Introduction

The Maltese market has earned itself an envied reputation for being stable with excellent return on investment benefits, especially when the European property market has witnessed a downturn. This can be explained by the fact that immovable property in Malta still benefits from a legal system with no tax on ownership or wealth, attracting many foreigners to take up residence in Malta or Gozo.

In addition to the attractive fiscal conditions for property ownership by foreigners in Malta, various elements, such as a new high rise policy, have boosted further development in the property sector. Effectively, supplementary expansion to existing buildings in specified areas in Malta have extended the return on investment possibilities.

Conditions for Buying Immovable Property (by Individuals)

To attract further property investment, the government has implemented several measures that have charged up the market to higher levels. Effectively by virtue of having resided continuously in Malta for at least 5 years, EU citizens are given the ability of acquiring immovable property in Malta without the need to apply for an Acquisition of Immovable Property (AIP) permit.

EU citizens who have not resided continuously in Malta for at least 5 years, preceding the date of acquisition, may still acquire their primary residence, or any immovable property required for their business activities, or supply of services, without an AIP permit.

Meanwhile, citizens of all EU member states, who have not resided continuously in Malta for a minimum period of five years, require an AIP permit to acquire immovable property for secondary residence purposes. Individuals who are not EU citizen still have the possibility of acquiring immovable property in Malta through the acquisition of an AIP Permit, if they intend to use the property as their primary residence.

A body of persons, other than a commercial partnership, established in, and operating from an EU member state, may freely acquire immovable property that is required for the purpose for which it has been set up as long as its ultimate beneficial owners are EU citizens. A commercial partnership established in, and operating from an EU member state (therefore including Malta) may freely acquire immovable property that is required for the purpose for which it has been set up and at least 75% of its share capital is held by a person (or persons) who is an EU citizen.

Any other body of persons will require a permit which is only granted if the property is required for an industrial or touristic project, or as a contributor to the development of the Maltese economy. There are defined zones in Malta referred to as special designated areas, where there are absolutely no restrictions to acquire property.

These exclusive high-end zones include: Fort Chambray, limits of Ghajnsielem, Gozo; Madliena Village, Madliena; Portomaso Development, situated on a plot of land at Spinola, St. Julians; SmartCity; San Lawrenz Kempinski Development, Gozo; Fort Cambridge, Sliema; Cottonera Development; Manoel Island/Tigne Point, Gzira and Sliema; Tas-Sellum Residence, limits of Mellieha; Ta’ Monita Residence, Marsascala; Pender Place and Mercury House, St Julians; Metropolis Place Gzira; and Vista Point, Marsalforn, Gozo.

Renting Property in Malta

Renting a property in Malta is an easy procedure, where a lease agreement can be signed within a few days after all aspects are agreed upon between the lessor and the lessee. Provided certain conditions are fulfilled, proceeds from the rental of immovable property in Malta may, at the taxpayers’ option, be taxed at a final tax rate of 15% on the gross rent receipts. The rental of immovable property is generally considered as exempt without credit, meaning that no VAT is chargeable on the lease of such property. Consequently, the lessor will not be able to claim any VAT on expenses incurred in maintaining such property. Similarly, no VAT applies on the transfer of immovable property.

Exceptions to this general rule, however, do exist, where certain property leasing can be considered to be a vatable supply with credit. In such case, the taxable person will be obliged to charge VAT according to the applicable rate, and will be able to claim VAT on the expenses incurred in its upkeep and which are directly related to the leasing of the property. These exceptions, amongst others, include:

– Letting of, or the provision of, accommodation in any premises which, for the purpose of the said letting or accommodation is required to be licensed in virtue of the Malta Travel and Tourism Services Act. The chargeable VAT rate is 7%; and

– Letting of immovable property by a limited liability company to another Article 10 tax-registered person where the property being leased is used for the economic activity of that registered person. VAT chargeable on such transaction will be 18%.

Property Tax

The highly appealing tax rates imposed on the person transferring the property to the new buyer at the time of transfer, should one decide to sell the property, are other means to attract foreigners to invest in property in Malta. In this regard, ‘transfer’ includes any assignment or cession of any rights over property.

The final tax rule under article 5A of the Income Tax Act governs transfers of Immovable Property situated in Malta, or rights thereon. Consequently, the rate of 8% final withholding tax is applicable on transfers of Immovable Property situated in Malta, except for the below situations:

2% of Transfer Value

Property transferred, which, immediately before the transfer was owned by an individual or two co-owners who had declared in the deed of acquisition that such property had been acquired for the purpose of establishing therein, or constructing thereon, his/her/their sole ordinary residence, and the transfer is made not later than three years from the date of acquisition.

5% of Transfer Value

Where the property being transferred does not form part of a project, as defined, and the property is transferred within five years from the date of acquisition.

Transfer of inherited immovable property will remain subject to 12% final tax on the difference between the transfer value and the cost of acquisition (valuation of property for causa mortis deed), or 7% final tax on the consideration if inherited before 25th November 1992.

5% of Transfer Value

Transfer of property situated in Valletta, which was acquired before the 31st December 2018, and where such property has been restored and/or rehabilitated and works are certified by the Malta Environment and Planning Authority (MEPA) before the 31st December 2018. Such transfer must not be made more than five years from the 31st December 2018.

7% of Transfer Value

Restored property where a notice of promise of sale has not been given prior to the 17th November 2014. 10% of transfer value property acquired prior to 1st January 2004 and for which transfer a promise of sale has not been presented to the Commissioner of Revenue before 17th November 2014.

12% tax on the profits made also applies in the case of transfer of immovable property acquired through a donation where the transfer is made more than five years after the date of the donation.

Stamp Duty

Stamp duty at the rate of 5% of the value of the property is due by the buyer upon the acquisition of immoveable property in Malta. The acquisition of a person’s first residence is subject to a reduced rate of stamp duty at the rate of 3.5% on the first €150,000 of the price of immoveable property. The price of property in excess of €150,000 is subject to stamp duty at the rate of 5%. The reduced rate of 3.5% on the first €150,000 is subject to the buyer having the intention to establish within the property his/her ordinary residence.

The reduction of stamp duty to 3.5% only applies to persons who do not require an AIP permit, as previously explained. Upon the acquisition of immovable property in Malta, stamp duty of 1% on the acquisition value of the property is payable upon signing the promise of sale agreement, and the balance is payable on deed of purchase at the rate of 5%. All non-EU nationals have to pay 5% in stamp duty on the value stated in the final deed of sale.

Exemptions

Some transactions, as explained below, are exempt from being subject to property transfer tax:

1. Donations, made by a person, to certain family members, as defined, or to philanthropic institutions;

2. Transfer of property that had been owned and occupied by the transferee or, where this property was used as his/her principal residence throughout the period of three consecutive years immediately preceding the date of the transfer. This exemption will come into effect if the property is disposed of within twelve months from the date on which the seller has vacated the premises;

3. Assignment of property between spouses consequent to a judicial or consensual separation or divorce;

4. Assignment of property that formed part of the community of acquests between the spouses, or was otherwise owned in common between them;

5. Transfer of property from one company to another, where the companies satisfy the conditions to be deemed as companies forming part of the same group; and

6. Transfer of property by a company to its shareholder, in the course of its winding up, or in the course of distribution of assets, provided certain conditions are satisfied.

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