Malta is a sought-after destination for real estate investment, thanks to its stable economy and attractive tax regime. The Maltese real estate market has earned itself a reputation as a stable market with excellent return on investment benefits. The country’s real estate industry has gone through several changes and developments. It continuously attracts many foreigners to take up residence here.
In addition to the attractive fiscal conditions for property ownership by foreigners in Malta, factors such as the new high-rise policy have increased further development in the property sector. Effectively, supplementary expansion to existing buildings in specified areas in Malta has extended the return-on-investment possibilities. Whether looking for a holiday home or a long-term investment, Malta is an ideal place to purchase real estate.
This post will provide an all-encompassing rundown of buying, renting, or selling property in Malta and the corresponding tax obligations.
How to Buying Immovable Property in Malta
The government has implemented several measures to attract further property investment, increasing the market to higher levels.
By residing continuously in Malta for at least five years, EU citizens can acquire immovable property without applying for an Acquisition of Immovable Property (AIP) permit.
EU citizens who have not resided continuously in Malta for at least five years preceding the date of acquisition may still acquire their primary residence or any immovable property required for business activities or supply of services without an AIP permit.
A body of people, other than a commercial partnership established in and operating from an EU member state, may freely acquire immovable property required as long as its ultimate beneficial owners are EU citizens.
A commercial partnership established in and operating from an EU member state (including Malta) may freely acquire immovable property. At least 75% of its share capital is held by a person (or persons) who is an EU citizen.
Any other body of people will require a permit, which is only granted if the property is necessary for an industrial or tourist project. The property could also contribute to the development of the Maltese economy.
Citizens of all EU member states who have not resided continuously in Malta for a minimum of five years require an AIP permit to acquire immovable property for secondary residence purposes. What about non-EU citizens?
Non-EU citizens can still buy immovable property in Malta by acquiring an AIP permit if they intend to use it as their primary residence.
How to Rent Property in Malta
Renting a property in Malta is a straightforward process. A lease agreement can be signed within a few days after all aspects are agreed upon between the lessor and the lessee. Provided certain conditions are fulfilled, proceeds from the rental of immovable property in Malta may either be taxed in the following ways:
- If the lessor is considered to lease out properties as part of his trading activity, tax is paid on the gross rental income less all deductible expenses and chargeable at the applicable progressive tax rates for individuals or 35% in the case of Companies.
- If the lessor is considered to be leasing out properties to derive passive rental income, tax is paid less only certain specific deductible expenses, including a 20% maintenance allowance and chargeable at the applicable progressive tax rates for individuals or 35% in the case of Companies.
- In either case, the lessor may pay a final tax of 15% on the gross rental income.
The rental of immovable property is generally considered exempt without credit, meaning that no VAT is chargeable on the lease of such property, and the lessor would not be able to claim any VAT on expenses incurred in maintaining such property. Similarly, no VAT applies to the transfer of immovable property.
However, exceptions to this general rule do exist. Certain property leasing can be considered a vatable supply with credit. In such a case, the taxable person will be obliged to charge VAT according to the applicable rate. They will be able to claim VAT on the expenses incurred in its upkeep and directly related to the leasing of the property.
These exceptions, amongst others, include:
- Letting of, or the provision of, accommodation in any premises which, for the said letting or accommodation, is required to be licensed in virtue of the Malta Travel and Tourism Services Act. The chargeable VAT rate is 7%.
- Letting of immovable property by a limited liability company to another Article 10 tax-registered person where the property being leased is used for the economic activity of that registered person. VAT chargeable on such a transaction will be 18%.
What are Special Designated Areas in Malta (SDAs)?
Special Designated Areas have absolutely no restrictions for expats to acquire a property. These exclusive high-end zones include areas in Malta and Gozo.
- Fort Chambray, Għajnsielem, Gozo
- Portomaso Development, Spinola, St. Julian’s, Malta
- Cottonera Development
- Manoel Island/Tignè Point, Gżira and Sliema, Malta
- Tas-Sellum Residence (Mellieħa Project)
- Madliena Village Complex
- Fort Cambridge Zone, Tignè
- Ta’ Monita Residence, Marsascala
- Pender Plance and Mercury House site
- Kempinski Residences, San Lawrenz, Gozo
- Metropolis Plaza, Gżira
- Portomaso Extension I, St. Julian’s
- Pender Place and Mercury House site, Extensions I, II, III, IV and V, St. Julian’s
- Visa Point, Marsalforn, Gozo
- Quad Business Towers, Mrieħel
- Southridge, Mellieħa
- Mistra Heights
- Quad Business Towers, Mrieħel, Extension I
- Verdala Terraces
- Pender Place and Mercury House Zone, Extension VI, St. Julian’s
Non-Maltese citizens can freely acquire property without obtaining an AIP permit in these areas. There is an absence of distinction between EU and non-EU nationals in SDAs.
