Guide to the Malta Fiscal Unit and Tax Consolidation 2026

In the high-stakes, rapidly evolving world of international finance and corporate structuring, liquidity is more than just a metric—it is the ultimate currency of growth. For decades, international businesses and holding groups operating in Malta faced a distinct structural paradox. On one hand, the island offered a highly competitive tax system based on full imputation, effectively reducing the corporate tax burden to 5% for trading activities. On the other hand, accessing this benefit required a cumbersome “pay-and-wait” cycle. Companies were legally mandated to remit the full 35% headline corporate tax upfront, only to wait between 12 and 18 months for the 6/7ths refund to be processed by the Commissioner for Revenue. This delay effectively locked millions of euros in the treasury system, creating a significant opportunity cost where capital sat idle rather than being reinvested or distributed.

The introduction of the Malta Fiscal Unit has fundamentally transformed this landscape, marking the most significant evolution in Maltese corporate tax law in a generation. By allowing groups to transition from a refund-based model to a fully consolidated one, businesses can now achieve an immediate Malta 5% effective tax rate, optimizing cash flow and drastically reducing administrative friction.

As of 2026, the strategic landscape has deepened further with the introduction of the 15% Final Income Tax option, creating a bifurcated path for corporate taxpayers. At Contact Advisory Services Ltd., an MFSA-authorized Company Service Provider, we have witnessed firsthand how these changes have revolutionized corporate tax planning in Malta. This comprehensive guide provides an exhaustive technical analysis of the Fiscal Unit regime, the Consolidated Group Rules, and the strategic imperatives for 2026, ensuring your group remains compliant while maximizing its fiscal potential.

What is the Malta Fiscal Unit and how does it benefit corporate groups?

The Malta Fiscal Unit is a tax consolidation regime where a group of companies is treated as a single taxpayer for income tax purposes, effectively merging their tax identities. It allows a Principal Taxpayer to pay the net effective tax rate (typically 5%) directly to the revenue authorities, eliminating the traditional 12–18 month wait for shareholder tax refunds and significantly improving group-wide liquidity.

To fully appreciate the benefits of the Fiscal Unit, one must first understand the legacy system it was designed to optimize. Historically, Malta’s tax system relied exclusively on the full imputation system. Under this regime, a company is taxed at a standard rate of 35% on its chargeable income. However, upon the distribution of dividends, the shareholder is entitled to a tax credit equivalent to the tax paid by the company. In the context of active trading income, this results in a refund of 6/7ths of the tax paid.

While the mathematical result—a 5% effective tax rate—was attractive, the mechanics were inefficient for large groups. A company with €1,000,000 in profit had to pay €350,000 in tax. It would then distribute the remaining €650,000 as a dividend. The shareholder would then apply for a €300,000 refund. This €300,000 could take up to a year or more to arrive.

The Malta Fiscal Unit, introduced via the Consolidated Group (Income Tax) Rules (Legal Notice 110 of 2019), was the legislative solution to this liquidity trap. It effectively “short-circuits” the refund process. By forming a fiscal unit, the subsidiaries effectively become “transparent” for tax purposes. Their income, expenses, and tax credits are all attributed to the parent company, known as the Principal Taxpayer.

What are the primary advantages of forming a fiscal unit?

• Immediate Cash Flow Optimization: The most critical advantage is the elimination of the cash-flow drag. The group pays only the net tax due (e.g., 5%) directly to the Commissioner for Revenue at the point of filing. There is no need to pay 35% and wait. This releases capital immediately for reinvestment, debt servicing, or dividend distribution to ultimate beneficial owners.
• Current Year Loss Consolidation: In a standalone setup, if Subsidiary A makes a profit of €100,000 and Subsidiary B makes a loss of €50,000, Subsidiary A pays tax on the full €100,000. Subsidiary B carries its loss forward. In a Fiscal Unit, these are consolidated immediately. The group pays tax only on the net €50,000 profit. This ensures that tax is levied on the true economic performance of the group as a whole.
• Administrative Streamlining: The Principal Taxpayer files one single consolidated tax return for the entire unit. The individual filing obligations of all transparent subsidiaries are suspended. This reduces the sheer volume of compliance work, as there is no need to prepare and file separate tax returns (Form TA2) and refund claim forms for every entity in the chain.
• Neutrality of Intra-Group Transactions: Transactions between members of the unit—such as management fees, royalties, or interest on inter-company loans—are generally disregarded for tax purposes. This simplification is profound. It removes the need for complex transfer pricing benchmarking on domestic transactions within the unit, as the income of one is the expense of another, netting out to zero in the consolidated computation.
• Elimination of Dividend Procedures: Under the old system, dividends had to be declared and paid physically (or via offsetting entries) to trigger the tax refund. In a Fiscal Unit, since the refund is applied notionally at the source, there is no strictly tax-driven need to force dividend distributions, giving the board more flexibility in managing retained earnings.

