Property Tax
As a general rule, all transfers of immovable property are subject to a final withholding tax of 8% of the transfer value of the property. This being said, the Income Tax Act (ITA) provides for several exceptions to the general rule, such as:
If the property being transferred was acquired before 1 January 2004, a 10% final withholding tax shall apply;
A sole residential property which is sold within three years of acquisition shall be subject to a final withholding tax rate of 2%. On the other hand, if a residential property has been owned and occupied for at least three consecutive years, the transfer shall be exempt from income tax;
Transfers of property which do not form part of a project shall be subject to a final withholding tax of 5%, if transferred within five years from the acquisition date;
If a property was inherited before 25 November 1992, or the said inheritance happened on or after 25 November 1992 and the property is transferred using a judicial sale by auction, the final withholding tax rate shall be 7%;
A 12% tax rate shall apply on the difference between the transfer value and the acquisition value (as declared in the causa mortis deed) if the property being transferred was either:
inherited by the transferor after 24 November 1992; or
acquired in terms of a donation made more than five years before the transfer.
Duty on Documents and Transfers
In principle, duty is charged at the rate of 5% (€5 for every €100 or part thereof) upon the acquisition or inheritance of immovable property in Malta, however, there are various exceptions to the general rule, such as:
- If the property is being acquired to establish a sole, ordinary residence and the person acquiring such property does not require the acquisition of an immovable property permit, duty on the first €200,000 shall be charged at the rate of 3.5%. Should the transfer value be higher than €200,000, the excess amount will be charged at the standard rate of 5%;
- A donation by a person to descendants in the direct line, who acquire an immovable property to establish their sole ordinary residence shall be subject to no duty on the first €250,000 of the value of the property being donated whilst any excess value shall be subject to duty at the rate of 3.5%. The value of the property shall be deemed to be 80% of the market value of the property so transferred on the date of transfer;
- No duty shall be charged on the first €200,000 of the transfer value upon the acquisition of immovable property for the sole residence by first-time buyers, provided that the acquisition is made by 31 December 2023;
- An assignment of immovable property between spouses who are married or formerly married is exempt from duty;
- Individuals who acquire residential property in Gozo shall benefit from a reduced duty rate of 2%. This applies to acquisitions made by 31 December 2023;
The ITA and the Duty on Documents and Transfers Act (DDTA) provide for several other exemptions and exceptions, such as the recent new tax benefits which apply to transfers made by not later than 31 December 2024. These benefits shall apply to individuals who acquire or sell immovable property which is either
- A vacant property i.e. a building which was constructed at least 20 years before the transfer, and that has been vacant for at least 7 years before the time of transfer; or
- Property situated within an Urban Conservation Area; or
- Property developed by approved criteria. The criteria were described in broad terms in the budget speech for 2022, as requiring the development to include Maltese traditional features. The development shall be approved by a competent authority.
Should the property being transferred fall within either of the above scenarios, there shall be an exemption from final withholding tax and an exemption from duty on the first €750,000 of the value of the property being transferred. Whenever the transfer value is higher than €750,000, the excess is taxed at the normal rates of tax.
No relief from income tax and duty shall be allowed if the transfer is made to a person who requires a permit for the Immovable Property (Acquisition by Non-residents) Act or who would have required such permit had the property acquired not been situated in a specially designated area.
How can we help?
The above are some examples of the various exceptions and exemptions provided within the Maltese tax legislation. When selling or acquiring an immovable property in Malta, it is suggested that the transaction should be analysed in detail from a tax perspective to ensure that any exemptions are properly availed of, and any income tax or duty is paid at the appropriate rates.
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