Things to Know About Real Estate in Malta:
Another means to attract foreigners to invest in real estate in Malta is the highly attractive tax rates. Should one decide to sell the property, the tax rates are imposed on the person transferring the property to the new buyer at the time of transfer. In this regard, ‘transfer’ includes any assignment or cession of any rights over the property.
The final tax rule under article 5A of the Income Tax Act governs transfers of Immovable Property situated in Malta or rights thereon. Consequently, the rate of 8% final withholding tax is applicable on transfers of Immovable Property located in Malta, except for the below situations:
2% of Transfer Value
Property transferred, which immediately before the transfer, was owned by an individual or two co-owners who had declared in the deed of acquisition that such property had been acquired to establish therein or constructing thereon their sole ordinary residence. The transfer must not be made later than three years from the date of acquisition.
5% of Transfer Value
The property being transferred does not form part of a project and is transferred within five years from the date of acquisition.
Transfer of property situated in Valletta, acquired before the 31st December 2018, and where such property has been restored and/or rehabilitated. The works must be certified by the Malta Environment and Planning Authority (MEPA) before 31st December 2018. Such transfer must not be made more than five years from 31st December 2018.
7% of Transfer Value
The restored property where a notice of promise of sale has not been given prior to the 17th November 2014.
10% of the transfer value
Property acquired before 1st January 2004 and for which transfer of a promise of sale has not been presented to the Commissioner of Revenue before 17th November 2014.
In the case of transferring inherited immovable property, the property will remain contingent on a 12% tax on the final difference between the acquisition cost and the transfer value. If the property was inherited before 25th November 1992, the tax applicable is 7%.
Any profits made on the transfer of immovable property acquired through a donation are subject to 12% tax on the difference between the acquisition value and transfer value if the transfer is made more than five years after the date of donation. Alternatively, the transferor may pay the applicable withholding tax (8% or 10%) mentioned above.
Final Withholding Tax
Non-residents in Malta and residents in another country may opt out of the final withholding tax system for tax purposes. That is if they produce a statement confirming the person’s residence in that country and certifying that they are subject to tax on gains or profits from the transfer of immovable property in Malta. The statement must be produced by the notary who publishes the deed of transfer and signed by the country’s tax authorities.
Profits made on the property sale would still be subject to tax in Malta at the non-resident progressive tax rates. A 7% provisional tax on the transfer value will be applicable. This is non-refundable even if the tax on the gain is less than such an amount.
The buyer must pay for stamp duty upon acquiring immovable property in Malta at 5% of the property’s value. The acquisition of a person’s first residence is subject to a reduced rate of stamp duty at 3.5% on the first €200,000 of the price of immovable property. The property’s price above €200,000 is subject to stamp duty at 5%.
The reduced rate of 3.5% on the first €200,000 is subject to the buyer’s intention to establish their ordinary residence within the property. This also only applies to persons who do not need an AIP permit.
Upon the acquisition of immovable property in Malta, a stamp duty of 1% on the property’s acquisition value is payable upon signing the promise of the sale agreement. The balance is payable on the deed of the purchase at the rate of 5%. All non-EU nationals must pay a 5% stamp duty on the value stated in the final deed of sale.
Some transactions are exempt from being subject to property transfer tax:
- Donations made by a person to certain family members or philanthropic institutions.
- Transfer of property owned and occupied by the transferee or where this property was used as their principal residence throughout the period of three consecutive years immediately preceding the date of the transfer. This exemption will come into effect if the property is disposed of within 12 months from the date the seller has vacated the premises.
- Assignment of property among the couple is consequent to judicial or consensual separation or divorce.
- Assignment of property formed part of the community of acquests between the spouses or was otherwise owned in common.
- Transfer of property from one company to another, where the companies satisfy the conditions to be deemed as companies forming part of the same group.
- Transfer of property by a company to its shareholder in the course of its winding up or the course of distribution of assets. Certain conditions must be satisfied.
Malta has made the real estate industry very welcoming to investors. The concept of privacy is highly appreciated, which makes it an ideal country for international clients who wish to keep their business interests anonymous. Malta has also been remarkably eager to draw foreign investment by offering easy residency options to non-Europeans who want to purchase property in the country!
Explore Real Estate in Malta
With its temperate climate, stunning coastal views, and relaxed Mediterranean lifestyle, it’s easy to see why Malta is such a desirable place to live or own property. If you’re interested in learning more about the Maltese real estate market or investing in property, Integritas is ready to assist you.