Selling Property in Malta Tax Implications

Thinking about buying or selling a house or villa in Malta? Many people from all over the world come to Malta every year because of the many things that make this Mediterranean island so special. Property tax in Malta is particularly attractive because of the country’s year-on-year GDP growth and favorable tax laws, in addition to the island’s 300 days of sunshine and proximity to crystal-clear blue seas.

When compared to other countries, buying a home in Malta doesn’t come with a slew of different taxes. Neither the local council nor the municipal tax has any bearing on the purchase or sale of any immovable property in Malta or Gozo.

Stamp Duty Taxes (link to stamp duty page) apply to purchasers, and the seller must pay Withholding Tax or Property Transfer Tax when selling real estate in Malta.

 

Withholding Tax in Malta: What Is It?

The seller of an immovable property in Malta is subject to a withholding tax on the proceeds from the sale of the property. The seller is required to pay a withholding tax of 8% of the difference between the sale price and any brokerage or agency fees in Malta.

The Maltese government has temporarily lowered the general withholding tax rate to 5% until March 2021 in response to the Covid-19 pandemic.

Can you tell me about the few ways in which Maltese law provides relief from withholding taxes?

Depending on the specifics of the situation, the seller may be eligible for a reduction in the amount of tax withheld if they submit the appropriate paperwork. Some examples of such events are as follows, but this list is not exhaustive:

 

If the property is sold in the first five years after purchase.

The rate of withholding tax is reduced to 5% if you sell your immovable property within the first five years after you buy it. This is the case if the land in question is not incorporated into a construction plan.

If a development application was required under the Development Planning Act at any time during the five years prior to March 20th, 2020, the 5% final withholding tax will not apply.

 

Within three years of the purchase date, if the property is sold

The withholding tax is reduced to 2% if you sell your home within the first three years after you buy it. This is provided that the property is not part of a larger development and that you, the seller, indicated on the original deed that you were using the home as your primary residence.

 

If the seller does not own any other homes at the time of the sale, then this provision applies.

If the property is located in a conservation area and has been designated for restoration and rehabilitation by the Planning Authority in accordance with Article 81 of the Environment and Development Planning Act,

There will be no withholding tax if the seller can show the notary the MEPA certificate verifying that the rehabilitation and restoration work was done in accordance with the relevant permit.

To clarify, this is only the case if this deduction has not been used for a previous sale of the same property. The applicable withholding tax rate is 10% if the seller acquired the property prior to January 1, 2004, and a notice of the promise of sale or transfer relating to the property was not given to the CfR prior to November 17, 2014.

The applicable withholding tax rate is 12% if the promise of sale or transfer relating to the property was given to the CfR prior to November 17, 2014.

 

When do you not need to pay withholding taxes in Malta?

For example, the following will render the withholding tax null and void:

  • After three years from the date of purchase, if the property is transferred, the buyer is responsible for any capital gains.
  • If you sell your home more than three years after you bought it, but less than a year after you moved out, you won’t have to pay any withholding tax.
    • If the house is given away
  • The seller is not required to collect withholding if he or she transfers property to a spouse, descendant, or another member of the seller’s immediate family.
    • In the event of an assignment,
  • If the property assignment results from a divorce or legal separation, no tax will be withheld.

 

What are the Maltese Inheritance Tax Withholding Rates?

There are a variety of factors that can affect the tax liability associated with selling an inherited property in Malta;

  • For any property that was inherited prior to November 25, 1992, the withholding tax on the sale of that property is 7% of the transfer value.
  • If the property was inherited after November 25, 1992, the seller has the option of paying a 12% withholding tax on the difference between the transfer value and the cost of acquisition, or a final withholding tax of 10%, 8%, or 5%, depending on the year in which the property was acquired, in accordance with the aforementioned guidelines.

 

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