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The Concept of ‘Fiscal Units’ and Why They are of Interest

Through its Income Tax Act, Malta had introduced the concept of ‘Fiscal Units’ which can be formed by a group of companies. This means that it is now possible for such companies to directly pay 5% tax (trading income) or 10% (passive income), rather than the standard 35% for a trading company, with non-resident shareholders then claiming a 30% refund (trading income)or 25% (passive income).

As from 2020 it is possible to register a group of companies as a fiscal unit, which can  elect to be treated as a single taxpayer.

Malta published Consolidated Group Rules which come into force with effect from the year of assessment 2020, relating to fiscal units with accounting periods commencing in 2019 and subsequent years thereafter.

• One of the advantages of applying the consolidation regime is a cash flow benefit. Filing one tax return will eliminate the time lapse for receipt of the tax refund in the usual circumstances, where a tax return is filled for each company separately. For a group of companies only one tax return would be filed.
• Consolidated Group Rules will make income tax calculations and reporting for group companies and other group matters easier, as all income, outgoings and expenses derived by the companies will be considered incurred by the principal taxpayer. The same will rule will be applied in relation to transactions occurring between the principal taxpayer and its subsidiaries.

Formation of a Fiscal Unit

A parent company and relevant subsidiary or subsidiaries may make an election to form a fiscal unit. The parent company must own at least 95% of the subsidiary, and the subsidiary must have the same accounting period as its parent company.

Subsidiaries, as detailed above, are referred to as ‘transparent subsidiaries’. Where the transparent subsidiary is a parent company, if it has any ‘95% subsidiaries’, they are also able to join the fiscal unit. The principal taxpayer of a fiscal unit, is a parent company of one or more transparent subsidiaries, within the fiscal unit.

Companies which are not resident in Malta may form part of a fiscal unit, however the principal taxpayer must at all times qualify as a company registered in Malta, and must maintain a permanent establishment in Malta.

Chargeable Income

Members of the fiscal unit, other than the principal taxpayer, are regarded as transparent entities for Malta income tax purposes. As a result, any income and gains derived by these transparent subsidiaries will be directly allocated to the principal taxpayer. Similarly, expenditure and capital allowances incurred by transparent subsidiaries will also be directly allocated to the principal taxpayer.

Transactions between members of the fiscal unit shall be disregarded, with the exception of transfers of immovable property situated in Malta, and the transfer of property companies. 

Income or gains allocated to the principal taxpayer will retain their character and source. A number of deemed source rules, are however included. For example, income or gains derived by a non-Malta tax resident transparent subsidiary, are deemed to be attributable to a permanent establishment of the principal taxpayer situated outside Malta, as long as the transparent subsidiary maintains sufficient substance in that jurisdiction.

Compliance Obligations

Use of the Malta Fiscal Unit Regime is by choice.

The principal taxpayer will be required to prepare a consolidated balance sheet and consolidated profit and loss account, covering all of the companies within the fiscal unit. The principal taxpayer is also responsible for filing the tax return of the fiscal unit, with the other members of the fiscal unit being exempt from filing their respective tax returns. The members of the fiscal unit are jointly and severally liable for the payment of tax.

Additional Information

If you would like any further information on this subject, please contact the Dixcart office in Malta: advice.malta@dixcart.com or your usual Dixcart contact.

Background

Although Brexit negotiations are still ongoing and the final formal Brexit deal has not yet been agreed, there are some known changes that are happening and for which the Government has issued guidance. If you are exporting or importing goods to the EU then time is of the essence to ensure that you are prepared for the coming changes, in advance of the implementation date of 1 January 2021.

Exporting Goods from Great Britain (England, Wales and Scotland) to the EU

The first main known change is that from 1 January 2021, customs declarations will need to be made when exporting goods to the EU. If you currently export goods to the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein, you will already be following these rules and it will just be a matter of applying the same process to your EU exports.

Custom declarations can be made by the company internally or you can arrange for someone else to handle this on your behalf, such as a freight forwarder, customs agent or broker and fast parcel operator.

If you are looking to submit declarations internally, most can be done electronically using the National Export System (NES), but it may be that you need to purchase third party software that will allow you to make submissions. Exporters submitting declarations will also have to register for NES .  

