Last Updated: 04/02/2021
1. What is the new rate of the final withholding tax on property and from when is it effective?
With effect from 1st January, 2015 the current system consisting of both a 12% final withholding tax on the transfer value and 35% tax on the profit or gain will be replaced by one final withholding tax of 8% on the value of the property transferred.
2. Are there any exceptions?
There are four exceptions as follows:
- On a transfer of property not forming part of a project, the applicable final withholding tax rate shall be 5% on the value of the property transferred if the property is transferred before five years from the date of its acquisition. Where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption, it shall be deemed to have acquired the property on the date on which the property had previously last been acquired by a company by means of a transfer that did not qualify for the intra-group exemption. This rate will not apply where the said property was at any time within the period of five years preceding the transfer, owned by a person related to the transferor and the property formed part of a project at such time. (An individual is deemed to be related to the transferor if the transferor is a body of persons of which the said individual is, directly or indirectly, a shareholder, partner or member. Two bodies of persons are deemed to be related persons if they are, directly or indirectly, controlled or beneficially owned as to more than twenty-five percent by the same persons.) With effect from 20th March 2020, the 5% final withholding tax will no longer apply where the transferor (or any related person), at any time in the five years preceding the transfer of the property, carried out on such property any works for which a development permission was required in terms of the Development Planning Act (except for works carried out for which a permission is granted without the need for an application in terms of an order made under the Development Planning Act), unless the transferor had acquired the property for the purpose of establishing sole ordinary residence (and declared such intention in the acquisition deed).
- In the case of properties acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had not been given to the CfR before the 17th November, 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.
- 2% final withholding tax applies on a transfer of property that was immediately before the transfer owned by an individual, or co-owned by two individuals, who had for the purposes of Article 32(4)(a) of the Duty on Documents and Transfers Act declared in the deed of the acquisition of that property that the said property had been acquired for the purpose of establishing therein or constructing thereon his or their sole ordinary residence, and the transfer is made not later than three years after the date of the acquisition thereof. This shall only apply where the said individual does not own any other residential property at the time of the transfer. The notary who receives any deed of such a transfer shall record in the deed a written declaration by the individual so transferring that he does not own any other residential property at the time of the transfer and the notary shall warn the said individual of the importance of the truthfulness of such declaration.
- 5% final withholding tax applies when it is a transfer of property situated in an urban conservation area or scheduled by the Planning Authority in terms of article 81 of the Environment and Development Planning Act, and the transferor declares to the notary receiving the deed of the transfer that he has carried out works on that property in compliance with a permit issued by the Planning Authority providing for the restoration and, or rehabilitation of that property upon an application for that purpose that was filed with the Planning Authority on or after 1 January 2015. This rate cannot be applied to the transfer if it has already been applied to a previous transfer of the same property. The transferor must produce to the notary the MEPA certificate confirming that the restoration and rehabilitation works were completed in compliance with the relative permit.
3. How will the new final withholding tax system apply in the case of property transferred on or after 1st January, 2015 where a notice of a promise of sale or transfer relating to that property had been given to the CfR before the 17th November, 2014?
A transfer of property, not forming part of a project and not made by the owner of an SDA project, made on or after the 1st January 2015 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the CfR before the 17th November, 2014, and which is transferred to the same person or persons appearing on the said promise of sale agreement before the 1st January 2016 may be excluded from the Final withholding tax system if the transfer is made not later than twelve years after the date of the acquisition of the property.
In the case of a transfer of property acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the CfR before the 17th November, 2014 the applicable final withholding tax rate shall be 12% of the value of the property transferred unless the previous paragraph applies and the transfer is excluded from the Final withholding tax system.
4. If a promise of sale or transfer relating to a property that forms part of a project or of property situated within a special designated area given to the CfR before the 17th November, 2014 is cancelled after this date or expires, and such transfer would have been subject to 12% final withholding tax if the transfer was made before the 1st January 2015, will an eventual transfer be taxed under the new system if made on or after the 1st January 2015 i.e. at a lower rate of 8% or 10%?
