending on the fact pattern and circumstances and should be analysed upfront on a case-by-case basis. 

Contact us

David Ferry

David Ferry

Tax Partner, PwC Malta

Tel: +356 2564 6897

Michael Borg

Michael Borg

Senior Manager, Tax, PwC Malta

Tel: +356 2564 2427

Aida Cachia

Aida Cachia

Tax, PwC Malta

Tel: +356 2564 6442

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