Withholding Tax on Assignments of Rights acquired under a Promise of Sale Agreement

Deborah Mifsud

The Commissioner for Revenue has published guidance relation to the 2020 budget measures introduced regarding the withholding tax due on the assignment of rights acquired under a promise of sale agreement (ċessjoni ta’ konvenju). This measure is retroactively applicable in relation to any assignments made from 1 January 2020 and the relative legislation will be made retroactive to that date.

The guidance states that the final withholding tax shall be withheld from the consideration paid for the assignment of rights acquired under the promise of sale. However, the withholding tax shall be calculated after taking into account the following allowable deductions:

• Brokerage fees, if any, paid by the assignor to the extent that they result from documentary evidence and are supported by a receipt;
• Where the assignor had acquired the rights in terms of a prior valid assignment, any sum paid by him to the previous assignor to the extent that it results from that assignment and is supported by a receipt.

Once the above mentioned allowable deductions are deducted on a pro rata basis, tax shall be withheld on the aforementioned consideration at 15% on the first €100,000 whilst 7% provisional tax shall be withheld on the remainder of the consideration. That part of the consideration in excess of €100,000 shall be deemed to be gains or profits derived from a trade, business, profession or vocation falling within the scope of Article 4(1)(a) of the Income Tax Act to be declared in the tax return.

The guidance further clarifies that in the event that a person enters into various promise of sale agreements in relation to different apartments within the same building, such individual is entitled to pay 15% final withholding tax on the first €100,000 of each cession of right on promise of sale, provided that the individual does not cede the promise of sale in favour of third parties and that the rights in relation to each promise of sale are being acquired by different people.