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Malta Property Tax

Selling property in Malta and Tax – A Seller’s Guide to Property Taxation in Malta

Although it’s not always the case, selling property in Malta can sometimes take time. This is especially true if you’re attempting to fetch a high price for your property. Yet, after you’ve shown your property to multiple people over a few months and a buyer has finally signed a Promise of Sale Agreement (konvenju) that’s been drawn up by the appointed notary, you’re one step closer to receiving your payment for the property you’ve managed to sell.

Of course, on signing the preliminary agreement, which is typically valid for three months, the buyer will need to place a deposit of 10% of the value of the real estate being sold. And according to law, the money will be forfeited in your favor provided that the buyer fails to uphold his end of the deal by not signing the final deed to the estate.

With that said, if all goes according to plan and the final deed is signed, the only thing that’s left to do really and truly is paying tax on it. And while you might be tearing your hair out at the thought of doing so, you shouldn’t let it put you off the process of selling at all.Once you’ve learnt all about it in our guide below, you’ll realize that tax when selling property in Malta is actually not as complicated as it appears to be at first glance. Below we delve into a few things you need to know about property tax in Malta in 2018.

Capital Gains Tax – An Explanation of what it Means and its Exemptions

In Malta, the sale of immovable property is subject to tax on capital gains. In some scenarios, there are certain exemptions that are made on this. But before we take you through the nitty gritty details and different types of scenarios of when it’s due to be paid by the seller and at which rate, or when the seller qualifies as exempt from tax on capital gains in Malta, let’s take you through what capital gains tax actually is.

What is tax on capital gains in Malta?

Tax on capital gains in Malta is charged on the sale of immovable property. Capital gains is the term used in law which refers to the amount of profit made when a property is sold. There are different rates of tax on capital gains that are charged according to whether the owner is selling his/her main residence or whether the real estate that’s being sold is of an investment type.

Tax on selling property in Malta

As we’ve already mentioned above, the type of property owner you are has a direct influence on the amount of tax that’s due to be paid on the property being sold. In fact, the law distinguishes between two types of ownership. These are proprietors of a sole or main residence and proprietors of real estate that’s considered to be an investment. Here’s what’s different between the two in terms of selling property in Malta tax:

1. Proprietors of a sole or main residence in Malta

No tax on capital gains is applicable to proprietors who are selling their sole or main residence provided that the property has been owned for at least 3 years and that the seller has moved out of the premises within 12 months of it being sold.

Example:

A young man named John has been living in his main residence for 4 years and has full ownership of it. He decides to set up a property listing to put his home up for sale and buy a new place. Eventually, John finds a buyer who signs the Preliminary Agreement and he moves out after 6 months. Since he’s moved out and it’s his sole property, John is not required to pay tax on Capital Gains.

2. Proprietors of investment property in Malta

Capital Gains is applicable in the event in which a proprietor transfers property as an investment. The selling property in Malta tax is currently set at 8% of the transfer value of the real estate being sold. Formerly, tax when selling a property prior to the aforementioned date was 12%. However, in 2015, there was a decrease and the final tax on sold properties was reduced by 4%.

Example:

A property trader named Mark puts up a flat for sale in 2018. After he finds a buyer for his investment property and a ‘Preliminary Agreement’ is signed, the tax paid on the property is 8% of the value of the price he sold it for.

Although tax on capital gains is normally set at 8%, there are a few exceptions you should be aware of. Here are the exceptions below:

  • A final withholding tax of 5% of the Sales Value is applicable to transfers of immovable property by non-property traders within the first five years of acquisition.
  • The final withholding tax* of transfers on immovable property that was acquired before 2004 is subject to 10% of the sale value.

*Withholding tax is a sum on the income from the property that is directly payable to the government by the seller at the point of which it’s sold.

Malta Sellers Tax Exemptions

When it comes to selling property in Malta tax, it’s important to note that there are certain exemptions under the current law. According to the law, sellers tax in Malta is exempt in the following situations:

  • Property is transferred between spouses after a separation or divorce;
  • Property is transferred between group companies.

Malta Property Sellers Tax Transfers by Foreigners & Non-Residents

Although the selling process is no different for foreigners or non-residents who opt to sell their property in Malta, in such cases the Notary public that has been delegated to draw up the deed of sale will be obligated to inform the Commissioner of Inland Revenue of the property to be sold in advance. This must be done in order to clarify whether any outstanding taxes are due by the owner.

In this scenario, the Commissioner can impose conditions on the transfer of the immovable property to the degree that the tax due on the property sold or any other tax that is due will need to be paid and held at the point of sale of the property.

The sale of property outside of Malta carries no restrictions on the transfer of proceeds. This is subject to the payment of any outstanding tax.

In Malta, VAT is never due on the transfer of property. There’s no real estate tax, local taxes or net worth taxes either.

Malta Inheritance Tax on Property & Shares

In the Maltese islands, no death tax is payable on property. That said, tax on transfers as well as documents is payable by the heirs of the purchaser or the departed of the property in Malta. Additionally, the same holds upon the purchase of shares in companies located in the Maltese islands. In this case, the tax applicable is typically at a rate of 5% when it comes to property and 2% for shares.

Shareholders who hold the majority of their business interests outside the islands’ may benefit from certain exemptions of this duty.

Our Advice: Seek Your Notary’s Help on Tax When Selling Property in Malta

Although we’ve provided an outline and explanation of the taxation involved in selling your property, we always recommend talking to your notary who can provide a more in-depth explanation on what you’re expected to pay in your particular scenario. By doing so, you’ll be able to put your mind at ease that everything’s settled and you can claim the money that’s owed to you without any problem.