Capital Gains Tax

Capital Gains arising from the sale of property in Malta are exempt from income tax provided that the property has been the main residence for three consecutive years and the property is disposed of not later than one year of vacating it. The full sale proceeds including profit may be repatriated after it has been established whether one is subject to capital gains tax. If these conditions are not met, the seller will be subject to tax on the Capital Gain. Tax on capital gains is either at the applicable rate on the actual profit or a twelve per cent final withholding tax of selling price less agency fees. With effect from 8th April 2013, if the property has been acquired for more than twelve years, the final withholding tax is applied. 
 

With effect from 1st January 2015 the system consisting of both a 12% final withholding tax on the transfer value and 35% tax on the profit or gain has been replaced by one final withholding tax of 8% on the value of the property transferred.

There are some exceptions as follows:

• In the case of a property acquired as residence and sold not later than three years after date of acquisition, 2% final withholding tax shall apply;
   
• In the case of individuals who do not carry on the business of property trading, 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 property in situated Valletta which was acquired by the transferor before 31st December 2018 and such property has been restored. When the said transfer of property has been made not later than five years from 31st December 2018, the final withholding tax rate shall be 5% on the value of the property transferred. 
   
• In the case of properties acquired before the 1st 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 Commissioner before the 17th November, 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.

Brokerage fees will remain deductible. The amount of brokerage fees paid by the transferor shall continue to be allowable as a deduction from the transfer value as long as the conditions of verification mentioned in the Tax on Property Transfers Rules are satisfied. The final withholding tax is applicable on the result.

According to the Income Tax Act, ‘own residence’ means the principal residence owned by the taxpayer or his spouse being a dwelling house which has been the owner’s only or main residence, including land which the individual has for his or her occupation and enjoyment with that residence as its garden or grounds up to an area (exclusive of the site of the dwelling house) not exceeding two times the area of the house and transferred through the same deed with the principal residence.

A garage attached to or underlying a house or block of flats, or a garage of not more than 70sqm situated within 500m of the dwelling house, and transferred through the same deed with the principal residence shall be deemed to be included as part of the residence.

Even though we are not affiliated with any estate agent, we provide our clients with third party opinion with respect to the purchase or rental of immovable property in Malta. We also provide assistance in the following:

• Tax compliance with respect to Capital Gains Tax, procurement of tax clearance prior to the Notary’s authorisation to publish the final deed;
• Drafting of letting agreements;
• Recommendations of professional and experienced notaries;
• Representation on behalf of the client at the promise of sale agreement and on the final deed of purchase or sale;
• Applications for the AIP permits, if required.