How does Malta Tax Consolidation work in practice?

Malta Tax Consolidation works by aggregating the income, gains, and losses of all unit members into a single tax computation prepared by the Principal Taxpayer based on consolidated audited financial statements. Intra-group transactions are neutralized to prevent double-counting, and the final tax is calculated by deducting the notional refund that would have been due to shareholders directly at the source.

The operational reality of Malta Tax Consolidation is that the Commissioner for Revenue views the group as one single organism for income tax purposes. While each subsidiary maintains its legal personality for commercial law—meaning it can sue, be sued, hold assets, and enter contracts—its tax identity is effectively absorbed by the parent company.

This shift from a “legal-form” approach to an “economic-substance” approach requires a specific methodology for calculating tax liability. The process is rigorous and must be supported by audited accounts.

Step-by-Step: The Consolidated Calculation Mechanism

1. Income Aggregation: The process begins with the Principal Taxpayer gathering the financial data of all its transparent subsidiaries. It pools all income streams—whether trading income, passive interest, or capital gains—into a single “pot.” It is important to note that this aggregation happens after each subsidiary has calculated its own accounting profit, but before tax is applied.
2. Neutralization of Intra-group Transactions: The Principal Taxpayer must then identify and eliminate all transactions that occurred between members of the fiscal unit.
   • Example: If Subsidiary A paid a €50,000 management fee to the Principal Taxpayer, this income is ignored in the hands of the Principal, and the expense is ignored in the hands of Subsidiary A. The net effect on the consolidated profit is zero.
   • Exception: The transfer of immovable property situated in Malta (or shares in property companies) is not ignored. These transfers remain taxable events to ensure that property tax rules are not circumvented.
3. Application of Deductions and Allowances: Once the gross income is pooled, the unit deducts all allowable expenses.
   • Capital Allowances: Depreciation on assets acquired by any member of the unit is deducted from the consolidated income.
   • Interest Deductions: Borrowing costs are deducted, subject to the Interest Limitation Rule (under ATAD), which is calculated at the level of the Fiscal Unit (30% of the consolidated EBITDA). This often allows for greater deductibility than if calculated individually.
4. The “Notional Refund” Calculation: This is the core mechanic. The Principal Taxpayer calculates the gross tax at 35%. It then calculates the refund that would have been due if that profit had been distributed as a dividend. This amount is the “notional refund.”
   • The Formula: Tax Payable = (Chargeable Income x 35%) – Notional Refund.
   • Result: For trading income, the calculation effectively becomes: Tax Payable = (Income x 35%) – (Income x 30%) = Income x 5%.
5. Final Tax Settlement: The resulting net amount is what is paid to the Commissioner for Revenue. There are no further refund forms to file for this income.

What are the Consolidated Group Rules in Malta regarding eligibility?

The Consolidated Group Rules Malta (Subsidiary Legislation 123.189) require a parent company to hold at least 95% of a subsidiary’s voting rights, profits, or assets to qualify for fiscal unity. Additionally, all members must have coterminous accounting periods and a clean tax compliance history to be eligible for registration.

The rules governing eligibility are strict. They are designed to ensuring that the fiscal unit represents a genuine economic unity where the parent has near-total control over the subsidiaries. Registration is not automatic; it is an elective process that must be affirmatively chosen by the taxpayer.

