Quick Overview of Maltese Real Estate

Rental Income, Capital Gains and Property Transfer Tax of Maltese Real Estate

*A taxpayer is taxed in the capital gain tax regime or in the property transfer tax regime, but never in both regimes.

** The property transfer tax system is explained in the paragraph VAT & transfer taxes.

Rental Income

Individuals

Introduction

Rental income is taxed as part of a taxpayer’s annual income or subject to a final withholding tax. 

Liability to Tax

Rental income received by individuals is subject to tax at the individual’s progressive income tax rate (maximum of 35%) or subject to a final withholding tax at a flat rate of 15% at the option of the lessor.

Basis to Tax

Individuals may deduct specific expenditure related to the property being rented out.  Individuals can also opt for having rental income taxed through a final withholding tax, no deductions are permitted against the rental income.

Companies

Introduction

Rental income is taxed as business income at the company’s income tax rate or subject to a final withholding tax.

Liability to Tax

Rental income is taxed as business income at the company’s income tax rate of 35% or subject to a final withholding tax at a flat rate of 15% on the gross rental income received at the option of the lessor.

Basis to Tax

Business income is subject to a flat corporate tax rate of 35%. Deductions may be taken in respect of certain specific expenditure related to the property being rented out.  However, if the company opts for the final withholding tax to be charged on its rental income, this would be subject to tax at a flat rate of 15% on the gross rental income received.

Capital Gains Tax Regime

Resident individuals

Capital Gains

Where an individual owns shares in a Malta property company, a provisional tax of 7% of the market value of the shares being transferred is payable upon the disposal of such shares.  Any capital gain realised is subject to tax at the individual’s progressive tax rates (up to a maximum of 35%), subject to a credit of the amount paid by way of provisional tax.

Resident company

Introduction

The same rules outlined above in the case of resident individuals are applicable to resident companies.  Furthermore, any capital losses incurred upon  disposal of shares in a property company would be carried forward to offset any future capital gains.  If the shareholder holds less than 25% of the shares in a company, the capital gains are calculated by reference to the consideration received for the shares being transfer rather than the percentage of the market value of the company attributable to the same shares.

 Maltese VAT and Transfer Taxes

Value Added Tax 

Individuals

Introduction

The transfer of property is outside the scope of VAT.  Nevertheless, there are certain circumstances where the renting of property may fall within scope of VAT.

Liability to Tax

Renting out property for holiday or short stay accommodation which meets certain conditions, falls within the scope of VAT and is subject to VAT levied at a rate of 7%.

Basis of Tax

The property needs to be registered with the Malta Tourism Authority for a license for holiday/short stays to be issued. The lessor needs to charge VAT at a rate of 7% on the rental income.

Companies

The same rules as for individuals apply.

Tax on Transfers of Immovable Property

Individuals

Introduction

Malta recently shifted away from a capital gains regime in relation to transfers of immovable property and instead levies a property transfer tax.

There are very limited exemptions stipulated in the law where an opt out from the Property Transfers Tax regime is permitted and the Capital Gains Tax regime applies. However, these are exceptional situations and we have excluded them for the purposes of this guide.

Property Transfer Tax Regime

Liability to tax

Resident and non-resident individuals who are transferring immovable property are generally subject to the final property transfer tax regime at a tax rate ranging from 2% to 12%.

Basis of tax

A 2% tax rate is levied on the higher of the transfer value and market value of the immovable property being transferred if:

• the transfer is made within three years after the acquisition of the same property; and
• the intention of the transferor was to use the property as his/her sole ordinary residence as evidenced by the declaration made on the contract of acquisition for duty purposes; and
• the transferor does not own another residential property at the time of transfer.

A 5% tax rate is levied on the higher of the transfer value and market value of the immovable property being transferred if the property is situated within an Urban Conservation Area (areas within village cores) or the property transfer is not made later than 5 years from the date of acquisition and does not form part of a project.  

An 8% tax rate is levied on the higher of the transfer value and market value of the immovable property being transferred where such property was acquired after the 1^st of January 2004. 

