Property Transfer Tax – Malta

Buying a property in Malta

Selling a property in Malta

Malta Property Tax Rates and Exceptions on the transfer of immovable properties.

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Malta’s property tax rates can be complex, with different rates, scenarios, exemptions and exceptions for individuals and companies. This comprehensive guide aims to clarify the various property tax rates and conditions under which they apply, whether you are an individual or a company dealing or in possession of real estate in Malta.

What is the tax rate applied when selling an immovable property in Malta?

Transfers of properties in Malta falling under Article 5A, made on or after 1 January 2015, are taxed at 8% of the transfer value if the property was acquired on or after 1 January 2004.

Definitions

• Property: Refers to any immovable property situated in Malta and any rights over such property.
• Transfer: Has the same meaning as in Article 5 but excludes partitions.
• Project: Refers to property developed into more than one transferable unit or divided into multiple portions for transfer, excluding land transferred in the same state as acquired.

Exceptions

1. Pre-2004 Properties: Properties acquired before 1 January 2004 are taxed at 10% if no notice of a promise of sale or transfer was given before 17 November 2014.
2. Quick Transfers: Transfers of property not forming part of a project and made within 5 years of acquisition are taxed at 5%.
3. Inherited Property: Properties acquired through inheritance before 25 November 1992 are taxed at 7%, while those inherited after are taxed at 12% on the difference between transfer and acquisition value.
4. Donated Properties: Properties acquired through donation and transferred within 5 years are taxed at normal rates; otherwise, 12% on the difference between transfer and acquisition value if transferred after 5 years.
5. Sole Residence Transfers: Transfers of sole ordinary residence within 3 years of acquisition are taxed at 2%.
6. Restored Properties: Properties restored under Planning Authority schemes or situated in urban conservation areas with permits are taxed at 10% or 5% respectively.
7. Special Designated Areas: Transfers in specially designated areas are taxed at either 8% or 10%, with specific conditions.

Effective from 1 November 2005, any transfer concerning immovable property situated in Malta is taxed under Article 5A ITA, regardless of whether the property is held as a trading asset or a capital asset.

Exceptions to the General Rule

1. Immovable Property Situated Outside Malta: Transfers of immovable property located outside Malta are not subject to Article 5A.
2. Exempt Transactions: Certain transactions are exempt from tax under Article 5A ITA.
3. Opting Out: Transferors can elect to opt out of Article 5A under specific situations.
4. Mandatory Exclusions: Some transactions are excluded from Article 5A and do not require an election.

Features of the Final Tax

• Final Withholding Tax: Unlike income tax on capital gains, property transfer tax is a final withholding tax applied on the transfer value of the property rather than on the gain from the transfer.
• Non-Creditable: The final tax cannot be credited against the tax liability of any person, and no tax is charged on the gain of the transfer of property.
• No Deductions: Expenditures, losses, bad debts, allowances, or tax credits related to income or capital gains are not deductible.
• Final Tax Account for Companies: Maltese resident companies must allocate profits derived from the transfer of property to the Final Tax Account, with no further tax on distributions to shareholders.

Provisional Tax

By default, transfers of property under Article 5A are not subject to the 7% provisional tax.

Transfers Excluded from Article 5A

Mandatory Exceptions

1. Transfer Causa Mortis: Transfers upon death are not included in the definition of ‘transfer’.
2. Pre-2005 Transfers: Transfers made before 1 November 2005.
3. Judicial Sales or Winding Up: Transfers through judicial sale by auction or during court-ordered winding up.
4. Pre-2005 Lease Agreements: Transfers pursuant to lease agreements made before 1 November 2005 with an option to purchase.
5. Outside Malta: Transfers of property situated outside Malta.

Elective Exceptions

Transferors can elect to exclude the transfer from Article 5A in specific circumstances, such as:

1. Co-Owned Property Transfers: Transfers between individual co-owners who acquired the property for establishing their sole ordinary residence.
2. Non-Resident Transfers: Non-residents can opt-out if subject to tax on gains in their tax resident jurisdiction.
3. Roll-Over Relief: Transfers replaced within one year by a similar business property can be excluded from Article 5A.
4. Listed Companies Projects: Companies with publicly issued debt securities listed on the Malta Stock Exchange can opt out for the first and subsequent transfers forming part of a project.

Assignment of Rights in Promise of Sale

Profits from the assignment of rights in a promise of sale (konvenju) are considered gains from trade or business and must be declared in the tax return. A 7% provisional tax on the profit must be withheld by the notary.

Computation of Transfer Value

1. Transfer Value: The higher of the market value or the consideration paid.
2. Deductions: Allowable deductions include brokerage fees, provided the broker’s details and fees are documented and entered in the deed.

Detailed Exemptions

Donations and Intra-Family Transfers

1. Spouse and Descendants: Donations to a spouse, descendants, and certain philanthropic institutions are exempt.
2. Trusts: Donations upon settlement on trust or distribution of property settled on trust are exempt.
3. Own Residence: Transfer of a primary residence owned and occupied for at least 3 years and disposed of within 12 months of vacating is exempt.
4. Separation or Divorce: Assignment of property between spouses consequent to separation or divorce is exempt.
5. Community of Acquests: Assignment of property forming part of the community of acquests between spouses is exempt.

Business and Corporate Transfers

1. Intra-Group Transfers: Transfers within a group of companies, either as capital assets or part of a restructuring, are exempt.
2. Conversion of Business: Transfer of a business as a going concern into a limited liability company, meeting specific conditions, is exempt.
3. Company Liquidation: Transfer of property by a company to its shareholder or related individual during liquidation, subject to conditions, is exempt.

Non-Domiciled or Non-Resident Transfers

Transfers of immovable property situated outside Malta by persons not domiciled or not resident in Malta are exempt.

Special Considerations

Claw-Back Provisions

Several exemptions have claw-back provisions where subsequent transfers or changes in use of the property within specific timeframes can trigger tax liabilities under Article 5 or Article 5A.

Election for Exemption

Election to opt out of Article 5A must be made by declaration to the notary and recorded in the deed of transfer. Once made, this election is irrevocable.