The “95% Subsidiary” Two-out-of-Three Test

It is a common misconception that simply holding 95% of the shares is sufficient. The legislation defines a “95% Subsidiary” based on a “two-out-of-three” test. To include a subsidiary in the unit, the parent company must satisfy at least two of the following three criteria:

1. Voting Rights: The parent company must hold at least 95% of the voting rights in the subsidiary. This ensures control over the board and strategic direction.
2. Profits Availability: The parent must be beneficially entitled to at least 95% of any profits available for distribution to the ordinary shareholders. This ensures the parent captures the economic upside.
3. Assets on Winding Up: The parent must be beneficially entitled to at least 95% of the assets of the subsidiary available for distribution to its ordinary shareholders upon a winding up. This ensures the parent holds the ultimate residual value of the entity.

• Strategic Note: This definition is flexible enough to accommodate complex capital structures. For instance, a parent might hold “Preference Shares” that carry no voting rights but have full asset rights. As long as it meets two of the conditions (e.g., Profits and Assets), the subsidiary can still join the unit.

Operational Pre-Requisites for Registration

Beyond ownership, several operational boxes must be ticked before the Commissioner for Revenue will accept a fiscal unit registration:

Requirement	Statutory Detail
Year-End Alignment	All companies within the proposed unit must have accounting periods that start and end on the exact same dates. If a subsidiary has a different year-end, it must shorten or extend its period to align with the Principal Taxpayer before joining.
Clean Compliance History	This is a strict gatekeeper. No member of the proposed unit can have any outstanding balances or missing filings for Income Tax, VAT, or FSS/PE (Final Settlement System for payroll). The authorities use this as a leverage point to force groups to regularize their affairs.
Minority Consent	If a subsidiary is not 100% owned (e.g., the parent owns 96% and a minority partner owns 4%), the Principal Taxpayer must obtain written approval from the minority shareholder. This is legally necessary because joining the unit imposes “joint and several liability” on the subsidiary, potentially exposing the minority shareholder’s investment to the tax debts of the wider group.
Registration Window	The election to form a fiscal unit must be made within 6 months following the end of the accounting period for which it is to apply. For a company with a December 31st year-end, the deadline is June 30th of the following year.

How can groups achieve a Malta 5% Effective Tax Rate?

Achieving a Malta 5% effective tax rate is accomplished by the Principal Taxpayer calculating the standard 35% gross tax on trading profits and immediately deducting the 6/7ths refund that would have been due to shareholders. This mechanism converts the shareholder’s refund entitlement into a direct tax credit for the company, streamlining the payment process.

The 5% effective rate is often cited as the primary driver for international business in Malta. Understanding exactly how it is derived—and when it applies—is crucial for accurate corporate tax planning. It is not a blanket rate; it is a result of the refund mechanism applied to specific types of income.

Rates Vary Based on the Nature of Income

In the consolidated tax return, income is classified into different “accounts” (e.g., Maltese Taxed Account, Foreign Income Account). The “notional refund” rate depends entirely on which account the income falls into.

• Active Trading Income (5%): This is the most common scenario. Income derived from trading activities (e.g., consulting, software sales, manufacturing) is taxed at 35%. The system then applies a 6/7ths notional refund.
  • Calculation: 35% Tax – (6/7 of 35%) = 35% – 30% = 5% Net Tax Payable.
• Passive Interest & Royalties (10%): Income that is considered “passive” (i.e., not derived from a trade or business, and where the tax has not been suffered at a rate of at least 5% foreign tax) attracts a 5/7ths notional refund.
  • Calculation: 35% Tax – (5/7 of 35%) = 35% – 25% = 10% Net Tax Payable.
• Foreign Income / Participation Exemption (0%): If the fiscal unit receives dividends or capital gains from a “Participating Holding” (typically a foreign subsidiary where it holds >5% or meets other criteria), it can claim the Participation Exemption.
  • Result: This income is exempt from tax entirely. 0% Net Tax Payable.
• Foreign Income Account (FIA): Income allocated to the FIA (e.g., royalties or interest from foreign sources that do not qualify for the exemption) may be eligible for a 2/3rds refund.
  • Calculation: 35% Tax – (2/3 of 35%) = 35% – 23.33% = 11.67% Net Tax Payable.

