Subject to specific conditions, two or more legal persons established in Malta may now apply to be registered as a single taxable person for the purposes of the VAT Act (VAT Group). Once successfully registered, transactions taking place between persons who form part of the VAT group will fall outside the scope of VAT. This is a welcome development particularly for regulated service providers in the gaming and financial services industries who are typically exempt without credit as adoption of a VAT Group could, besides creating cash flow efficiencies, help eliminate self-induced irrecoverable VAT between group entities.
Following accession into the EU in 2004, Malta had initially opted not to implement the VAT grouping provisions provided for in Article 11 of the EU VAT directive. This option provides the possibility for a Member State to treat two or more persons who are closely bound to one another by financial, economic and organisational links, as a single taxable person for VAT purposes.
A change of policy was announced in the 2018 Government Budget Speech. This was followed by subsidiary legislation to the Maltese Value Added Tax (VAT) Act contained in Legal Notice 162 of 2018 – Value Added Tax (Registration as a Single Taxable Person) regulations, 2018, which introduced the possibility of VAT Grouping as of 1 June 2018.
Members of a VAT Group may only form part of one VAT Group. Approval must be obtained from the VAT Department and such approval may be done by any member. An application may also be made by a person to join a VAT Group already in existence.
Members within a VAT Group are required to nominate a Group Reporting Entity. This entity will be responsible for fulfilling all the obligations arising under current regulations although members of the VAT Group are jointly and severally liable for the payment of VAT dues of the VAT Group as a whole. Once an entity forms part of the VAT Group, any supply made or received by the members are deemed to have been received or supplied by the Group Reporting Entity and therefore must be reported as such. The VAT status of members within the group (whether taxable persons or non-taxable legal persons) becomes irrelevant as the VAT Group itself is regarded as a taxable person.
If you are interested and would like to discuss VAT Grouping in further detail, please reach out to us through our ‘Contact Us’ page.