TAX INFORMATION

Last updated date: 13.03.2015

On acquiring and disposing of immovable property in Malta, any person, whether juridical or physical, is subject to taxation according to the Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta and the Income Tax Management Act, Chapter 372 of the Laws of Malta and the Income Tax Act, Chapter 123 of the Laws of Malta.
 

The Buyer

  • 5% Duty on Documents calculated on the purchase price of the immovable property

If the Buyer is a European Union Citizen declaring on the deed that he shall reside in the property being purchased as his sole ordinary residence, then the preferential rate of 3.5% is applied on the first €150,000 of the price.

In respect of transfers of immovable property, made on or after the 5th November 2013 but before the 1st July 2015, no duty shall be chargeable on the first €150,000 of the aggregate value of the consideration paid for the acquisition of such property, provided that this is the first immovable property acquired inter vivos by such person.
 

The Seller

What is the new rate of the final withholding tax on property and from when is it effective?

 

With effect from 1st January, 2015 the current system consisting of both a 12% final withholding tax on the transfer value and 35% tax on the profit or gain will be replaced by one final withholding tax of 8% on the value of the property transferred.


 

Are there any exceptions?

 

There are two exceptions as follows:

  • In the case of individuals who do not carry on the business of property trading, the applicable final withholding tax rate shall be 5% on the value of the property transferred if the property is transferred before five years from the date of its acquisition.

  • In the case of properties acquired before the 1st January, 2004 in respect of which a notice of a promise of sale or transfer relating to that property had not been given to the Commissioner before the 17th November, 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.


 

  • How will the new final withholding tax system apply in the case of property transferred on or after 1st January, 2015 where a notice of a promise of sale or transfer relating to that property had been given to the Commissioner before the 17th November, 2014?

 

A transfer of property, not forming part of a project and not made by the owner of an SDA project, made on or after the 1st January 2015 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the Commissioner before the 17th November, 2014, and which is transferred to the same person or persons appearing on the said promise of sale agreement before the 1st January 2016 may be excluded from the Final withholding tax system if the transfer is made not later than twelve years after the date of the acquisition of the property.

In the case of a transfer of property acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the Commissioner before the 17th November, 2014 the applicable final withholding tax rate shall be 12% of the value of the property transferred unless the previous paragraph applies and the transfer is excluded from the Final withholding tax system.


 

  • If a promise of sale or transfer relating to a property that forms part of a project or of property situated within a Designated Special Area (SDA) given to the Commissioner before the 17th November, 2014 is cancelled after this date or expires, and such transfer would have been subject to 12% final withholding tax if the transfer was made before the 1st January 2015, will an eventual transfer be taxed under the new system if made on or after the 1st January 2015 i.e. at a lower rate of 8% or 10%?

 

Where a notice of a promise of sale or transfer relating to a property that forms part of a project or of property situated within a Designated Special Area (SDA) given to the Commissioner in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act before the 17th November, 2014 is cancelled after the said date or expires and, either the said property is transferred to the same persons appearing on the said promise of sale which has been cancelled or, another property forming part of the same project is transferred to the same persons appearing on the said promise of sale which has been cancelled or has expired, any of such transfers shall be deemed to be transfers in respect of which a notice of a promise of sale or transfer has been given to the Commissioner before the 17th November, 2014, which means that such transfers will remain taxable at the rate of 12% final tax.


 

  • Will it be possible to elect to exclude a transfer property from the scope of the final withholding tax system on or after the 1st January 2015?

 

Before the 1st January, 2015 the transferor in a transfer of property made not later than twelve years after the date of the acquisition thereof or of property situated within a Designated Special Area (SDA) could elect by means of a declaration made to the notary at the time of the publication of the deed of the transfer and recorded in the said deed to exclude that transfer from the scope of the final withholding tax system. However, as from 1st January, 2015 it will no longer be possible to elect to exclude such transfers from the scope of the final withholding tax system except for limited cases explained further below.

 

  • What happens in the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a Designated Special Area (SDA)?

 

In the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a Designated Special Area (SDA), where the transferor had elected to be excluded from the 12% final tax system such an election will no longer apply as from 1st January 2015 and any transfers taking place after this date will be subject to either 8% final withholding tax or else 10% final withholding tax in the case where the property was acquired before the 1st January, 2004, unless a notice of a promise of sale or transfer relating to the property has been given to the Commissioner in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act made under that Act before the 17th November, 2014. If such notice was given, the property transferred in respect of which such notice was given will remain outside the scope of the final withholding tax system if transferred before 12 years from the date of acquisition unless the property is situated in a Designated Special Area (SDA), in which case it will remain outside the scope of the final withholding tax system indefinitely.

Where the transferor had not elected to be excluded from the 12% final tax system any transfers taking place after the 1st January, 2015 shall be subject to either 8% final withholding tax or else 10% final withholding tax in the case where the property was acquired before the 1st January, 2004 unless a notice of a promise of sale or transfer relating to the property has been given to the Commissioner in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act made under that Act before the 17th November, 2014. If such notice was given the property transferred in respect of which such notice was given shall be subject to 12% final withholding tax.


 

  • Where a transfer of property is made by a person who is not resident in Malta and who is resident for tax purposes in another country, such person may currently opt out of the 12% final withholding tax system. Will this remain the same under the new system?

 

Currently a transfer of property by a person who is not resident in Malta and who is resident for tax purposes in another country may opt out of the 12% final withholding tax system if that person produces to the notary who publishes the deed of transfer a statement signed by the tax authorities of the country of that person’s residence that confirms that person’s residence in that country and that certifies that that person is subject to tax in that country on gains or profits derived from the transfer of immovable property situated in Malta.