Malta tax refund vs fiscal unit: Which structure is better?

The choice between a Malta tax refund vs fiscal unit depends on the group’s specific cash-flow needs, size, and administrative capacity. While the fiscal unit offers superior liquidity optimization, it introduces higher compliance complexity, such as mandatory consolidated audits and joint liability for all group members.

Deciding between the traditional system and the fiscal unit is a strategic decision. It is not always a clear-cut “yes” for every business. Smaller businesses might find the overhead of a fiscal unit too high, while larger groups find the cash-flow benefits indispensable.

Comparative Analysis: Traditional System vs. Fiscal Unit

To help you decide, we have broken down the key differences across critical operational metrics:

Feature	Traditional Refund System	Fiscal Unit (Consolidation)
Upfront Tax Payment	High (35%). You must pay the full headline rate to the CfR.	Low (Typically 5%). You pay only the net liability.
Cash Flow Impact	Negative. Significant capital is tied up for 12-18 months.	Positive. Capital remains within the company for reinvestment.
Reporting Duty	Decentralized. Each company files its own tax return (Form TA2) and refund claim.	Centralized. The Principal Taxpayer files one single consolidated return.
Audit Basis	Simpler. Individual statutory audits for each company are sufficient.	Complex. Requires a specific “Consolidated Audit” for the tax group.
Liability Risk	Ring-fenced. Liability is generally limited to the specific entity (barring fraud).	Shared. Joint and several liability applies to all members for the group’s tax.
Intra-group Fees	Complex. Must be at arm’s length; transfer pricing rules apply strictly.	Simplified. Transactions are generally neutralized/ignored.
Dividend Flow	Mandatory. Dividends must be distributed to trigger the refund.	Optional. Refunds are applied at source; dividends are a commercial choice.

For groups with significant trading volume where the 35% payment represents a material drag on liquidity, the Fiscal Unit is the superior choice. For passive holding companies or very small entities where the audit cost exceeds the interest value of the cash flow, the Traditional System may still be viable.

What is a Transparent subsidiary in Malta?

A transparent subsidiary Malta is a company within a fiscal unit whose distinct tax personality is suspended, causing all its income, gains, and losses to be attributed directly to the parent company. While it remains a separate legal entity for commercial purposes (contracts, property ownership), it is “looked through” for all income tax purposes.

The concept of the “transparent subsidiary” is the legal mechanism that makes consolidation possible. When a valid election is made, the subsidiary does not disappear; it simply becomes invisible to the taxman.

Operational Consequences of Transparency

1. Deemed Income: The law treats the income of the subsidiary as if it had been earned directly by the Principal Taxpayer. If Subsidiary A sells a widget for €100, the Principal Taxpayer is deemed to have sold that widget.
2. Asset Transfers (Tax Neutrality): One of the most powerful features is the ability to move assets within the group without triggering tax.
   • Scenario: Subsidiary A owns a trademark. It transfers this trademark to Subsidiary B. In a normal setup, this would be a “disposal” at market value, potentially triggering a capital gains tax on the appreciation.
   • Fiscal Unit Rule: Because both entities are part of the same “taxpayer,” the transfer is ignored. No gain is realized. The asset moves at its tax book value.
   • Critical Exception (Ring-Fencing): This neutrality does not apply to immovable property situated in Malta. Transfers of Maltese real estate (or shares in property companies) are always taxable events. This “ring-fencing” prevents the use of fiscal units to avoid property tax.
3. Suspension of Duties: The subsidiary is legally relieved of the duty to file an income tax return. However, it must still file its VAT returns and FSS (payroll) forms independently. Transparency applies only to Income Tax.
4. Reactivation: If a subsidiary leaves the unit (e.g., it is sold to a third party), its tax personality “wakes up.” It must immediately register as a standalone taxpayer, and any “rolled-over” gains from previous internal asset transfers may be crystallized at that point.

Who is the Principal taxpayer in Malta?

The Principal Taxpayer Malta is the parent entity that assumes full responsibility for the fiscal unit’s registration, consolidated auditing, and final tax payments. It must be a company resident in Malta or a non-resident company carrying on activity in Malta that registers with the Commissioner for Revenue.

