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moreACQUIRING MALTESE REAL ESTATE
DIRECT PURCHASE OF REAL ESTATE
This section discusses the most important tax implications of the direct purchase of real estate. Initially, the impact of resident individuals and non-resident individuals are outlined. Thereafter, the impact for resident companies and non-resident companies are described.
Resident Individuals
Transfer Taxes
Individuals who acquire Maltese real estate are subject to duty on documents and transfers taxes.
The duty payable by a person acquiring Maltese real estate is normally charged at 5% on the higher of the market value of the immovable property or the purchase price. However, there are circumstances where the rate may be reduced for all or part of the value or where exemptions may apply such as in the case of first time buyers currently benefitting under a scheme referred to as “the First Time Buyers Scheme” where no duty is payable by the acquirers of immovable property on the first €200,000 of the property’s dutiable value.
To provide a boost to the property market during the COVID-19 pandemic, the Maltese Government has temporarily reduced the duty payable by a person acquiring Maltese real estate to 1.5% on the higher of the market value or the purchase price of the property being acquired. Such reduced stamp duty rate applies on the first €400,000, with remaining duty being charged at the applicable rates. The reduced rates are applicable in respect of promises of sale registered until 31 March 2021 where the final deed of transfer is concluded by 30 June 2022.
Furthermore, reduced stamp duty rates may apply to transactions involving the acquisition of immovable property in Gozo or within Urban Conservation Areas.
First time buyers of properties situated in Urban Conservation Areas, properties which have been built 20 or more years ago and have been vacant for more than 7 years and new properties which are built in a typical traditional Maltese style are exempt property transfer tax on the first €750,000.
In addition to the above, first-time buyers of any property mentioned above would benefit from a grant of €15,000 if the acquired property is situated in Malta. Such grant shall double if the property is situated in Gozo.
Value-added tax
The supply of real estate is exempt from VAT.
Non-resident individuals
Non-resident individuals are treated in the same manner as resident individuals. However, non-residents must request permission from local authorities to purchase property in Malta, unless such property is situated in a Special Designated Area.
Resident companies
Transfer Taxes
A company acquiring Maltese real estate is subject to duty on documents and transfers charged at a rate of 5% on the higher of the market value of the immovable property or the purchase price of transfer. However, there are circumstances where the transfer of property intra-group (as defined) may be exempt from duty.
Value-added tax
The supply of real estate is exempt from VAT.
Non-resident companies
Transfer Taxes
Non-resident companies are treated in the same manner as resident companies with respect to the acquisition of real estate in Malta.
Value-added tax
The purchase of real estate falls outside the scope of VAT.
INDIRECT PURCHASE OF REAL ESTATE
This section shows the most important tax implications of the indirect purchase of real estate through the transfers of shares. Initially, the impact on resident individual and non-resident individuals is discussed. Subsequently, the implication for resident companies and non-resident companies are outlined.
Resident individuals
Transfer taxes
An individual who acquires shares in a Maltese company, is subject to transfer taxes at a rate of 2% on the higher of the market value or the consideration being paid for the same shares. If the company in which the shares are being transferred holds more than 75% of its assets in immovable property, the transfer of the shares of such company is subject to a stamp duty of 5% of the market value of the shares.
The market value of the shares being acquired is calculated by taking the net asset value of the company, the market value of the immovable property at the date of transfer less the book value of the immovable property and adding back the goodwill and any excess of liabilities when compared to the company’s assets.
Where the immovable property constitutes less than 75% of the company’s assets, stamp duty continues to be charged at the rate of 2%.
Personal income tax
An individual is subject to tax on the capital gains realised upon the disposal of shares in a property company at the progressive income tax rates up to 35%.
Dividend withholding tax
As a general rule, no dividend withholding tax is levied under Maltese tax law.
Non-resident individuals
Non-resident individuals are treated in the same manner as resident individuals insofar as the acquisition of shares in property companies is concerned.
Personal Income Tax
The exemption for non-residents from capital gains tax upon the transfer of shares in Malta companies does not apply if the company is a property company. Such non-resident individuals are subject to tax on gains derived upon the disposal of shares in property companies at the progressive non-resident tax rates.
Dividend withholding tax
The distribution of dividends to non-resident shareholders is not subject to withholding tax.
Resident companies
Transfer taxes
The same tax treatment as outlined above in the case of resident individuals applies in the case of resident companies acquiring shares in property companies and are subject to duty at a rate of 2%. If the company in which the shares are transferred holds more than 75% of its assets in immovable property, the transfer of shares of such company is subject to a stamp duty of 5% of the market value of the shares.
The market value of the shares being acquired is calculated by taking the net asset value of the company, the market value of the immovable property at the date of transfer less the book value of the immovable property and adding back the goodwill and any excess of liabilities when compared to the company’s assets.
Where the immovable property constitutes less than 75% of the company’s assets, stamp duty continues to be charged at the rate of 2%.
However, where the company in which the shares are being acquired qualifies as a group company, as defined, an intra-group exemption apply and no stamp duty is payable upon such transfer.
Corporate income tax
A company is subject to 35% on its taxable profits regardless of whether it classifies as a property company or otherwise.
Losses
The unutilised trading losses of a Malta company which owns immovable property, whether this qualifies as a property company or otherwise, can be carried forward indefinitely to be utilised against future profits of the same company. Unutilised trading losses may be offset against all company profits. Capital losses may only be offset against capital gains and can also be carried forward.
Non-resident companies
Transfer taxes
Non-resident companies are treated in the same manner as resident companies.
Companies acquiring shares in property companies are subject to duty at a rate of 2%. If the company in which the shares are transferred holds more than 75% of its assets in immovable property, the transfer of shares is subject to a stamp duty of 5% of the market value of the shares.