On the 9th of October 2017, the Minister of Finance introduced the VAT Grouping concept in Malta. Although this concept was already practiced in some form by a small number of EU member states, this was the first time to be introduced in Malta. The legislation for VAT Grouping in Malta was published on the 22nd of May 2018 and entered into force from the 1st of June 2018.
What is VAT Grouping?
It is a concept where, upon successful registration and subject to specific conditions, two or more persons which have certain financial, economic and organisational links, may apply to the Commissioner to be registered and regarded as a single person for the purposes of the VAT Act. Any transactions happening between entities within the same VAT group are disregarded and fall outside the scope of VAT.
Who can participate in VAT Grouping?
Apart from various other conditions, two of the primary conditions which need to be satisfied are:
- One of the applicants is a taxable person who is licenced or recognised in terms of the legislation listed in the Schedule to the Legal Notice 162. The legislation constitutes mainly but is not limited to taxable persons who are licenced under the Banking Act, Insurance Business Act, Financial Institutions Act, Gaming Act and the Lotteries and Other Games Act.
- The persons included in the VAT group shall be linked with financial, economic and organisational links, the terms to determine such links are listed in the Legal Notice 162.
Any person included in a group shall not be included in any other group, thus any person can only be included in only one VAT group. All groups must appoint a Group Reporting Entity, being a member of this group exercising all rights and discharging obligations arising in the VAT group. Any transactions being imports, intra-community acquisitions or supplies made by or to a member of this group shall be treated and reported for VAT purposes by the Group Reporting Entity.
Each member of the VAT Group shall be jointly and severally liable for the payment of taxes, administrative penalties and interest arising under the Act which may become due by the Group Reporting Entity.
Advantages of VAT Grouping
- VAT Grouping simplifies and minimises administrative and compliance burdens for both the members of the group and also for the relevant tax authorities since this concept only requires a consolidated VAT Return for the whole group
- It enhances cash flow benefits since any input VAT owed to one member can be offset with output VAT payable by another, therefore the administration expenses as well as refunds are minimised
- It provides additional financial security to tax authorities since all members are jointly and severally liable and thus may be held liable to pay any tax dues owed by other members within the group
- For entities which have exempt without credit supplies, VAT Grouping enables part of the input VAT to be recovered. Any sales and charges between members of the same group are out of scope of VAT which minimise the partial exemption position. Therefore any taxable supplies bought from third parties not forming part of the group will become partly recoverable. However, this may hinder other members of the group not to recover all their input VAT due to a partially exempt group formed by having exempt without credit members.