The Principal Taxpayer is the anchor of the fiscal unit. It is the entity that faces the authorities. In many structures, this is a Malta Holding Company. However, the rules are flexible enough to allow a Foreign Parent to act as the Principal Taxpayer, provided it meets specific criteria.

The Role and Responsibilities of the Principal Taxpayer

• Registration & Compliance: The Principal Taxpayer is solely responsible for filing the election to form the unit. It must also file the annual consolidated tax return. If the return is late, the penalties are levied on the Principal Taxpayer.
• Audit Oversight: It must appoint the auditors and ensure that Consolidated Financial Statements are prepared. These statements must cover all members of the fiscal unit. Crucially, these are “special purpose” accounts prepared specifically for the tax unit; they may differ from the group’s global IFRS consolidated accounts if the tax unit is a subset of the wider global group.
• Tax Settlement: The Principal Taxpayer is the legal payer. It must remit the 5% tax.
• Liability Management: While the Principal pays the tax, it often enters into Tax Sharing Agreements or Tax Funding Agreements with its subsidiaries. These private contracts dictate how the subsidiaries will reimburse the Principal for their share of the tax bill, ensuring that the burden is allocated fairly within the group.
• Foreign Principals: If a non-resident company (e.g., a German GmbH) wants to be the Principal Taxpayer for its Maltese subsidiaries, it must:
  1. Carry on an activity in Malta.
  2. Register with the Maltese Commissioner for Revenue.
  3. Appoint a “Fiscal Representative” (usually one of the Maltese subsidiaries) to handle the physical compliance and correspondence.

What is the Malta fiscal unit setup cost and compliance burden?

The Malta fiscal unit setup cost includes electronic registration fees, professional structuring advisory, and increased annual audit fees for the required consolidated financial statements. While these costs are higher than maintaining standalone entities, the significant interest savings on retained cash flow usually justify the expense for trading groups.

Cost is a major factor in the decision-making process. A fiscal unit is a sophisticated product and comes with a higher maintenance price tag than a standard company. At Contact Advisory Services Ltd., we believe in full transparency regarding these costs.

Detailed Cost Components

1. Initial Structural Setup:
   • Advisory Fees: You will need tax advice to verify the “95% two-out-of-three” test and to draft the necessary board resolutions and minority shareholder consents.
   • Registration Fees: The actual filing of the election is done electronically, but professional fees apply for the preparation of the file.
2. Annual Consolidated Audit (The Major Cost Driver):
   • This is the most significant recurring cost. The auditor must audit the individual companies and perform a consolidation. Because this consolidation is for tax purposes (neutralizing specific intra-group transactions), it requires specialized work.
   • Estimate: Consolidated audit fees can range from €3,000 to €10,000+ depending on the complexity and volume of transactions, on top of the individual audit fees.
3. Rule 13 Compliance Analysis:
   • Every year, a specific calculation must be performed to ensure the unit isn’t triggering anti-abuse provisions (discussed below). This requires professional tax computation time.
4. Company Registration (MBR) Fees:
   • Standard annual return fees to the Malta Business Registry still apply to each individual company. These range from €100 to €1,400 depending on authorized share capital.

Cost-Benefit Equation:

If a group has a taxable profit of €1,000,000:

• Refund System: Pays €350,000. Waits 1 year for €300,000 refund. Opportunity cost of €300,000 at 5% interest = €15,000.
• Fiscal Unit: Pays €50,000. Keeps €300,000 working.
• Conclusion: If the extra audit cost is €5,000, the group is still net positive by €10,000 per year, plus the operational benefit of having the cash on hand.

Why choose Malta for Corporate tax planning in 2026?

Corporate tax planning in Malta remains highly attractive due to its EU-compliant full imputation system, extensive network of 76+ double tax treaties, and new 2026 incentives like the 175% R&D deduction. The jurisdiction offers a stable, transparent environment that caters to both SMEs using the 5% rate and large MNEs utilizing the 15% final tax.

As we move into 2026, Malta has reinforced its position as a jurisdiction of choice by adapting its laws to the global tax reality, specifically the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives.