Where a notice of a promise of sale or transfer relating to a property that forms part of a project or of property situated within a special designated area given to the CfR in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act before the 17th November, 2014 is cancelled after the said date or expires and, either the said property is transferred to the same persons appearing on the said promise of sale which has been cancelled or, another property forming part of the same project is transferred to the same persons appearing on the said promise of sale which has been cancelled or has expired, any of such transfers shall be deemed to be transfers in respect of which a notice of a promise of sale or transfer has been given to the CfR before the 17th November, 2014, which means that such transfers will remain taxable at the rate of 12% final tax.
5. Will it be possible to elect to exclude a transfer property from the scope of the final withholding tax system on or after the 1st January 2015?
Before the 1st January 2015 the transferor in a transfer of property made not later than twelve years after the date of the acquisition thereof or of property situated within a special designated area could elect by means of a declaration made to the notary at the time of the publication of the deed of the transfer and recorded in the said deed to exclude that transfer from the scope of the final withholding tax system. However as from 1st January 2015 it will no longer be possible to elect to exclude such transfers from the scope of the final withholding tax system except for limited cases explained further below.
6. What happens in the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a special designated area?
In the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a special designated area, where the transferor had elected to be excluded from the 12% final tax system such an election will no longer apply as from 1st January 2015 and any transfers taking place after this date will be subject to either 8% final withholding tax or else 10% final withholding tax in the case where the property was acquired before the 1st January, 2004, unless a notice of a promise of sale or transfer relating to the property has been given to the CfR in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act made under that Act before the 17th November, 2014. If such notice was given, the property transferred in respect of which such notice was given will remain outside the scope of the final withholding tax system if transferred before 12 years from the date of acquisition unless the property is situated in a special designated area, in which case it will remain outside the scope of the final withholding tax system indefinitely.
Where the transferor had not elected to be excluded from the 12% final tax system any transfers taking place after the 1st January, 2015 shall be subject to either 8% final withholding tax or else 10% final withholding tax in the case where the property was acquired before the 1st January, 2004 unless a notice of a promise of sale or transfer relating to the property has been given to the CfR in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act made under that Act before the 17th November, 2014. If such notice was given the property transferred in respect of which such notice was given shall be subject to 12% final withholding tax.
7. Where a transfer of property is made by a person who is not resident in Malta and who is resident for tax purposes in another country, such person may currently opt out of the 12% final withholding tax system. Will this remain the same under the new system?
Currently a transfer of property by a person who is not resident in Malta and who is resident for tax purposes in another country may opt out of the 12% 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.
As from the 1st January, 2015 such non resident persons may still be entitled to opt out of the final withholding tax system and be taxed under article 5 (Capital gains) however the 7% provisional tax paid relating to a transfer of property made on or after the 1st January, 2015, shall not be available for refund under article 48 of the Income Tax Management Act. No claim can be made to reduce the 7% provisional tax payable.
8. Are there any circumstances where an election may still be made to exclude the transfer from final withholding tax system and elect to be taxed on the profit or gain?
Yes, the following have remained unchanged:
- A transfer of property that was, immediately before the transfer, co-owned by two individuals and the transfer is made by one of the co-owners to the other. An election may still be made to exclude the transfer from the scope of article 5A.
- A transfer of property to the Government of Malta made pursuant to an acquisition of that property in terms of the Land Acquisition (Public Purposes) Ordinance. An election may still be made to exclude the transfer from the scope of article 5A.
- A transfer made by means of a judicial sale by auction or in the course of a winding up by the Court. Such transfer is not taxable under article 5A.
- A transfer of property that had been used in a business for a period of at least three years and that is replaced within one year by property ("the new property") used solely for a similar purpose of the business. An election may still be made to exclude the transfer from the scope of article 5A.