A 10% tax rate is levied on the higher of the transfer value and market value of the immovable property being transferred where such property was acquired before the 1^st of January 2004. 

A 12% tax rate is applicable upon the difference between the transfer value and the cost of acquisition in two different scenarios:

• there is a transfer of immovable property inherited on or after 25/11/1992; or
• the transfer of immovable property acquired through donation, with the same being transferred after 5 years from when it was acquired.

Companies

Introduction

Companies transferring immovable property are subject to a property transfer tax at the rates outlined above. However, there are very limited exemptions stipulated in the law where an opt out from the Property Transfers Tax regime is permitted and the Capital Gains Tax regime applies, as outlined above.

Property Transfer Tax Regime

Liability to tax

Companies transferring property are typically subject to a property transfer tax of 8% of the transfer value of the property. However, other rates may apply in specific circumstances as outlined above. 

Exemptions

Maltese tax law also provides number of exemptions upon the transfer of property provided in the circumstances outlined below:

• Donations of immovable property to Philanthropic institutions.
• Donations of immovable property to specific family members.
• Transfers of immovable property from one company to another which are both ultimately owned and controlled directly or indirectly by the same individuals or form part of a group of companies.
• Transfers of property in the course of a winding up of a company, provided certain conditions are met.

Malta Local Taxes

A transferee, i.e. the individual or company acquiring immovable property is subject to duty on documents at a rate of 5% on the higher of the market value and the consideration being paid for the property.

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 in certain cases, and some incentives are being extended for another year and will therefore apply for 2024.

Malta Net Wealth/Worth Taxes

Malta does not levy any net wealth or net worth taxes.

Vehicles for Malta Real Estate 

Commonly used vehicles for Malta real estate

Corporate Entity

A limited liability company is the most commonly used vehicle for the ownership of Maltese real estate.  The equity of the company is divided into shares and the shareholders of the company are not personally liable for the business debt.  Profits derived by a company are subject to corporate income tax at a flat rate of 35%.  Property transfers by the company are subject to the flat rate 8% property transfer tax. Exemptions exist for transfer intra-group (as defined in the Income Tax Act)

Trusts

A trust under Maltese legislation is taxed in Malta on any income attributed to the trust itself if at least one of the trustees is a person resident in Malta. 

A trust may elect to be treated as a company for income tax purposes.  Such an election is irrevocable and once the election is exercised, the trust would be subject to the provisions within the Maltese Income Tax Acts as applicable to companies.  If such election is made, the trust would be subject to tax at the rate of 35%.

Where the above-mentioned election does not take place, the income derived by the trust from income streams other than immovable property would be taxable at a flat rate of 35% in the hands of the trustee. 

Transfers of immovable property by a trust would be taxed at the normal rates levied under the property transfers tax system upon individuals and companies transferring immovable property in Malta.

Partnership

A partnership must have at least two partners and is transparent for tax purposes unless the partners opt for it to be treated as a company.  Where it does not opt to be treated as a company, the partners would be subject to income tax on their share of partnership profits at their marginal tax rates (up to 35%).

Specific Real Estate Vehicles for Maltese Real Estate

Real Estate Investment Trusts

The Malta Stock Exchange has recently amended its by-laws to allow for the listing of REITs (Real Estate Investment Trusts). In order to qualify as a REIT, the Issuer must have all its shares listed on the main market of the Stock Exchange. A REIT must have a property rental business defined as the business of owning or leasing immovable property whether residential or commercial for the purposes of renting out such immovable property to third parties and receiving rental income. It should include a portfolio of assets of at least three immovable properties in Malta or abroad with a total value of at least €9,000,000. No one immovable property within the portfolio should make up more than 40% of the total value of the portfolio.  At least 75% of the aggregate market value of the assets of the Issuer must consist of assets that are capable of generating income for the Property Rental Business. Income arising from the property rental business must make up at least 75% of the Issuer’s total revenue. The Issuer is obliged to distribute to shareholders by way of dividend at least 85% of the distributable profits arising from the Property Rental Business arising in each accounting period, subject to having sufficient distributable reserves in terms of the Companies Act. The taxation of rental income at 15% would apply to rental income received by the REIT.