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MALTA TAXATION FROM IMMOVABLE PROPERTY

April 2015 - Real Estate & Property. Legal Developments by Chetcuti Cauchi Advocates.

More articles by this firm.

Old Regime for Malta’s Taxation from Immovable property

Prior to 1 January 2015, in Malta, gains realized on the transfer of immovable property were taxed either at a final tax of 12% on transfer value or in certain instances tax was levied on the gain at the rate of 35%, or in the case of individuals at the applicable progressive tax rates.  The 2015 Malta budget however contains measures to replace these provisions, although the previous regime continues to apply for transfers of immovable property which were notified to the Commissioner for Revenue through a promise of sale or transfer notice by 17 November 2014. This is a somewhat contentious move in that a fixed tax on the consideration received on a transfer cannot be deemed to be a tax on capital gains but is more akin to a duty.

The legislation to enact these proposals has still not been approved by the Maltese Parliament, however the proposals are as follows:

Malta’s Taxation from Immovable property New Regime

The new regime, applicable from 1st January 2015, imposes a final 8% tax on transfer value in the case of immovable property acquired after 1 January 2004 and 10% in the case of immovable property acquired before 1 January 2004. Individuals who do not trade in immovable property and who transfer such property within 5 years from the date of acquisition will be taxed at 5% on the transfer value subject to the applicable exemptions. It is no longer possible to opt out of the final tax system and opt to be taxed on the gain instead and in addition no expenses will be taken into account in order to establish the transfer value. Tax is payable on the date of the contract of sale.

Tax Exemptions

Exemptions currently apply in relation to certain transfers of immovable property such as transfer of property which has been occupied as a Maltese residential property for at least 3 years, transfers between group companies, sales by court order and transfers upon separation. These exemptions will continue to apply once the new regime comes into operation.

MALTA TAXATION OF RENTAL INCOME

Since the 2014 Maltese Budget, there have been changes to the manner in which income derived from the letting of residential property situated in Malta is taxed. Prior to the amendments, rental income less specific permissible deductions was subject to tax at the rate of 35% where the lessor was a body corporate or at the applicable progressive tax rates in the case of an individual lessor.

The Budget Measures Implementation Act, 2014 provides for a reduced flat rate of 15% on the rental income from residential property where any lessor is renting to an individual/s and such property is occupied as their home or residence. The 15% tax shall be paid by not later than the 30th June of the year following the calendar year in which the rental income was received and shall be submitted together with the forms as prescribed by the Commissioner.

Maltese Residential property is defined as a non-commercial tenement consisting of a dwelling house or part thereof which is to be or is occupied as a home or residence, (excluding tenements which when rented are required to be licensed in terms of the Malta Travel and Tourism Act). A dwelling house for this purpose consists of an apartment, flat, villa, maisonette, townhouse, farmhouse, terraced house, and a garage. The garage must be attached to or underlying such dwelling house or situated in the same block of which the residence forms part, or a garage of not more than 30 square meters situated within 500 square meters of such residence, where such garage has been let out together with such dwelling house on the same contract of letting.

The application of the 15% tax on the gross rental income is optional, however once the option is exercised, owners of more than one rented property must tax all their gross rental income at the rate of 15%.  Where the lessor does not opt to be taxed at 15% on the rental income, he will be taxed on such income at the applicable progressive tax rates.  This is likely to be the case where there are significant expenses permitted at law to be deducted against such rental income or in cases where the rental income represents all of the individual’s income and falls within the tax free brackets.

For additional information about Taxation in Malta, we kindly invite you to read the following:

Malta Tax Advisory

Property Tax Advice

A Guide to Malta Companies & Malta's Corporate Tax System

>Author Biography

Michelle de Maria is a Senior Manager in the Tax practice groupat Chetcuti Cauchi Advocates. With close to 20 years of experience with big four accountancy firms and boutique firms in Malta, she primarily advises on domestic tax law as applicable in an international context, on the application of double tax treaties and a variety of cross border tax issues. Should you wish to contact the author you should call on +356 2205 6200 or send an e-mail to info@ccmalta.com