Citizens of the European Union, who seek to buy a property in Malta in order to make it their ‘primary residence’ will be able to buy their home without any restrictions and thus will not need to obtain an AIP Permit (Acquisition of Immovable Property Permit).
However, citizens of the European Union, who have not resided in Malta for a minimum period of 5 years during their lifetime, and are seeking to buy a property for ‘secondary residence purposes’ (eg. Holiday home, rental investment) will have to apply for a permit (AIP Acquisition of Immovable Property Permit) under the laws of Malta. As part of the restrictions under the issue of an AIP permit one cannot spend less than €103,500 for an apartment or maisonette and €164,000 for a house or Villa. These limitations may be changed by the Government from time to time in order to reflect the property price index. Also the person to whom the permit will be given must be of good conduct. These are not the only restrictions and one would need to refer to the AIP regulations in more detail. The fee for the application is of Euro 232.00 plus notary expenses and more information can be found on this page of the inland revenue department’s site: http://www.ird.gov.mt/aip/aip.aspx
Those other European Union Citizens, who did reside in Malta for a period of over 5 years during their life time, can buy any number of properties without any restrictions and need of AIP permit.
Non EU Citizens
Any other Individuals who are not citizens of a European Member state may not acquire any property unless they are granted a permit for the Acquisition of Real Estate in Malta unless it’s in a Designated Area.
Designated Areas are usually large projects built on a plot of land with a foot print of not less than ten thousand square meters and are marketed as top notch residencies. Buying in Special Designated Areas carries many advantageous with the first and foremost being that one will have the same property rights as if one was a Maltese resident who is buying the property. This means that the purchasers are not bound by the regulations under the AIP permits. Also the investors can buy more than one property in such developments irrespective of whether the purchaser is an EU Citizen or Non EU Citizen.
Special Designated Areas are the following :-
- Fort Chambray, Ghajnsielem, Gozo
- Portomaso Development, St. Julian’s, Malta
- Cottonera Development, Cottonera, Malta
- Manoel Island / Tigne Point, Gzira / Tigne, Malta
- Tas-Sellum Residence, Mellieha, Malta
- Madliena Village Complex, Malta
- Smartcity, Malta
- Fort Cambridge Zone, Tignè, Malta
- Ta’ Monita Residence, Marsascala, Malta
- Pender Place and Mercury House site, Malta
- Kempinski Residences, San Lawrenz, Gozo
- Metropolis Plaza, Gzira, Malta
Property Tax In Malta
In Malta there are no land taxes, no municipal taxes , no council taxes and no property taxes except for the one time 5% stamp duty (less for first time buyers).
Tax on Rental income is a flat 15%
Tax on Sale of Property – Capital Gains.
In Malta, Capital Gains Tax is actually a transaction cost and not a tax on capital gains.
Transfers of property situated in Malta made as from 1 November, 2005 are now taxable under the new system in terms of article 5A, meaning a flat 12% on transfer price, however, certain transfers are excluded from article 5A and are therefore taxable under the "old" system. (35% on profit after deducting expenses incurred on the property including upgrading and maintanence) Some transfers, such as those of primary residences held for more than 3 years are exempt from tax completely.
A transfer is deemed to have taken place when property passes from one person to another. This includes transfers through an inheritance. "Transfer" has the same broad meaning given in article 5 and includes transfers made through an assignment, sale, partition, donation, etc.
Capital Gains Tax is generally levied at a flat rate of 12% on the transfer value or the selling price. Only brokerage fees can be deducted from the selling price. During the sale, a provisional tax equal to 12% of the selling price must be paid to the notary public who will then pass it on to the Inland Revenue as payment of the tax liability.
Under the old system, a provisional tax levied at 7% of the deed must be initially paid through the notary public, who will then pass this on to the Inland Revenue as initial payment. This amount is credited to the total tax payable.
The capital gains realised from the sale of the property must be declared on the income tax return and will then be taxed at progressive income tax rates.
The following is a list of FAQ’s regarding capital gains.
1. Which transfers are exempt from tax?
The following transfers of property situated in Malta are exempt from tax:
- certain donations
- your residence
- assignment of property that was owned in common between spouses
- property transferred between companies in the same group
- a business or a partnership en nom collectif that is incorporated into a company
- other circumstances where the law grants an exemption under the old system (e.g. where an exemption order has been issued).
