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VAT Implications on the Sale of Immovable Property
Buying & Selling of Property
There are no VAT implications on the buying & selling of immovable property situated in Malta. This is considered to be an exempt without credit supply and no VAT is chargeable on such supply.
Renting/Leasing of Property
Rent of immovable property is usually also deemed to be exempt without credit, this means that the Lessor doesn’t charge VAT however, he/she cannot claim input VAT on expenses related to his/hr business. Provided certain exceptions apply:
- The letting of or the provision of accommodation in holiday flats or other premises required to be licensed in virtue of the Malta Travel and Tourism Act, or in a holiday camp or camping site. The chargeable VAT rate in this case is 7%. The provision of accommodation needs to be to ‘tourists’ in order for the 7% Vat rate to apply. The term ‘tourist’ means “any person who is travelling to and staying in places outside his usual environment for not more than one consecutive year for leisure, business and other personal purpose other than by taking up employment or to establish a business in the place visited.
- The letting of premises and sites for parking vehicles where such premises or sites have been designated by the Commissioner as parking areas or which fall to be treated as such in terms of such regulations as may be prescribed.
- The letting of permanently installed equipment and machinery and the hire of safes.
- The letting of immovable property by a limited liability company to a person registered under Article 10 of the Maltese Vat Act for the economic activity of that registered person. VAT chargeable on such transactions will be 18%.
- The letting of immovable property for not more than thirty days by a taxable person in the course of an economic activity. Therefore, in the case of commercial short-term lets of not more than 30 days, vat would be charged at 18%, subject to other exceptions contemplated in the VAT Act.
Income Tax Implications on Rental Income
An individual and/or a company may opt to be taxed on rental income either at a flat rate of 15% on gross rental income or at a rate of 35% on net rental income after deducting certain expenses as may be seen below.
Option 1 – flat rate of 15% tax on gross income
One may opt to pay tax at a flat rate of 15% on gross rental income. Should one opt for such method, they would not need to declare such income in their tax return, instead this would be declared by filing the form TA24 which may be found on the Inland Revenue website.
The 15% flat rate is applicable to both individuals and companies on income arising from the rent, including ground rent, of both residential or commercial property.
This would not apply, should the property be rented out to a related party, meaning that should the property be rented out to anyone who owns more than 25% of the property, this method will not apply.
This beneficial rate of tax applies both to residents and non-residents of Malta.
Option 2 – tax rate of 35% on gross income less allowable deductions of expenses in respect of immovable property
Should one opt for this option, they would be charged to tax at a rate of 35% on net rental income, meaning, the following expenses would first be allowable as a deduction from the gross rental income:
a) an amount of interest allowable – interest payable on capital employed to acquire the property
b) any rent, ground rent or similar burden payable
c) where applicable, the licence fee payable for the purpose of the Malta Travel and Tourism Services Act; and
d) a further amount equivalent to twenty per cent of the income remaining after deducting from the total of the income in question the expenditure referred to in paragraphs (b) and (c), so however that no such deduction shall be allowed in respect of income arising from any emphyteutic concession.
Such income would need to be declared in the income tax return.