Malta Property Ownership

Property Ownership in a Nutshell 

Through its consistent economic growth and competitive residential market, Malta has developed into a unique and attractive option for property ownership.Purchasing immovable property in Malta is not only a secure investment, but is also accompanied by distinctive advantages, particularly through Malta’s favorable taxation framework for residential property owners. 

Owning Property in Malta

Whereas the most obvious manner to own a residential property may be in one’s personal name, there are in fact several structuring options which can be considered. The tax treatment of residential properties may vary depending on the chosen structuring model, which makes tax and structuring considerations an important discussion early on in the property purchase process.

Available Options

There are several options in which one may choose to structure the ownership of a residential property in Malta, however these options revolve primarily around:

1. 1. Ownership in one’s own name;
   2. Ownership in a company;
   3. Ownership in a trust.

The most obvious solution might appear to be owning a property in one’s own name, however long-term planning and taking into consideration ancillary and related applicable factors, one might conclude that owning a property through a trust or a company is ultimately more attractive.

Tax Considerations

Upon the purchase of immovable property in Malta, the purchaser is subject to Stamp Duty on the higher between the purchase price and the market value of the property. There are several rates of stamp duty that apply, depending on the purchaser and on the property, with the standard rate being 5%. The main exemptions to the 5% rule applicable to the purchase of an immovable property are the following:

• • a reduced rate of 2% in respect of transfers of immovable property situated in Gozo;
  • a reduced rate of 3.5% in respect of the first EUR117,000 of the purchase price is applicable to citizens of the European Union purchasing a property in Malta with the intention to establish his sole ordinary residence therein;
  • an exemption for first time buyers in respect of the first EUR200,000 of the purchase price is applicable to citizens of the European Union purchasing a property in Malta with the intention to establish his sole ordinary residence therein;
  • a reduced rate of 2.5% in respect of transfers of immovable property situated in an Urban Conservation Area.

Tax Considerations During the Ownership of a Property in Malta

No property ownership tax is levied by the Maltese authorities. Should a property be rented out, however, tax on rental income shall apply. Under the Maltese Income Tax Act there is the option for one to pay final tax at the rate of 15% on rental income. This 15% flat rate is to be calculated on the gross rental income and is applicable to residents and non-residents alike, as well as to individuals and/or entities alike. There is, alternatively, the option to declare the net rental income in one’s tax return and be charged at the applicable rates rather than at the 15% flat rate. For individuals, the applicable progressive tax rates would largely apply, thus ranging between 0% and 35%, whereas for companies, corporate tax at the rate of 35% would apply.

Tax Considerations Upon the Transfer of Ownership of a Property in Malta

When one decides to part with a property, a property transfer tax is triggered. As from the 1st of January 2015, the general applicable rate of the final withholding tax applicable on property transfers is of 8%, to be calculated on the higher between the transfer value and the market price of the property.There are some variations to the 8% general rule, namely:

• • 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;
  • In the case of properties acquired before the 1st of 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 of 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 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;
  • 5% final withholding tax applies when it is a transfer of property situated in an urban conservation area or scheduled by the Planning Authority, 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.

In relation to the 8% Property Transfer Tax rule, exemptions apply:

• • 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.

Tax on Death

In Malta, the concept of inheritance tax is not in effect. However, upon a devolution of property onto an heir causa mortis, duty is payable by the heir at the rate of 5% of the declared property value. In the case of property inherited by an individual who already resides in such residential property as one’s own sole residence, a reduced rate of 3.5% on the first €175,000 of the value of the property applies. Other exemptions include instances where the surviving spouse inherits the share of the deceased spouse of their sole residence, as well as when children inherit the residence of their parents.

Comparative Brief

What This Means for You

The various options available in structuring the ownership of residential property in Malta offer highly advantageous alternatives if applied in the adequate scenarios. While seemingly straightforward, legal consultation is always advisable so as to ensure that the framework chosen to invest in immovable property is the most suitable one for one’s needs.