Tax
Stamp Duty on the transfer of Real Estate
Payer
Real state buyer
Active Subject
Commissioer for Revenue
Calculation Basis
Higher of the Market Value and the Consideration paid
Rate
1.5% to 5%
Rate
Several schemes allowing for the reduction in duty on the acquisition of immovable property are provided for in the Duty on Documents and Transfers Act, some of which are the following:
- The First-time buyer scheme;
- The Second-time buyer scheme;
- The Gozo Property Scheme;
- The Urban Conservation Area Property Scheme;
- The Transfer of Family Business Scheme.
Additionally, currently both transferors and buyers can benefit from the COVID-19 measure providing for a reduced tax and duty rate of 5% and 1.5% respectively on the first EUR400,000 of immovable property transferred inter vivos. This scheme was initially part of Government’s Economic Recovery Plan for Malta, pursuant to the COVID-19 pandemic, and became effective on 9 June 2020 through Legal Notices 240 and 241 of 2020.
Hereunder is a summary of each scheme.
First-time buyer scheme
The incentive is for first time buyers of residential property. If made until the end of 2021, acquisitions of such property are exempt from duty on the first €200,000), or on a pro-rata portion in case of co-acquisition, of the aggregate value of the consideration paid for the acquisition of such immovable property. Such incentive applies provided that certain conditions are met.
Second-time buyer scheme
The incentive is for individuals who, by 31 December 2021, replace their sole residential property with another within 12 months from vacating the first. Duty on the first €86,000, or the pro-rata portion in case of co-acquisition, of the value of the replacement property is refunded. Such incentive applies provided that certain conditions are met.
Urban Conservation Area (UCA) Property Scheme
The incentive is for individuals who acquire residential property situated within a UCA or a property that is scheduled by the Planning Authority. The incentive, extended until the end of 31st December 2021, reduces the rate of duty from the standard 5% to 2.5% on the higher of the consideration or value of the property. The incentive shall be forfeited in case of illegal development of the property or if the property is not regenerated according to the characteristics of the area or restoration of the said property. Such incentive applies provided that certain conditions are met.
Transfer of Family Business Scheme
Under this scheme, duty on the transfer of company shares and commercial tenements in intra-family donations is reduced from 2% or 5% to 1.5% on the real value. Such applies until the extended date of 31 December 2021, provided that the relevant notice is filed with the Revenue by the same date.
The reduction applies in the case of a transfer of marketable securities issued by a company, or of immovable property being a commercial tenement used in a family business for at least 3 years preceding the transfer by donation from an individual to qualifying family members. A qualifying family member refers to one’s spouse or partner in a civil union, descendants and ascendants in the direct line and their relative spouses or civil union partners or in absence of descendants to one’s brothers or sisters and their descendants.
This reduction in duty applies provided that the donee does not transfer the securities/commercial tenement, inter vivos, within 3 years from the donation and uses the commercial tenement within a business carried on by the donee for 3 years following the donation.
No other exemption or relief from duty may be availed of.
COVID-19 temporary reduction in tax and duty on the transfer of immovable property
On the part of the purchaser of immovable property in Malta, the scheme provides that the duty rate chargeable will be calculated at 1.5% on the first €400,000 of the higher of the consideration and the market value of such property, with the remaining duty being calculated at the applicable duty rate (normally 5% unless qualifying for some other reduced rate). On the part of the transferor of the immovable property, where the transfer would otherwise have been subject to tax at 8% or 10%, the rate of final property tax is reduced to 5% on the same first €400,000, with the excess value taxable at the standard applicable rate.
The measure applies on transfers made by 31 December 2021 or on transfers made until 30 June 2022 where, in the latter case, a promise of sale or promise of transfer agreement is entered into by 31 December 2021. Standard procedures apply for the payment of the tax by the notary publishing the promise of sale or deed of transfer.
The duty reduction applies provided that certain conditions are met.
Claw back provisions apply for both tax and duty in the case of transfers or acquisitions of immovable property with an abusive intent.
Tax
Property transfer tax
Payer
Real state seller
Active Subject
Commissioer for Revenue
Calculation Basis
Higher of the Market Value and the Consideration paid
Rate
2% to 10%
Rate
The old regime has been phased out and as the 1st of January 2015 the option of taxing a transfer of property at the rate of 12% on capital gains has been done away with. Currently, the income tax act provides a lower rate of final withholding tax at the rate of 8% which is calculated on the value of the property. It is important to note that a property which was acquired before the 1st of January 2004 is subject to a final withholding tax of 10% on the value of the property.
The law has also catered for those transferors who do not habitually acquire and transfer properties. In fact, a transferor may benefit from the low rate of a final withholding tax of 5% upon transferring an immovable property within five years from the date of acquisition. Furthermore, 2% withholding tax applies upon a transfer of property that was immediately before the transfer owned by an individual or co-owned by an individual, provided that the transfer is not made later than 3 years. A 5% final withholding tax is also applicable when a transfer pertains to a property located in Valletta. Such properties must have been acquired before the 31st December 2018 and it must have been restored or rehabilitated.
Outright Exemption from Property tax
A seller may also benefit from an outright exemption of tax in the following cases:
- donations in favour of spouse/descendants or ascendants;
- donations to philanthropic institution;
- transfer of property owned and occupied by transferor as own residence for a period of at least three consecutive years;
- assignment of property between spouses in a separation or divorce;
- assignment of property after termination or dissolution of the community of acquests between spouses;
- partition of property between spouses or partition of property between surviving spouse and the heirs of the deceased spouse;
- transfer from one company to another forming part of the same group;
- transfer of property on the incorporation of a business or partnership en nom collectif as a going concern into a limited liability company;
- the settlement of property on trust;
- a transfer of property by a company to its shareholder in the course of a distribution of assets pursuant to a scheme of distribution.
Furthermore, a seller is charged at the rate of 12% of the excess of the transfer value which has been declared on the deed of the transmission causa mortis and the sale price, if any, if the property was acquired by the seller by way of a donation which was made more than five years before the date of the said transfer. Notably, if the property is being listed on the real estate market and consequently sold by the donee after the lapse of five years the cost of the acquisition shall be that particular value of the property as declared previously in the deed of donation.
In the case of inherited property, one has to keep in mind that if the property was inherited after the 24th of November 1992 a 12% final withholding tax on the difference between the transfer value and the cost of acquisition is applicable. On the other hand, a final withholding rate of tax at 7% is chargeable on the selling price if the property was inherited before the 25th of November 1992.
Upon further contemplation of property transfer tax and the calculation thereof, where an asset is reassigned from one company to another, and such companies are set up and operating in a group of companies or controlled and owned to the extent of more than 50% by the same shareholders, it is held that neither a loss or a gain has been incurred from the transfer between the companies.
Assets which are being transferred which have been previously utilised in a business for a time span of at least three years and which are subsequently substituted within a year by another asset utilised exclusively for a comparable purpose in the said business, any capital gains will not be taxed but the cost of acquisition of the newly acquired asset will be reduced to the said gain.