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Guide: Buying Property in Malta

30.07.2015

Buying Property in Malta

Malta’s repute as the English speaking, friendly people, sun soaked island has in recent years received a huge boost thanks to its reaffirmation as one of Europe’s highly lucrative property investment propositions. At a time when the European property market has witnessed a downturn, the Maltese realty market has earned itself an envied reputation for being relatively stable with excellent return on investment benefits.

Possibly, much of this is due to the fact that immovable property in Malta is still favoured by a legal system that does not impose tax on ownership or wealth. This has been the catalyst for attracting many foreigners to take up residence in Malta or the sister island of Gozo described as the place where time stood still, duly investing in real estate ownership that appreciated handsomely over the years.

Adding to the appealing fiscal conditions surrounding property ownership by foreigners in Malta, factors, such as a new high rise policy for example, have fuelled further growth in the property sector. Effectively, thanks to this new policy, additional development to existing buildings in specified areas in Malta have extended the return on investment possibilities to large scale development owners amongst others.

Conditions for Buying Immovable Property (by Individuals)

Meanwhile as a means of boosting the mobility of the property market and attracting to the islands further property investment, the Maltese government has come up with a number of measures that have charged up the market to higher levels, enhancing the prospects of a sound investment.

Effectively by virtue of having resided continuously on the island for a minimum of period of 5 years, EU citizens are accorded the facility of acquiring immovable property in Malta without the need of applying for an Acquisition of Immovable Property (AIP) permit.

EU Citizens who have not resided continuously in Malta for a minimum period of 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 the necessity to obtain an AIP permit.

Meanwhile citizens of all European Union member states, who have not resided continuously in Malta for a minimum period of five years, require an AIP permit in order to acquire immovable property for secondary residence purposes. Individuals who are not citizens of a European Member state may still have the possibility of acquiring immovable property in Malta through the acquisition of an AIP Permit.

There exist defined zones in Mata, referred to as special designated areas, where there are absolutely no restrictions to acquire property. These exclusive high end zones include, amongst others, Fort Chambray in the limits of Ghajnsielem in the Island of Gozo, Madliena village in Madliena, Portomaso Development situated on a plot of land at Spinola, St. Julians, SmartCity, San Lawrenz, Kempinski development in Gozo and Fort Cambridge in Sliema.

Malta Property Transfer Tax System

Reasons for luring foreigners to invest in property in Malta include 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. In this regard the term 'transfer' includes any assignment or cession of any rights over property.

All transfers of Immovable Property situated in Malta or rights thereon are governed by the final tax regime under article 5A of the Income Tax Act. By default the rate of 8% final withholding tax is applicable on transfers of Immovable Property situated in Malta except for the following situations where different final withholding tax rates apply as follows:

Final Withholding Tax RateContext
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 or their sole ordinary residence and the transfer is made not later than three years from 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.
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.

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

Exemptions

Some transactions are exempt from being subject to property transfer tax. These include:

  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 transferor, where this property was used as his/her 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. The assignment of property between spouses consequent to a judicial or consensual separation, or a divorce;
  4. The assignment of property that formed part of the community of acquests between the spouses, or was otherwise owned in common between them;
  5. The 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. The transfer of property by a company to its shareholder in the course of its winding up, or in the course of a distribution of assets, provided certain conditions are satisfied.

Stamp Duty

A stamp duty at the rate of 3.5% is due on the first €150,000 of the immovable property price. This applies only on the purchase of the first place of residence and subject to the purchaser having the intention to establish within the property his or her ordinary residence. This only applies in the case of persons who do not require an AIP permit as further explained above.

A 20% of the total stamp duty 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.

Renting Property in Malta

Renting a property in Malta is a straightforward, fast procedure. A rental agreement can be signed within a few days after all the aspects are agreed upon by lessor and lessee. Provided certain conditions are met, 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. Having said this, the lessor will not be able to claim any VAT on expenses incurred in maintaining such property. Similarly, no VAT applies on the transfers of immovable property.

Exceptions to this general rule however do exist, meaning that 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:

  • The 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%.
  • The letting of immovable property by a limited liability company to another Article 10 tax-registered person for the economic activity of that registered person. VAT chargeable on such transaction will be 18%.

Contacts

For further information please contact:

Karl Cini
Partner
karl.cini@nexiabt.com

Antoinette Scerri
senior Manager
antoinette.scerri@nexiabt.com

Click here to download Guide: Buying property in Malta.