Tax on Maltese Property Transfers

Transferring properties is a common aspect of our lives, but lacking the right set of knowledge regards the rules and regulations (taxes, legal significance, official proceedings etc) cannot allow you to gain, what you started with the intention of this document covers the data and facts regarding the tax system upon the transfer of immovable property in Malta.

Malta Property Transfer Tax:

Previous System:

The previous system allowed the property transfers at the rate of 12% final withholding tax. And, 35% final withholding tax on the profit earned. (Insights, 2020)

Current System:

The current system offers a simple and better option towards the transfers and gains as one 8% final withholding tax.

Effective From: January 01, 2015. (Articles, 2018)

Salient Features:

The system addresses certain significant scenarios as well which include:

Description	Condition(s)	Tax
Property/Properties obtained before January 01, 2004.	The promise of sale has not been exhibited before November 17, 2014.	10% withholding tax.
The property that is transferred in 5 years from the time it was obtained.	The property is not part of any project.	5% final withholding tax.
If the property is obtained with the purpose of residence or construction on that and is owned by an owner or a group of two owners.	It is transferred within a maximum of 3 years from the date it was acquired.	2% withholding tax.
The transfer of properties located in Valletta and have been obtained before December 31, 2018.	It must have been replaced or renewed.	5% final withholding tax. (Insights, 2020)

The Exemptions/Exceptions:

There are certain scenarios upon which the current system imposes no transfer taxes, which include:

Scenarios of Donations:

The donations to a spouse or any of your descendants or ascendents. (Simply and broadly put, anyone from your recent family)
If the property is a donation to a charitable or humanitarian organization.

Business Situations:

The transfer of properties between two companies who form one group.
Transfer of properties based on partnership/business en nom collectif as a business making profit into a limited liability company.
Transfer of properties to shareholders by the company as per some pre-decided scheme of distribution.

Scenarios concerning Spouses:

The transfer of properties in the scenarios of legal proceedings of separation or divorce.
In the cases of the termination of acquisition by anyone upon the properties being administered by the spouses collectively.
The partitions of properties between the spouses or the beneficiaries of the spouse (in case of him/her being deceased).

Miscellaneous:

If the property is owned by the transferor himself for at least three consecutive years as his residence.
Transfer of properties based on trust.

Paying taxes on the Capital Gains:

For residents:

The system offers certain situations where the transferor can choose to pay based on capital gains. If the individual chooses to pay via the capital gains, he or she will pay 7% of the property gains tax and the actual gain of the transferors is declared as the transferor’s tax return. The situations in which paying taxes on capital gains are allowed include:

If the transfer is made between two co-owners.
The property transfers made by the company which forms the part of a project and has declared listed bonds to the public.
The transfer of property to the government based on an official order.
Properties that are transferred which were previously used for business for no less than 3 years and is replaced for a related goal within one year.
The property transfers concerning the dissolving of business by the court or by the judicial sales via auction.

For non-residents:

The Maltese tax system allows the non-residents to pay tax on capital gains as well concerning the transfer of properties.

Condition:

The non-residents have to provide the Maltese government with a statement issued by the tax authorities of his/her resident country stating that they are residing in the country of Malta and are responsible for paying taxes to the Maltese government.

Certain prominent aspects:

Certain aspects need to be kept in mind concerning the situations and circumstances in which property transfers have been made, these include:

Description	Tax
The property/properties inherited after November 24, 1992.	The transferor has the choice to either pay 12% final tax or to pay the final withholding tax which can be 5%, 8% or 10% depending upon the situation.
The property/properties inherited before November 25, 1992.	The transferor has to pay a fixed 7% tax of the transfer value.
The properties acquired via donation made after 5 years.	The transferor can choose to pay 12% tax upon the value of the property or final withholding tax of 10% or 8% (as per conditions).
The transfers made between the non-residents and residents of Malta.	The non-resident person may not pay the final withholding tax of 12% (provided some legal obligations from his/her resident country). But the non-refundable payment of 7% provisional tax to be made on the property transferred on or after the date of January 01, 2015, is to be followed.
The property transfers made on or after the date of January 01, 2015. Plus, the property is located in a specially designated area or a part of the project.	The transferor does not have the choice of 12% tax, instead, he/she has to pay the 8% (the properties after January 01, 2015) or 10% final withholding tax (the property obtained before January 01, 2004)
Transfers made on or after the date of January 01, 2015 while the promise of sale has been given CfR before the date of November 17, 2014.	The final withholding tax of 12% is applied upon the transfer, however, there are certain conditions in which this tax does not hold applicable.
The properties sold on or after the date of January 01, 2015.	Referring to the article 31C(1) of the Income Tax Act, the transferor shall be responsible for paying the fixed 7% of the transfer value. However, if the property is located in an urban conservation area and the CfR has been given as per the rules of tax system before November 17, 2014, the transferor shall be responsible to pay 10% of the transfer rate.

All in all, the current tax system comes in hand with a lot of significant opportunities and eases for the individual.