On the side of the purchaser of immovable property in Malta, the scheme provides that the tax rate to be levied is calculated at 1.5% on the first EUR 400 000 of the consideration or market value of that property, the remaining tax being calculated at the applicable duty rate (normally 5%, unless it benefits from another reduced rate). On the side of the seller of the property, if the transfer would otherwise have been taxed at 8% or 10%, the rate of the final property tax on the same first € 400,000 will be reduced to 5%, the added value being taxed at the applicable standard rate. The scheme also applies to purchasers of residential immovable property, even if they have previously acquired an undivided share of immovable property between living persons representing less than 25% of the real value of all such immovable property. Citizens of all Member States of the European Union, including Maltese citizens, who have not resided continuously in Malta for at least five years do not need a permit under Chapter 246 of the Laws of Malta to acquire their principal residence or real estate necessary for their business or services. Obtaining AIP authorisation for the purchase of real estate A person residing in a Member State and operating from a Member State, other than a partnership, may freely acquire immovable property necessary for the use for which he or she was established, provided that he or she is directly controlled by citizens of an EU Member State. LN 241 provides that the reduced rate of final property tax applies to the transfer of immovable property that would otherwise be taxed at a rate of 8% or 10% under section 5A of the Income Tax Act. [8% is the standard tax rate for the transfer of real property and 10% tax generally applies to real property acquired before January 1, 2004.] Upon signing the contract, the notary who publishes the deed submits the appropriate “DDT1” form for capital transfer tax, as well as site plans, a copy of the public register note, payment of stamp duty (due by the buyer), payment of capital gains tax (due by the seller) and Schedule 8 (residential property only). Corresponding receipts are generally issued no later than 3 weeks after the submission of the Notice of Transfer (T1D) to the ministry. The reduced stamp duty rate of 2% on the acquisition of real estate in Gozo has also been extended to transfers until 31 December 2021. The benefit of the LN could be recovered by the tax authorities within 5 years if transfers of real estate forming part of a structured agreement are made solely or mainly for the purpose of inflating this advantage. Structured arrangements include, for example, partial transfers of real estate between the same persons. Like the income tax provisions, the recovery provisions apply in the event of improper acquisition of immovable property. Given the limited number of residences in Malta and the limited amount of land available for construction, the EU agreed that Malta could restrict the right of EU citizens who have not been legally resident in Malta for at least 5 years to acquire and own second homes on a non-discriminatory basis.
The 5-year residency requirement was the balance struck between the two diametrically opposed positions in Maltese and EU law. This was done to eliminate the possibility for foreigners to buy as many properties in Malta as they wish. More importantly, Malta wanted to reduce the possibility of an increase in property prices due to EU membership. On the other hand, persons who are not nationals of a Member State may acquire immovable property only if it is authorised within the meaning of the law. There is also a minimum price for property if a non-resident wants to buy a property in Malta. In addition, immovable property acquired by non-residents may not be rented to third parties. The final tax rate for the transfer of rehabilitated real estate in urban conservation areas is 5% of the transfer value, provided that a number of conditions are met. Up to LN 240, the stamp duty rate otherwise imposed by the Malta Property Purchase Act is calculated at 1.5% on the first €400,000 of the highest between the consideration and the market value of that property, with the remaining tax calculated at the applicable tax rate (normally 5%). These qualified transfers are now subject to tax at the reduced rate of 5% on the first €400,000 of the transfer value. The excess value of the property is taxed at the applicable tax rates of 8% or 10%.
Standard procedures apply to the payment of the fee by the notary who publishes the deed of transfer. Under the rules of the Final Settlement System (FSS), an employer is required to withhold income tax and social security contributions (see below) at source from employees` wages. These tax/social security deductions must be transmitted by the employer to the Maltese Commissioner for Finance within certain deadlines. Section 5 of the Act lists scenarios that exempt individuals from the requirement to obtain an AIP permit before purchasing property in Malta. These exemptions include: Stamp duty is levied on certain documents and transfers, including the transfer of real property and negotiable instruments (although some exemptions may apply), and the issuance and renewal of insurance policies. In the event that the market value of the shares held by a person is reduced as a result of a change in the issued share capital or voting rights of the company and the value is transferred to the other shareholders, the transferor is deemed to have transferred this value to the acquirer(s) and this depreciation may be subject to the stamp duty obligation (although certain exceptions/exemptions may apply). Stamp duty is also levied on the transfer by death of immovable property located in Malta and shares in Maltese companies. However, such transfers may benefit from certain exemptions from stamp duty. The stamp duty exemption on the acquisition of real estate by first-time buyers, where one can benefit from a stamp duty saving, has been increased to the first €200,000 (out of €175,000) of the transfer value and extended until 31 December 2021. The reduced tax rate of 3.5% on inherited land belonging to heirs should now apply to the first €200,000 of the value of the property. Citizens of all Member States of the European Union, including Maltese citizens, who have resided continuously in Malta for at least five consecutive years at any time prior to the date of acquisition, may freely acquire immovable property without the need for a permit under Chapter 246 of Maltese Law.
