Taxation Tips for Property Owners in Malta

Real Estate Taxes in Malta

When considering the purchase or transfer of property in Malta, understanding the real estate tax system is crucial. Malta’s real estate tax framework, governed by the Duty on Documents and Transfers Act, offers several benefits such as reduced rates and exemptions for specific transactions while outlining clear tax obligations for both buyers and sellers.

Stamp Duty on Property Purchases

In Malta, buyers are subject to stamp duty when transferring immovable property. The general rate is 5%, calculated on the value of the property or the consideration for the transfer—whichever is higher.

Stamp duty is payable when the final deed is signed. However, a 20% provisional payment of the stamp duty is required upon signing the Promise of Sale Agreement (Konvenju).

Additionally, buyers are typically required to pay a 10% deposit on the property’s purchase price when signing the Konvenju. The deposit secures the buyer’s commitment to the transaction, while the provisional stamp duty is a tax-related obligation.

Exemptions from Stamp Duty

Certain property transfers can benefit from a stamp duty exemption:

• Transfers between spouses;
• Transfers following separation or divorce;
• Partition of property between spouses;
• Transfers to a surviving spouse and heirs after death;
• Property divisions within companies where shareholders remain unchanged;

Reduced Stamp Duty Rates

The Maltese government offers reduced stamp duty rates for specific circumstances:

• First-time buyers: Benefit from a stamp duty exemption on the first €200,000 of their purchase. This measure is a permanent feature of the property tax framework;
• EU citizens purchasing their primary residence: Qualify for a reduced rate of 3.5% on the first €200,000 of the property price, with any remaining value taxed at 5%; Buyers must intend to reside in the property to qualify;
• Gozo properties: A reduced stamp duty of 2% applies to properties purchased in Gozo, incentivising investment in the island’s real estate market;

Reduced Stamp Duty for Intra-Family Transfers

Transfers of immovable property within families also enjoy favourable treatment:

• A reduced rate of 1.5% applies for the transfer of businesses or immovable property from parents to children. This measure has been extended through 2024;
• For donations of property to descendants, the first €250,000 is exempt from stamp duty, while the excess is taxed at 3.5%;

Property Transfer Tax (for Sellers)

While buyers are responsible for stamp duty, sellers must pay property transfer tax. Since 2015, Malta transitioned to a final withholding tax system, replacing the old capital gains tax regime. The standard rate is 8%, calculated on the value of the transfer. However, tax rates can vary:

• Properties acquired before 1st January 2004: Subject to a final withholding tax of 10%;
• Properties transferred within five years of acquisition: Eligible for a reduced tax rate of 5%;
• Restored properties in Valletta: A 5% tax rate applies if the property was restored under specific conditions and acquired before 31st December 2018;

Exemptions from Property Transfer Tax

Sellers may qualify for exemptions from property transfer tax in the following cases:

• Donations to spouses, descendants, or charitable institutions;
• Transfers of property owned and lived in by the seller for at least three consecutive years as their primary residence;
• Transfers between spouses following divorce or separation;
• Transfers within group companies or businesses;
• Inheritance transfers where the property is retained by heirs without sale;

Tax on Inherited Property

Inheritance of property in Malta incurs real estate taxes. For properties inherited after 24th November 1992, the seller must pay a 12% withholding tax on the difference between the transfer value and the acquisition cost. Properties inherited before this date are subject to a 7% withholding tax on the selling price.

Rental Income Tax

Rental income derived from residential properties in Malta is taxed at a 15% final withholding rate. This applies to properties rented for residential use, excluding those registered under the Malta Travel and Tourism Services Act.

Landlords opting for the flat 15% tax rate are not required to declare this income in their annual tax return. Rental agreements longer than three months must be registered with the Inland Revenue Department (IRD), ensuring transparency and regulation in the rental market.

VAT on Rent

Generally, VAT is not charged on residential rent in Malta. However, exceptions include:

• Properties licensed by the Malta Tourism Authority (MTA), which incur a 7% VAT rate;
• Parking spaces rented out for business purposes;
• Properties rented by companies for commercial activities, depending on the nature of the business;

Special Designated Areas (SDAs)

Foreign investors can benefit from Malta’s Special Designated Areas (SDAs), which allow both EU and non-EU citizens to purchase multiple properties without requiring an Acquisition of Immovable Property (AIP) permit. SDAs also offer certain inheritance exemptions and flexible ownership conditions;

Restrictions on Property Acquisition

For non-EU citizens, an AIP permit is required to purchase real estate in Malta unless the property is located in an SDA. EU citizens who have resided in Malta continuously for five years or more can acquire property freely, while those with shorter residency may only purchase their primary residence or property for business use without a permit.

How Christie’s International Real Estate Malta Can Help

Malta’s real estate tax framework offers numerous benefits to buyers, sellers, and investors, including reduced stamp duty rates for first-time buyers, favourable tax rates for rental income, and significant exemptions for family transfers and inheritance. Coupled with the opportunities in Special Designated Areas, Malta remains an attractive destination for property investment.

Whether you’re a first-time buyer or an experienced investor, navigating Malta’s real estate market requires expert guidance.

Contact Christie’s International Real Estate Malta today and let us guide you through everything the island has to offer. We’re here to assist you every step of the way and handle all the necessary paperwork seamlessly.