The Maltese market has earned itself an envied reputation for being stable with an 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 has 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 to acquire 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 citizens 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. 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 specially designated areas, where there are absolutely no restrictions to acquire a 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.
San Lawrenz Kempinski Development, Gozo.
Fort Cambridge, Sliema.
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.
Vista Point, Marsalforn, Gozo.
Renting Property in Malta
Renting a property in Malta is a straightforward 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 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 to 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 a transaction will be 18%.
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 the 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 to establish therein, or constructing thereon, his/her or 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.
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
The restored property where a notice of promise of sale has not been given prior to the 17th November 2014.
10% of the transfer value
Property acquired prior to 1st January 2004 and for which transfer of a promise of sale has not been presented to the Commissioner of Revenue before 17th November 2014.
In the case of transferring inherited immovable property, that property will remain contingent on 12% tax on the final difference between the cost of acquisition and the transfer value. If the property was inherited before 25th November 1992, then the tax applicable is 7%.
Any profits made on the transfer of immovable property acquired through a donation, are subject to 12% tax if the transfer is made more than 5 years after the date of donation.
A person who is not resident in Malta and who is resident for tax purposes in another country may opt-out of the final withholding tax system if that person produces to the notary who publishes the deed of transfer a statement signed by the tax authorities of the country of that person’s residence that confirms that person’s residence in that country and that certifies that that person is subject to tax in that country on gains or profits derived from the transfer of immovable property situated in Malta. In such a case the profits made on the sale of the property would still be subject to taxation in Malta. A 7% provisional tax on the transfer value would have to be paid, which is not refundable, even if the tax on the gain is less than such amount.
Stamp duty at the rate of 5% of the value of the property is due by the buyer upon the acquisition of immovable 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 immovable property. The price of the 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, a stamp duty of 1% on the acquisition value of the property is payable upon signing the promise of the sale agreement, and the balance is payable on the deed of the 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.
Some transactions, as explained below, are exempt from being subject to property transfer tax:
Donations, made by a person, to certain family members, as defined, or to philanthropic institutions.
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.
Assignment of property between spouses consequent to judicial or consensual separation or divorce.
Assignment of property that formed part of the community of acquests between the spouses, or was otherwise owned in common between them.
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.
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.