As from the 1st January, 2015 such non resident persons may still be entitled to opt out of the final withholding tax system and be taxed under article 5 (Capital gains) however the 7% provisional tax paid relating to a transfer of property made on or after the 1st January, 2015, shall not be available for refund under article 48 of the Income Tax Management Act. No claim can be made to reduce the 7% provisional tax payable.


 

  • Are there any circumstances where an election may still be made to exclude the transfer from the final withholding tax system and elect to be taxed on the profit or gain?

 

Yes, the following have remained unchanged:

  • A transfer of property that was, immediately before the transfer, co-owned by two individuals and the transfer is made by one of the co-owners to the other. An election may still be made to exclude the transfer from the scope of article 5A.

  • A transfer of property to the Government of Malta made pursuant to an acquisition of that property in terms of the Land Acquisition (Public Purposes) Ordinance. An election may still be made to exclude the transfer from the scope of article 5A.

  • A transfer made by means of a judicial sale by auction or in the course of a winding up by the Court. Such transfer is not taxable under article 5A.

  • A transfer of property that had been used in a business for a period of at least three years and that is replaced within one year by property ("the new property") used solely for a similar purpose of the business. An election may still be made to exclude the transfer from the scope of article 5A.


 

  • Do the exemptions prescribed under article 5A(4) of the Income Tax Act still apply?

 

Yes, all the exemptions (described below) prescribed under article 5A (4) of the Income Tax Act have remained the same.

  • A donation made by a person to his spouse, to his descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his brother or sister or to a descendant of his brother or sister, or to a philanthropic institution approved for the purposes of article 12(1)(e).

  • A transfer of property that has been owned and occupied by the transferor as his own residence for a period of at least three consecutive years immediately preceding the date of transfer and provided that the property is disposed of within twelve months of vacating the premises.

  • The assignment of property between spouses consequent to a judicial or consensual separation or a divorce.

  • The assignment of property that formed part of the community of acquests between the spouses or was otherwise owned in common between them, to one of the spouses on the dissolution of the community, or the partition of such property between the spouses or the surviving spouse and the heirs of the deceased spouse.

  • A transfer of property from one company to another forming part of the same group.

  • The transfer of property upon the incorporation of a business or a partnership en nom collect if as a going concern into a limited liability company.

  • The settlement of property on trust, or the distribution or reversion of property settled on trust, or the transfer of all the property of a trust involving only a change in the trustee of a trust and where there is no change in the beneficiaries or in the beneficial interest.

  • A transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of a distribution of assets pursuant to a scheme of distribution.


 

  • Which date is to be taken as the date of acquisition where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption?

 

For the purposes of determining whether property has been acquired by the transferor before the 1st January, 2004 where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption, the date of acquisition is the date when it first entered the group.


 

  • How am I taxed if I inherited the property after the 24th November, 1992?

If the property was inherited after the 24th November, 1992 a 12% final tax on the difference between the transfer value and the cost of acquisition (denunzja) is applicable.


 

  • How am I taxed if the property was inherited before the 25th November 1992?

 

If you inherited the property before the 25th November, 1992 the tax is equal to 7% of the transfer value. The 7% tax is final.


 

  • How am I taxed if I acquired the property by donation?

A transfer of property that was acquired by the transferor in terms of a donation made more than five years before the date of the transfer in question, shall be chargeable at 12% of the excess, if any, of the transfer value over its acquisition value.


 

How am I taxed if I sell the property on or after the 1st January, 2015 in the circumstances referred to in article 31C(1) of the Income Tax Act?

 

A transfer of property, which has been restored in accordance with any scheme issued for this purpose by the Malta Environment and Planning Authority providing for the restoration of grade 1 or grade 2 scheduled property or property situated in an urban conservation area, made on or after the 1st January, 2015, shall be chargeable at the rate of 10% of the transfer value if a notice of a promise of sale or transfer relating to that property has been given to the Commissioner in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act or of rules made under that Act before the 17th November, 2014.

A transfer of property made on or after the 1st January, 2015 in the circumstances referred to in article 31C (1) of the Income Tax Act, shall be chargeable at the rate of 7% of the transfer value. The 7% tax is final.


 

  • How am I taxed in the case of an assignment of a right obtained in terms of a promise of sale (konvenju)?

 

Any gains or profits derived from the assignment of any right obtained in terms of a promise of sale (konvenju), including a promise to alienate in any manner immovable property or a promise in respect of emphyteusis, shall in all cases be deemed to be gains or profits derived from a trade, business, profession or vocation falling within the scope of article 4(1)(a) of the Income Tax Act to be declared in the tax return.


 

  • Can I deduct brokerage fees from the value of the property transferred, before applying the final withholding tax?

 

Yes, brokerage fees will remain deductible. The amount of brokerage fees paid by the transferor shall continue to be allowable as a deduction from the transfer value as long as the conditions of verification mentioned in the Tax on Property Transfers Rules are satisfied. The final withholding tax is applicable on the result.

Disclaimer: This information has been referenced from the Notarial Website (https://www.notariesofmalta.org/).While the Notarial Council endeavours to present the most current information, please consult a notary, legal or tax professional for legal advice. 

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Chris Carabott
A Real Estate Professional internationally coached and recognised for the highest level of integrity and commitment. 
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info@realluxury.eu
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Sliema, SLM 3011, Malta

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