Group losses relief – Can a loss in one group company be used against profits of another group company?

Group loss relief arises when a company that is part of a group of companies incurs trading losses. Instead of carrying these losses forward to subsequent years, the company, referred to as the surrendering company, transfers the losses to another company forming part of the same group, known as the claimant company. This transfer is made upon a claim by the claimant company.

The claimant company can then deduct the surrendered trading losses against its chargeable income, provided that the losses were incurred in the same tax year, and the losses are not unrelieved losses carried forward from prior years.

A group loss claim can be made at a consideration, but such consideration is neither taxable nor deductible. Furthermore, a surrendering company may surrender allowable losses exceeding the total income of the claimant company. In such cases, the claimant company may carry forward and set off those losses in subsequent years.

Nevertheless, a number of criteria needs to be met before such a tax loss can be surrendered.

Eligibility for group loss relief

To benefit from group loss relief, two or more companies must form part of the same group and must meet the following criteria:

All companies must be resident in Malta for tax purpose.
There must be a 51% ownership within the group, such that:
- One company owns at least 51% of the other company, or
- Both companies are at least 51% subsidiaries of a third company that is also a resident in Malta.

A company is considered a 51% subsidiary of a parent company if the following conditions are met:

More than 50% of the ordinary share capital and more than 50% of the voting rights are owned directly or indirectly by the parent company, and
The parent company is beneficially entitled either directly or indirectly to more than 50% of any profits available for distribution to the ordinary shareholder, and
The parent company would be beneficially entitled either directly or indirectly to more than 50% of any assets of the subsidiary company available for distribution to the ordinary shareholder in case of winding up.

In addition to the above, there are more criteria to be met for group loss relief eligibility, including that:

Both the surrendering company and the claimant company must be members of the same group throughout the year preceding the year of assessment for which the relief is claimed.
Both companies must have the same accounting periods, which must begin and end on the same dates in the year the surrendering company incurs the loss.
- For newly incorporated companies: Group loss relief may still be applied if the new company has the same financial year as the other company.
- For companies wound up during the year: Group loss relief may still be applied if the company has the same starting accounting period date as the other company.
Rules on tax accounts in surrendering losses
- Losses surrendered from the Foreign Income Account (FIA) can only offset profits of the claimant company in the same account (FIA).
- Losses surrendered from profits allocated to the Immovable Property Account (IPA) or the Maltese Taxed Account (MTA) may be deducted by the claimant company from its income allocated in either the IPA or the MTA.

Submission deadline

The claim must be made in the tax return (using TRA 19 and 20) by no later than the tax return deadline of the relevant year of assessment.
If the tax return is not submitted on time, the claimant company must submit an original letter to the Malta Commissioner for Revenue (MTCA) within 12 months following the end of the company’s accounting period in which the loss was incurred.

Get in Touch with Quazar

Understanding the group loss relief requirements and ensuring compliance can be complex. At Quazar, we can assist your group of companies. If you need further information, contact us today. Our experienced team is here to help your business stay compliant.

For more information or assistance on applying for investment schemes and grants in Malta, please contact Quazar on quazaroffice@quazar.mt.

Get in Touch:

Raisa Colombo

rcolombo@quazar.mt / +356 2388 4600

Daniel Galea

dgalea@quazar.mt / +356 2388 4600