Another known change is the requirement for an exporter to obtain a licence or certificate to export certain types of goods, or in a situation where sanctions exist:

• Animal, plants, food and agricultural products. 
• Chemicals and waste.
• Controlled goods – these include military items, dual-use items (items with both civil and military uses), firearms, and items that can be used for torture or capital punishment.
• Diamonds.
• Sanctions – trade sanctions, including arms embargoes and restrictions on dual-use items, financial sanctions, including asset freezes, immigration sanctions, known as travel bans.

The licence or certificate required is dependent on the specific item being exported and will need to be in place prior to attempting to export goods on or after 1 January 2021.

There will also be changes in respect of the required product markings, labelling and marketing standards for food, plant, seeds and manufactured goods. As well as changes to the rules on exporting alcohol, tobacco and certain oils. Details of the specifics can be found on GOV.UK.

Importing Goods from the EU to Great Britain

As with exports, from 1 January 2021, customs declarations will need to be made when importing goods from the EU. Again as with exports, if you are currently importing goods from the rest of the world, including Switzerland, Norway, Iceland and Liechtenstein, you will already be following these rules, and it is again just a matter of applying the same process to your EU imports.

The options for preparing the customs declarations are the same as with exports, they can be done internally or outsourced.

If the declarations are to be done internally this can be done in most cases electronically through the Customs Handling of Import and Export Freight (CHIEF) system. An application to access CHIEF will need to be made and it may be that third party software will need to be purchased to enable submissions.

If  importing standard goods into Great Britain from the EU between 1 January and 30 June 2021, you can use ‘entry in the declarant’s records’, without getting authorisation in advance, and you do not need to make an entry summary declaration. The following steps however must be taken for this to apply:

• Record the goods in your own records.
• Account for the VAT in your VAT Return if you are VAT registered.
• Make a supplementary declaration up to 6 months after the goods were imported.

You, or someone who does your import declarations for you, will also need to have the following in place before you make your first supplementary declaration:

• Authorisation to use simplified declarations for imports.
• A CHIEF badge.
• Software that works with CHIEF.
• A duty deferment account for paying any import duties and VAT.

For controlled goods you must follow the normal rules for making an import declaration.

Again as with exports, a licence or certificate will be required to import some types of goods into the UK. You might also need to pay an inspection fee for some goods before they are allowed into the UK. This includes items such as:

• Animal, plants, food and agricultural products. 
• Drugs, chemicals and waste.

Registration with the relevant authority will need to be done prior to importing of goods on or after 1 January 2021.

There will also be changes in respect of the required product markings, labelling and marketing standards for food, plant, seeds and manufactured goods. As well as changes to the rules on importing alcohol, tobacco and certain oils. Details of the specifics can be found on GOV.UK.

Another major change will be the requirement to pay custom duties and VAT on all imports. The rates are dependent on the imported product and details of customs duties, to be levied from 1 January 2021, have been released Custom duty. 

Next Steps

The first step in preparing for the transition period is to obtain an EORI number. If you are a regular exporter/importer then you will already have this. If you have not traded outside of the UK/EU before, an EORI number can be obtained via GOV.UK. In many cases EORI numbers were issued upon VAT registration, a business can check if they have an EORI number via the European Commission. For UK entities the format is GB followed by the company VAT registration number  and then 000, example GB1234569000.

Next, you need to make the decision as to whether you will prepare the relevant declaration internally or if it is to be outsourced. There are grants available to help businesses with the following:

• Training that helps your business to complete customs declarations and processes.
• The grant will give you up to 100% of the actual costs of externally-provided training for your employees, up to a limit of £1,500 for each employee on the course.
• It will also cover the cost of any training you run internally, up to a limit of £250 for each employee on the course.
• Hiring new staff to help your business complete customs declarations.
• The grant will give you £3,000 towards recruitment costs for each new employee. Upfront recruitment costs will not be covered for an employee redeployed from another part of the business, unless this is part of an external recruitment campaign.
• You could also get up to £12,000 to cover the salary costs for each new or redeployed employee.
• IT improvements to help your business complete customs declarations more efficiently.
• The grant will give you 100% of the costs relating to your IT expenditure to improve the efficiency of making customs declarations.