2. If I donate a property, do I have to pay tax?
Yes, and the tax must be paid not by the person receiving the donation but by the donor. However, you will not be charged any tax if you donate the property to:
- your spouse or your descendant or ascendant in the direct line or to the spouse of any such descendant or ascendant (this will also apply if, in the absence of any descendants in the direct line, you donate the property to your brother or sister or to their descendants); or
- a philanthropic institution declared to be exempt by the Minister for Finance in a legal notic
Otherwise, if you are going to make a donation, you will have to pay the same tax that you would pay if you had sold the property. Again, the method of taxation will depend on how the property was acquired and the date on which it was acquired.
3. Is the exemption on the transfer of one’s own residence still applicable?
Yes. If you owned the property and you occupied it for at least three consecutive years immediately preceding the date of transfer, and as long as the property is transferred within twelve months from when you vacate the premises, the transfer is exempt.
According to the Income Tax Act, "own residence" must be a dwelling house which is your only or principal residence. A garage attached to or underlying a house or a block of flats, or a garage of not more than 30 square metres situated within 500 metres of the dwelling house, and transferred through the same deed with the principal residence, is considered to be part of the residence.
4. I have been living in a property for more than three years with a permit issued by the Housing Authority pursuant to a promise of sale (konvenju) by that Authority, but the contract has been made only this year. I now intend to sell the property. Is this transfer going to be taxable?
No, because the period during which you occupied the property as your own residence with the permission of the Housing Authority is considered to have been a period during which you owned that property. This transfer would be exempt from tax as long as you have occupied the property for a period of at least three consecutive years immediately preceding the date of the transfer.
5. I used to live with my mother for the past 10 years. The property had been my mother’s property. I have now inherited it and have kept on residing in it. I now intend to sell it, but I have not yet owned it for three years. Am I going to forfeit the exemption?
No, such a transfer would still be exempt.
If you are going to transfer property that you have occupied for at least three consecutive years, and you have inherited it from a direct ascendant (parents or grandparents), the period during which your mother had owned and occupied the property as her own residence is considered to be a period during which the property was owned by you. In this case it is important that you had occupied the property for at least three consecutive years immediately preceding the transfer.
6. I am going to transfer property that I had acquired under an assignment of property following a judicial separation from my husband. This property is my own residence but less than 3 years have elapsed since I became the owner of the whole property. Do I have to pay tax if I transfer it?
The period during which your husband owned the property and used it as his own residence is considered to be a period during which the property was owned by you. In this case you will not have to pay any tax as long as you occupied the property for at least three consecutive years immediately preceding the transfer.
7. Does this apply also where the separation was consensual?
Yes, in this case the transfer would also be exempt from tax.
8. My husband and I owned property in common between us. The property is now going to be assigned to my husband. Shall I be deemed to have made a taxable transfer?
No, you will not be charged any tax on this assignment.
9. My husband and I owned property in common. When my husband died, my children inherited his share and we are now going to partition the property amongst ourselves. Part of the property will be assigned to me, while the other part to my children. Are we going to have to pay any tax?
No. The assignment of property owned in common by you and your children, as heirs of your husband, is not taxable.
10. If any condition for exemption is satisfied only with respect to an undivided part of the property, is the exemption forfeited or does it apply to the whole property?
If any condition for exemption is satisfied in respect only of an undivided part of the property the exemption shall be restricted proportionately; it shall not be totally forfeited; nor will it be benefited in full.
11. When a company transfers property to another company within the same group, is it charged any tax on the transfer?
The transfer of property from one company to another within the same group is exempt from tax. The conditions for a company to be considered as part of a group are found in article 5(9) of the Income Tax Act which is also applicable with respect to exemption under the new system. These conditions may be changed by regulations.
12. I am using an immovable property for business purposes. I now intend to incorporate my business into a company. Would this transfer be taxable?
Such a transfer would not be taxable, as long you will be owning also 75% of the company’s shares. This is the same condition as that mentioned in article 5(15) of the Income Tax Act in the case of capital gains, and it is applicable both when the property belongs to a business as well as when it is owned by a partnership en nom collectif.
The exemption also applies where, on the contrary, a company is converted into a partnership and the property is transferred from the company to the partnership.
However, if the property is transferred by a partnership to one of the partners or by the company to one of its shareholders, the transfer would still be taxable