- A transfer of property forming part of a project made by a company which has issued bonds to the public and such bonds are listed on a stock exchange recognized under the Financial Markets Act, and if the transferor elects, by means of a declaration made to the notary at the time of publication of the deed of the transfer and recorded in the said deed.
9. Do the exemptions prescribed under article 5A(4) of the Income Tax Act still apply?
Yes, all the exemptions (described below) prescribed under article 5A (4) of the Income Tax Act have remained with some changes:
- A donation made by a person to his spouse, to his descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his brother or sister or to a descendant of his brother or sister, or to a philanthropic institution approved for the purposes of article 12(1)(e).
- A transfer of property that has been owned and occupied by the transferor as his own residence for a period of at least three consecutive years immediately preceding the date of transfer and provided that the property is disposed of within twelve months of vacating the premises or such other period or condition as may be prescribed and provided that such property is declared by the transferor to be his main residence through an election made to the CfR in such manner and subject to such rules as may be prescribed – Refer to FAQ No.10 & 11.
- The assignment of property between spouses consequent to a judicial or consensual separation or a divorce.
- The assignment of property that formed part of the community of acquests between the spouses or was otherwise owned in common between them, to one of the spouses on the dissolution of the community, or the partition of such property between the spouses or the surviving spouse and the heirs of the deceased spouse. Provided that on a subsequent transfer of the said property, the date of acquisition of the share assigned as aforesaid shall be the original date when the property was acquired by the two spouses.
- A transfer of property from one company to another forming part of the same group.
- The transfer of property upon the incorporation of a business or a partnership en nom collectif as a going concern into a limited liability company.
- The settlement of property on trust, or the distribution or reversion of property settled on trust, or the transfer of all the property of a trust involving only a change in the trustee of a trust and where there is no change in the beneficiaries or in the beneficial interest.
- A transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of a distribution of assets pursuant to a scheme of distribution.
10. What happens if in the period of ownership of my residence there is a change in the dwelling house?
Where at any time in the period of ownership there is a change in the dwelling house or the part of it which is occupied as the individual’s residence, whether on account of a reconstruction or conversion of a building or for any other reason, or there have been changes as regards the use of part of the dwelling house for the purpose of a trade, business or profession or for any other purpose, the relief given may be adjusted in such manner as the CfR may determine in an assessment.
11. If I have a garden or a garage does it also form part as my own residence for the purpose of the exemption?
‘Own residence’ means the principal residence owned by the taxpayer or his spouse being a dwelling house which has been the owner’s only or main residence, including land transferred through the same deed with the principal residence, which the owner has for his or her own occupation and enjoyment with that residence as its garden or grounds consisting of an area which, regard being had to the size and character of the dwelling house, is required for the reasonable enjoyment of it as a residence. A garage attached to or underlying a house or block of flats, or a garage of not more than 70sqm situated within 500m of the dwelling house, and transferred through the same deed with the principal residence shall be deemed to be included as part of the residence.
12. Which date is to be taken as the date of acquisition where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption?
For the purposes of determining whether property has been acquired by the transferor before the 1st January, 2004 where the transferor is a company that had acquired the property by means of a transfer that qualified for the intra-group exemption, the date of acquisition is the date when it first entered the group.
13. How am I taxed if I inherited the property after the 24th November, 1992?
If the property was inherited after the 24th November, 1992, the transferor can elect either to pay 12% final tax on the difference between the transfer value and the cost of acquisition (denunzja) or he can elect to pay final withholding tax (10%, 8% or 5%) depending on the year the property in question was acquired by inheritance.
14. How am I taxed if the property was inherited before the 25th November 1992?
If you inherited the property before the 25th November, 1992 the tax is equal to 7% of the transfer value. The 7% tax is final.
