VAT Grouping Provisions

 

With effect from 1st June 2018, two or more legal persons, at least one of which operates within the financial or gaming sectors, may opt to be treated as a single taxable person for VAT purposes.

 

This was made possible through the introduction of the new VAT Grouping Provisions published on 22nd May through Legal Notice 162.The implications of VAT Grouping are several for those persons eligible to form or join a VAT Group.

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The VAT Grouping Provisions only apply in the case of legal persons established in Malta, when at least one of such VAT registered persons is authorised to provide financial or gaming sector services.

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Moreover, entities can apply VAT Grouping if they are financially, economically and organisationally linked:

 

The group is financially linked when at least two of the following conditions are held:
a) All group entities have voting rights;
b) All group entities are entitled to any profits that are available for distribution;
c) All group entities are entitled t to the distribution of any surplus assets upon winding up.

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To be economically linked:

a) The activities of each member of the Group must be of the same nature, complementary, interdependent, or forming part of the same industry;
b) The activities of the individual members of the Group are wholly or substantially for the benefit to the other members of the Group.​

 

Finally, organisationally all members must share the same management structure.

 
The benefit of VAT Grouping is that any supplies of goods and services between the Group’s members are treated as outside the scope of the VAT Act. Other supplies made to or by the Group to or by third parties shall be deemed to be supplies made by or to the Group Reporting Entity. The Group Reporting Entity must be nominated by the members as the representative of the VAT Group, in terms of the rights and obligations of the Group to conform with the VAT obligations of all members involved. Notwithstanding this, all members of the group are jointly and severally liable for the timely filing of VAT returns, and the settlement of the Group’s VAT liabilities.

 

A VAT Group is provided a single VAT identification number and any previous individual VAT identification numbers of the members of the Group are disabled. A Group Reporting Entity will be chosen by the members to act as representative and to exercise all rights and carry out all obligations of the VAT Group. However, each member of the VAT Group is considered jointly and severally liable for the payment of VAT due and payable by the Group Reporting Entity. 

  

Once a VAT Group is established, any supply of goods or services supplies between group members are not taken into consideration for VAT purposes. This allows operators to outsource internally within the VAT Group without incurring irrecoverable VAT. Notably, overseas entities which have an establishment in Malta for VAT purposes may also join a VAT Group.

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We can help those entities interested in VAT Grouping to navigate through this new regime.