A smart option that saves you time and money
Deciding upon a trading vehicle structure and location is a key decision for every entrepreneur. Although there are many high-quality options available, a lot of people struggle to find the best corporate structure and suitable jurisdiction in which to set up their trading entity.
One question that comes up regularly in our practice is: “what is the most suitable place to set up a trading vehicle?” The answer lies in an integrated approach that seeks to help clients (and advisors) understand the framework of corporate structuring, taxation, and the legislation of different jurisdictions.
There is no one-size-fits-all solution for everyone. In our view, one of the best and most efficient trading setups is a Malta Fiscal Unit (FU).
To establish a subsidiary Malta Co. and apply for a Fiscal Unit, all you need is a foreign company. Alternatively, you may set up two Malta companies and opt for Fiscal Unit group taxation. This article elaborates on various structuring options to make the most of a Fiscal Unit solution.
What is a Fiscal Unit?
When a group (at least two entities) of companies merges into the most tax and cost-effective solution within the EU — a Malta Fiscal Unit sports a 5% Corporate Tax Rate.
Owners of Malta-based companies now have a choice
Pay 35% corporate tax — which can later be claimed back in part by shareholder(s), resulting in an incredibly low (5%) effective tax rate!
OR
Your companies can be treated as part of a Fiscal Unit, and you only pay 5% corporate tax without having to pay 35% Maltese tax and without the need to wait for a subsequent tax refund.
According to the 1st scenario, corporate funds are locked in for around 12-18 months, while shareholder(s) are awaiting their tax refund. Thanks to the Fiscal Unit option, the same funds are now available for reinvestment or distribution. Shareholders of Malta-based companies pay just 5% corporate tax for a group of companies if they form a Fiscal Unit.
What is the structure of a Fiscal Unit?
You are in full control of which companies of yours will form the Fiscal Unit. The foreign parent company (as well as the Malta subsidiary) may additionally be registered if you do not have it set up yet. The parent company can also either be foreign or Maltese.
All you need is to decide if you prefer:
a) using a foreign company as well as a Maltese company;
OR
b) to run two Maltese companies.
Setting up a subsidiary company in Malta and forming a Fiscal Unit may be a better option if you can utilise a suitable foreign company.
Also, if your main agenda is effective wealth management and asset protection, you may consider a Malta Foundation and a Malta Company structure as members of your Fiscal Unit. Protect and manage your assets wisely and you’ll pay just 5% corporate tax!
Benefits for your business
- You save money with a corporate tax rate of just 5%;
- You save time — pay 5% and avoid the tax refund hassle;
- Go international — use your Malta co. for foreign trade;
- Simple reporting — complete a single tax return for your entire group;
- Utilise your cash wisely — giving you a huge cash flow advantage;
- Easy consolidation — only include Malta investment;
- Choose smart — select from different group options.
Chargeable income and tax liabilities
The chargeable income of a fiscal unit shall be computed as if such income was derived by the principal taxpayer and is to be charged to tax in the name of the principal taxpayer – Parent company. If the parent company is your foreign entity, it must be registered as a taxpayer in Malta and obtain a tax number.
Transactions between members of the fiscal unit shall be disregarded, except for transfers of immovable property situated in Malta, and transfers of shares in property companies.
Furthermore, dividends paid by a transparent subsidiary to its parent company out of taxed profits that were derived prior to the formation of the Fiscal Unit will not be ignored and these shall be deemed to be dividends derived by the principal taxpayer.
Income or gains allocated to the principal taxpayer shall retain their source and character.
Furthermore, any foreign income tax incurred by a company forming part of the fiscal unit shall be deemed to have been incurred by the principal taxpayer, and relief from double taxation shall be allowed to the principal taxpayer.
When it comes to the payment of the tax due, the liability to tax is joint between the parent company and fully owned subsidiary (or subsidiaries) but may be apportioned as the principal taxpayer may determine.
Annual reporting
Each year, the parent company is required to prepare an audited consolidated balance sheet and audited consolidated profit and loss account covering all fiscal unit members.
The principal payer who submits an election to form a fiscal unit is deemed to be the principal taxpayer. All income, gains, deductions allowance and credit are seen to be derived directly by the principal taxpayer.
Important: if the parent company is a foreign entity in the consolidation workings, you only need to mention figures that actually relate to Malta. So if an investment has no other relationship to Malta, none of such figures are required to be included in the consolidation workings.
Summary
The main advantage of a Fiscal Unit is the cash flow advantage when compared to the current system of tax refunds. This is a time and money-saving solution.
If paying 5% corporate tax suits your business, then a Malta company is for you.
All you need to consider is which option suits you the best — using a foreign company and a Malta Co? Or running two Malta companies? Setting up a subsidiary company in Malta and forming a Fiscal Unit may well fit the bill if you can utilise a suitable foreign company.
1st Step can help you make the right decision for your business.
How we can help you
- Free consultation on the structure and setup of your Fiscal Unit.
- Malta Company / Malta Foundation registration.
- Malta Fiscal Unit registration and support.
- Accounting and audit for the group.
- IBAN for borderless banking: EU, EAA or SWISS business account. Debit or credit cards.
- VAT Registration, if required (for trading).
- Foreign Company registration (if required).
- Assistance in legal matters, and Revenue Rulings.
