Property Tax in Malta

The transfer of any property in Malta incurs capital transfer taxes for the seller, while the buyer is responsible for paying stamp duty. The amount of tax and stamp duty associated with the property transfer in Malta depends on various factors, such as the relationship between the buyer and seller, potential exemptions, and whether the transfer qualifies for any existing incentive measures at the time of the transfer.

Vat on 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. 

Vat on Renting/Leasing of Property in Malta

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: 

1. 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.
2. 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.
   
   
3. The letting of permanently installed equipment and machinery and the hire of safes.
   
   
4. 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%.
   
   
5. 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 in Malta

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.

Buyer Property Tax in Malta

Stamp Duty

Buyers are required to pay a 5% stamp duty, calculated based on the sales price, during the transfer process. Of this total, 1% is due when drafting the Promise of Sale Agreement, while the remaining 4% is settled upon the final Deed of Transfer. Notably, substantial savings are granted to Maltese and EU residents residing in Malta for over 5 years. For this specific group, the stamp duty rate is reduced to 3.5% for the initial €150,000 of the property's purchase price.

If one purchases a property in Gozo before the end of 2024, the stamp duty will be reduced from 5% to 2%.

The First-Time Buyer’s Scheme

First-time homebuyers acquiring their initial residence as their primary residence are exempt from paying stamp duty on the initial €200,000 of the property's value. In addition, as announced in the 2023 budget the government has extended the first-time buyers scheme which qualifies buyers for a single €10,000 subsidy disbursed over a decade. This grant is intended to assist in servicing the buyers' home loans and is applicable to property acquisitions made since the start of 2022. The highest permissible property value for eligibility is set at €500,000.

Reimbursement of VAT for Restoration Projects & Grants for Older Types of Properties

Present and future proprietors of eligible properties stand to gain from a Value Added Tax (VAT) reimbursement of up to €54,000 for the initial €300,000 expended on renovation endeavors. This initiative provides compensation for qualifying expenses associated with the renovation and enhancement of privately owned residential properties situated in Urban Conservation Areas (UCAs), residences constructed over 20 years ago and left vacant for at least seven years, and newly developed properties that adhere to specified criteria mirroring traditional property features.

Also, first-time buyers who buy a property that has been vacant for over 20 years, a property located in an Urban Conservation Area (UCA), or a newly constructed house incorporating traditional Maltese architecture, are eligible to receive a grant of €15,000 for properties in Malta and €30,000 for properties in Gozo.

Exemption from Capital Gains Tax and Duty

Until October 2024, buyers can enjoy a waiver from capital gains tax and stamp duty on the initial €750,000 value of a property, provided the property satisfies one of the following conditions:

• The property was constructed over 20 years ago and has remained vacant for more than 7 years.
• The property is situated within an Urban Conservation Area.
• The property is newly built in a manner that reflects the typical and traditional Maltese style and architecture.

Seller Property Tax in Malta

Malta Property Transfer Tax - Final Withholding Tax

When selling property (immovable property), the seller is subject to a tax known as the final withholding tax. The standard property transfer tax rate is 8%, but specific situations entail different rates, as outlined below:

• A 5% final withholding tax applies if the property is transferred within 5 years of acquisition (and is not part of a project).
• A 5% final withholding tax is applicable if the property, acquired after January 1, 2016, is located in an Urban Conservation Area or is a scheduled building that has undergone restoration or renovation (supported by a Planning Authority compliance permit). Urban Conservation Areas are culturally significant locations protected by law and specifically identified by the Malta Environment and Planning Authority.
• A 2% final withholding tax is levied if the property, acquired for use as a sole ordinary residence, is transferred within 3 years of acquisition.

Malta Tax on Capital Gains

Instead of the final withholding tax, a property seller can choose to pay tax on the capital gains resulting from a property transfer. This alternative is applicable in certain situations, and typically, sellers seek advice from a notary to determine the most advantageous option based on their specific circumstances.

Tax Exemptions

Certain scenarios result in property transfers being tax-exempt:

• Donations to a spouse, a direct descendant and their spouse, a direct ascendant and their spouse, siblings, and philanthropic organizations.
• Selling a property that serves as the seller's primary residence, which has been owned and occupied as such for a minimum of 3 years before the transfer.
• Selling property due to the separation or divorce of spouses.
• Transferring property between companies belonging to the same group.

Normally, a property sale incurs an 8% tax. However, various situations warrant different tax rates.

Property Valuations in Malta

In Malta, the assessment of property values holds significant weight, particularly in the realm of taxation. The taxation framework revolves around the annual value of a property, a metric determined by the Commissioner of Inland Revenue. This valuation considers crucial factors such as the property's location, size, age, condition and amenities. Property owners are obligated to furnish a self-assessment form, outlining the specifics of their property, which serves as the basis for the Commissioner's final valuation. This intricate procedure aims to establish a just and precise representation of a property's value for tax purposes, fostering a system of transparency and fairness. The interplay between property owners and tax authorities is a nuanced process, with the valuation mechanism orchestrating a balanced and equitable approach to real estate taxation in Malta.

Inheritance Property Tax in Malta

In Malta, inheritance property tax is a complex matter with considerations for various scenarios. When a property is transferred as a donation, it is subject to the Donations and Gratuitous Transfers Duty. The rates depend on the relationship between the donor and the recipient, with exemptions for transfers between spouses and direct descendants up to a certain value. In cases where the transfer is treated as a sale, stamp duty is applicable on the market value of the property. Inheritance through causa mortis, or in the event of death, also involves duty on the market value of the property, with potential exemptions for close relatives. Malta offers certain rebates and allowances to ease the financial burden on heirs, and it's essential to consult with legal and tax professionals to navigate the intricacies of inheritance property tax, ensuring compliance with the latest regulations and maximising available exemptions.