These can be applied for online Grant Scheme.

If a third party provider is to be used, enquiries should made. Details of customs agents and fast parcel operators can be found on GOV.UK .  

If the declarations are to be done internally then registration for NES and CHIEF will need to be looked at and whether the need for third party software is required.

Other considerations will be if licences or certificates will be required and/or registering with the respective authority, which will need to be put in place, prior to the intention to import/export.

Businesses may also want to set up a duty deferment account if they import on a regular basis in order to make monthly customs duty payments, opposed to paying for individual shipments.

Additional Information

If you require additional information regarding exporting from or importing into Great Britain following Brexit, please speak to the Dixcart office in the UK: advice.uk@dixcart.com.

Background

In July 2020 the UK government published draft legislation that will see a 2% Stamp Duty Land Tax surcharge (“the surcharge”), being applied to purchases of residential property in England and Northern Ireland from 1 April 2021.

April 2021 will also introduce new residency tests linked to the timing of a transaction and dependent upon whether the purchaser is UK resident or non-resident.

The surcharge will not apply to commercial property.

So, How Does it Work?

The surcharge will be levied on top of all other Stamp Duty Land Tax (“SDLT”) payable, including the higher levels of SDLT introduced in April 2016 on second homes and buy-to-let purchases, in England and Northern Ireland. Looking at this in simple terms:

Property value or lease (with over 21 years left to run) premium or transfer value	Residential property SDLT payable by UK residents	Residential SDLT assuming a second property (or more) surcharge of +3%	Non-resident surcharge of +2%
£40,001 to £125,000	zero	3%	5%
the next £125,001 – £250,000	2%	5%	7%
the next £250,001 – £925,000	5%	8%	10%
the next £925,001 – £1.5 million	10%	13%	15%
the remaining portion above £1.5 million	12%	15%	17%

To Which Non-UK Residents will the Rules Apply?

There are a number of exclusions that apply and businesses with complex ownership structures will require careful consideration when assessing whether the surcharge applies.

At their simplest, the rules will apply to the following:

• if the purchaser (or any one of the purchasers) is an individual outside the UK for at least 183 days out of a 365 day period beginning 12 months before the transaction and ending 12 months after (in which case the surcharge is payable at the point of acquisition but a refund can be applied for);
• certain unit trusts and Jersey Property Unit Trusts, having regard to the status of the trustees;
• a company not resident in the UK for corporation tax purposes;
• a company that is resident in the UK for corporation tax purposes but is a close company and controlled by a non-UK resident individual(s) and is not a UK real estate investment vehicle nor group member of one, nor a Jersey Property Unit Trust;
• a partnership where one of the partners is treated as non-resident; and
• where UK property is to be held in a trust, the residential status of the beneficiary is considered, failing which the residency tests are applied to the trustees themselves.

It is important to note, that the surcharge will apply to a transaction where any one of the joint purchasers is non-UK resident. This applies to a spouse too. If a couple are buying jointly but one spouse works outside of the UK, the surcharge will apply.

Land transactions where contracts are exchanged before the 10March 2020, but not completed or substantially performed until on or after 1 April 2021, are likely to be subject to transitional rules

Why Now?

A surcharge has been on the cards for a while. The UK government announced its plans as far back as the Budget in 2018 and rates between 1% and 3% were considered during a consultation that ran on until May 2019.

The government states that the “measure may help to control house price inflation, by leading to a reduction in residential property purchases by non-UK residents, some of which is offset by an increase in purchases by UK residents”.

What will be the overall impact of the surcharge?

Only time will tell. The proposed surcharge has been criticised in the UK for its failure to deal with purchasers claiming multiple dwelling relief (requiring the purchase of no less than 6 dwellings), and with overseas buyers buying off-plan who then “flip” the property onto a UK resident who then enjoys sub-sale relief from the surcharge.

For more information see the Government guidance: New Rates of Stamp Duty Land Tax for non-UK Residents from 1 April 2021.

Additional Information

Dixcart Legal can assist with your property related enquiries in the UK. If you have any questions about this article/require any further information, please contact Kuldip Matharoo: advice@dixcartlegal.com.