What We Think
April 15, 2020
Taxation of the Real Estate Market following the Budget Measures Act
On 20 March 2020, various measures announced in the Malta Budget 2020 speech were transposed into law through the Budget Measures Implementation Act.
Several changes brought about by the Budget Act relate to the taxation of the real estate market. There was also a change relating to stamp duty on the acquisition of immovable property.
Income Tax Measures relating to immovable property
- Restricting the applicability of the 5% rate on property transfers
Prior to this amendment, a 5% rate applied on the transfer value of immovable property in Malta where the transfer is made not later than five years after the date of its acquisition, and the property does not form part of a project.
As a result of the Budget Act, the 5% rate is no longer applicable where the transferor, at any time in the five years preceding the transfer of the property, carried out works on the property on which a development permit was required, unless the transferor had acquired the property for the purpose of establishing sole ordinary residence and declared such intention in the acquisition deed.
- Withholding tax on assignments of rights acquired under a promise of sale agreement
As from 1 January 2020, tax on assignments of rights over immovable property acquired under a promise of sale agreement is chargeable at a final tax of 15% on the first €100,000. Proceeds over €100,000 are taxed at the rate of tax applicable to the assignor, subject to a provisional tax payment at 7%.
Previously, gains from the assignment of rights acquired under a promise of sale agreement were taxed at the standard rates of tax.
Rules have been published by the Commissioner for Revenue in relation to this amendment, specifying the manner in which the tax is to be computed and the deductions allowable.
- Provisional tax on transfers of shares in a property company or an interest in a property partnership
Provisional tax is generally calculated at 7% of the consideration is due upon specified transfers of chargeable capital assets.
With effect from 20 March 2020, the provisional tax due on the transfer of securities in a property company or on the transfer of an interest in a property partnership shall be equal to an amount which will be prescribed, capped at 35% of the higher of the market value and consideration for the transfer.
Stamp duty measures relating to immovable property
Acquisitions by individuals of sole ordinary residence
A reduced rate of 3.5% is applicable to the first €175,000 (previously €150,000) of the value or consideration paid by qualifying individuals acquiring immovable property to establish their sole, ordinary residence.
The amendment was implemented with effect from 15 October 2019.
For more information on the above measures, please contact