Key Strategic Advantages for the 2026 Landscape

• Pillar Two Alignment: Malta has introduced a Qualified Domestic Minimum Top-up Tax (QDMTT) and the 15% Final Tax option. This ensures that large multinationals (revenues >€750m) pay their minimum 15% tax in Malta, rather than having it topped up by tax authorities in France, Germany, or the UK. This protects the Maltese tax base while giving certainty to investors.
• 175% R&D Deduction: To encourage innovation, Malta allows groups to deduct 175% of qualifying Research & Development expenditure. In a fiscal unit, this is powerful because the deduction can be pooled. If a subsidiary spends €1m on R&D, the group gets a €1.75m deduction, significantly reducing the consolidated taxable income.
• Digitalization Incentives: New measures allow for accelerated depreciation on investments in digital infrastructure (servers, software, AI integration), allowing these costs to be written off over just 2 years.
• No Withholding Taxes: Malta remains one of the few jurisdictions with 0% withholding tax on outbound dividends, interest, and royalties to non-residents. This makes it an ideal exit route for profits repatriation.

What is the significance of Legal Notice 110 of 2019?

Legal Notice 110 of 2019 is the legislative foundation that introduced the “Consolidated Group (Income Tax) Rules” in Malta. It effectively modernized the tax code by allowing for fiscal consolidation, curing the cash-flow timing mismatch that plagued the traditional refund system.

Before 2019, tax consolidation was a concept discussed but never implemented. This Legal Notice was the turning point. It provided the “rulebook” for everything discussed in this guide.

Critical Provisions of LN 110

• Irrevocability (Sort of): Once a fiscal unit is formed, it generally remains in place until the Principal Taxpayer elects to dissolve it or fails to meet the criteria.
• The “Trapped Loss” Mechanism: It codified the rule that pre-entry losses cannot be transferred (discussed in detail below).
• Anti-Abuse Framework: It introduced Rule 13, a specific mathematical test to prevent the regime from being used to pay less tax than the intended 5% floor.

Advanced Compliance: Rule 13 and Trapped Losses

Navigating a fiscal unit requires an understanding of complex anti-avoidance measures. These are the “guardrails” the government put in place to prevent aggressive tax avoidance.

The Rule 13 “Deemed Distribution” Test

The government wanted to ensure that the Fiscal Unit wasn’t used to artificially lower the tax rate below the effective rate that would have been achieved individually. Rule 13 is a mandatory annual test.

1. Calculate (A): The tax actually payable by the Fiscal Unit under the consolidated rules.
2. Calculate (B): The aggregate tax that would have been payable by all members if they had filed as separate independent companies.
3. The Floor: Calculate 95% of (B).
4. The Test: Is (A) less than the Floor?
   • If Yes: The difference is treated as a “Deemed Dividend.” The Principal Taxpayer must pay additional tax on this difference to bring the total payment up to the 95% threshold.
   • Implication: This usually triggers when there are complex mixes of losses and different income types. For standard trading groups, it rarely triggers, but it must be checked every year.

The “Trapped” Loss Rule (Ring-Fencing)

A critical restriction prevents “loss buying.” This is where a profitable group buys a company with huge accumulated losses just to wipe out its own tax bill.

• The Rule: Trading losses, capital allowances, and tax credits that a subsidiary had before it joined the fiscal unit are ring-fenced.
• Utilization: These “pre-entry” losses cannot be used to offset the profits of the Principal Taxpayer or other subsidiaries. They can only be used to offset the future profits generated by that specific subsidiary.
• Tracking: The Principal Taxpayer must maintain a separate “memorandum account” to track these trapped losses and ensure they are utilized correctly.

The 2026 Strategic Choice: Fiscal Unit (5%) vs. Final Tax (15%)

As of 2026, corporate taxpayers face a critical strategic bifurcation. The introduction of the 15% Final Income Tax (FITWI) via Legal Notice 188 of 2025 provides an alternative to the 5% consolidation model.

Strategic Comparison: Who should choose what?

