Budget 2015 - New Tax Rates when selling property
The tax regime payable upon the transfer of an immovable property in Malta has been overhauled in the latest Budget held on the 17th November 2014. Some issues were further fine-tuned in the first few weeks following the budget speech.
The below are the most salient points regarding the tax rates that are in place as of 1st January 2015.
What has changed:
(I) As from the 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the system consisting of both a 12% final withholding tax on the transfer value and 35% tax on the profit or gain has been replaced by one final withholding tax of 8% on the value of the property transferred, except for limited cases:
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In the case of properties not forming part of a project, the applicable final withholding tax rate is 5% on the value of the property transferred provided that the property is transferred before five years from the date of its acquisition and that the transferor is an individual who does not habitually TRADE in property;
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In the case of properties acquired before the 1st January 2004 whereby the notice of a promise of sale or transfer relating to that property had not been registered before the 17th November 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.
(II) Before the 1st January 2015, in the case of a transfer of a property that was made not later than 12 years after the date of acquisition thereof, the seller had the option, by means of a declaration made to the notary at the time of the publication of the deed of the transfer and recorded in the said deed, to exclude that transfer from the scope of the final withholding tax system. As from the 1st January 2015, this is no longer possible except for limited cases.
(III) Transfers which are made on or after the 1st January 2015 of property that forms part of a project or that is situated in a special designated area are subject to 8% final withholding tax. If however, the property was acquired before the 1st January 2004, this increases to a 10% final withholding tax, unless a notice of a promise of sale or transfer relating to the property has been given registered before the 17th November, 2014.
(IV) Before the 1st January 2015, a transfer of property by a person who is not resident in Malta and who is resident for tax purposes in another country could have elected to opt out of the 12% final withholding tax system if that person produced to the notary a statement signed by the tax authorities of the country of that person’s residence that confirms that person’s residence in that country and that certifies that that person is subject to tax in that country on gains or profits derived from the transfer of immovable property situated in Malta.
What has remained the same:
(I) Persons selling the property in which they have resided for the last 3 years (or more) are still exempt completely from tax
(II) All other previous exemptions still apply.
(III) The sale of inherited property is till taxed as before, namely 7% of the price if the inheritance occurred before 25/11/1992 or 12% of the gain from the value declared in the causa mortis if the inheritance occurred after 25/11/1992.
The above is a summary of the most common scenarios. Other scenarios may have different tax rates and rules.
Article written by Notary Dr James Grech