15. How am I taxed if I acquired the property by donation?
A transfer of property that was acquired by the transferor in terms of a donation made more than five years before the date of the transfer in question, can either be taxed at 12% of the excess, if any, of the transfer value over its acquisition value, or the transferor can elect to be pay final withholding tax (10% or 8%).
Where the property transferred consists of a transfer of a property forming part of a project, the 12% of the excess will not apply. ‘Project’ means property that was acquired by the transferor by donation and which has been developed by the said transferor into more than one transferable property.
In the case of a transfer of property that was acquired by the transferor in terms of a donation made within five years before the date of the transfer in question, final withholding tax applies. The rate of tax depends on the date it was acquired by the donor. Hence, if the donor acquired it before 1st January 2004, 10% final withholding tax will apply, if after this date 8%. However, if the property does not form part of a project and the donor acquired it within five years, 5% final withholding tax will apply.
One is to note that when there is an exempt transfer of property to a related person by way of donation, on a subsequent transfer, the donee is considered to have acquired the property on the date it was originally acquired by the donor.
16. How am I taxed if I sell the property on or after the 1st January, 2015 in the circumstances referred to in article 31C(1) of the Income Tax Act?
A transfer of property, which has been restored in accordance with any scheme issued for this purpose by the Malta Environment and Planning Authority providing for the restoration of grade 1 or grade 2 scheduled property or property situated in an urban conservation area, made on or after the 1st January, 2015, shall be chargeable at the rate of 10% of the transfer value if a notice of a promise of sale or transfer relating to that property has been given to the CfR in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act or of rules made under that Act before the 17th November, 2014.
A transfer of property made on or after the 1st January, 2015 in the circumstances referred to in article 31C (1) of the Income Tax Act, shall be chargeable at the rate of 7% of the transfer value. The 7% tax is final.
17. How am I taxed in the case of an assignment of a right obtained in terms of a promise of sale (konvenju)?
During calendar year 2021, the full amount of profit derived on the transfer of any right acquired through a promise of sale agreement shall be subject to a final tax at a reduced rate of 15%.
Agency fees incurred are to be deducted as explained in these guidelines.
In terms of the Budget Measures Implementation Act, an assignment of any right obtained in terms of a promise of sale of immovable property (konvenju), including a promise to alienate immovable property in any manner and a promise of an emphyteutical grant is not regulated by the property transfers tax regime.
18. Can I deduct brokerage fees from the value of the property transferred, before applying the final withholding tax?
Yes, brokerage fees will remain deductible. The amount of brokerage fees paid by the transferor shall continue to be allowable as a deduction from the transfer value as long as the conditions of verification mentioned in the Tax on Property Transfers Rules are satisfied. The final withholding tax is applicable on the result.
19. What happens in the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a special designated area in the case where no units forming part of the project have been transferred by the 31st December 2014 but a notice of promise of sale has been registered before the 17th November, 2014?
In the case of transfers made on or after the 1st January, 2015 of property that forms part of a project or of property situated within a special designated area, in the case where no units forming part of the project have been transferred by the 31st December 2014, any transfers taking place after this date will be subject to either 8% final withholding tax or else 10% final withholding tax in the case where the property was acquired before the 1st January, 2004, unless a notice of a promise of sale or transfer relating to the property has been given to the CfR in accordance with the provisions of article 3(6) of the Duty on Documents and Transfers Act made under that Act before the 17th November, 2014. If such notice was given, the property transferred in respect of which such notice was given will either be taxed at 7% provisional tax if the transferor opts to exclude the transfer from the scope of article 5A or else, the 8% final withholding tax rate will apply unless the property was acquired before the 1st January 2004 in which case the 12% final withholding tax rate will apply.
20. If I own property in Malta, do I need to pay tax just for owning the property?
The legal system of Malta does not impose a tax on ownership of property. However, if you rent the property, tax is applicable on the rental income received. One can refer to the information available on FAQs on rental income.
Examples
Checklist: Transfers made on or after the 1st January 2015
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