Feature	Fiscal Unit (Consolidation)	15% Final Tax (FITWI)
Effective Tax Rate	5% (on trading income).	15% (Flat rate).
Target Audience	SMEs & Non-Pillar Two Groups. Groups with global revenue <€750m who want the lowest possible tax rate.	Large MNEs. Groups with global revenue >€750m subject to OECD Pillar Two.
OECD Pillar Two Impact	High Risk. Paying 5% in Malta may trigger a “Top-Up Tax” in the parent’s home country (e.g., France will collect the other 10%).	Safe Harbor. Paying 15% in Malta satisfies the global minimum, ensuring no top-up tax is due elsewhere.
Compliance Load	High. Requires consolidated audits and Rule 13 checks.	Medium. Simplified election; no refunds, but no complex consolidation required.
Commitment	Annual election.	5-Year Binding Election. Once chosen, you cannot switch back easily.

The Verdict:

• If you are a Small/Medium Enterprise (Revenue < €750m), the Fiscal Unit remains the gold standard. Why pay 15% when you can pay 5% legitimately?
• If you are a Large Multinational, the 15% Final Tax is likely the smarter play. It simplifies your global compliance and ensures the tax revenue stays in Malta rather than going to a foreign treasury.

Frequently Asked Questions (FAQ)

Can a foreign company act as the Principal Taxpayer?

Yes. A non-resident company can act as the Principal Taxpayer if it carries on an activity in Malta and registers with the Commissioner for Revenue. It is highly recommended that it appoints one of its Maltese subsidiaries as its Fiscal Representative to handle the physical filing and correspondence with the authorities.

What happens if a subsidiary is sold and leaves the unit?

If the parent’s holding drops below 95%, the subsidiary immediately “exits” the fiscal unit. It reverts to being a standalone taxpayer for that financial year. Crucially, any “neutral” asset transfers that happened in previous years might be scrutinized, and deferred gains could be crystallized depending on the circumstances of the exit.

Do I still need a bank account for every subsidiary?

Yes. The Fiscal Unit is a tax concept, not a commercial one. Each company remains a separate legal entity and requires its own bank account to trade, pay suppliers, and receive revenue. Commingling funds can lead to “piercing the corporate veil” and legal liability issues.

Is the 5% rate guaranteed?

The 5% rate is the mathematical result of the 6/7ths refund applied to the 35% rate. It applies to trading income. If the group earns passive income (interest/royalties), the effective rate will be 10%. It is strictly an “effective” rate, not a statutory headline rate.

Can I form a fiscal unit mid-year?

Generally, the election is made for a full accounting period. However, if a new subsidiary is incorporated mid-year, it can usually join the unit immediately, provided it aligns its accounting reference date with the Principal Taxpayer.

Summary and Strategic Recommendations for 2026

The Malta Fiscal Unit represents the pinnacle of Maltese corporate tax evolution. It has successfully bridged the gap between the high statutory rate and the low effective rate, removing the liquidity barrier that once deterred investment.

Key Takeaways for Decision Makers:

1. Verify Eligibility: Ensure your structure meets the rigorous “two-out-of-three” 95% ownership test.
2. Prioritize Liquidity: Use the unit to access the 5% effective tax rate immediately; do not let cash sit idle in the refund queue.
3. Manage Compliance: Be prepared for the higher audit burden. Engage auditors who understand tax consolidation, not just accounting consolidation.
4. Watch the 2026 Horizon: If your group is nearing the €750m revenue threshold, begin modeling the switch to the 15% Final Tax now.

Take the Next Step with Authorized Experts

Navigating Legal Notice 110 of 2019 and the evolving 2026 tax landscape requires a partner with deep technical expertise and regulatory authorization. At Contact Advisory Services Ltd., we are an MFSA-authorized Company Service Provider dedicated to helping you optimize your corporate tax planning in Malta.

Ready to maximize your group’s cash flow? Whether you are exploring a new Malta company formation, restructuring an existing group, or need a comparative analysis of the Malta Fiscal Unit vs. the 15% Final Tax, our team is here to provide authorized, expert guidance.

Contact us today for a confidential consultation:

📧 Email: info@contact.com.mt

🌐 Visit: www.contact.com.mt

Empowering your business with strategic, compliant, and efficient Maltese tax solutions.