Introduction
Stamp duty in Malta is a transaction-based tax which is due upon the publication of a public deed which transfers immovable property from one party to another. Stamp duty is due by the person acquiring the property concerned and is regulated by the Malta Duty on Documents and Transfers Act.[1]
The law provides a default rate of duty applicable to most transactions, as well as lower, more equitable rates of duty ordinarily based on the close proximity of the relationship between the parties involved in the transfer. In certain cases, the law also exempts the person acquiring the immovable property from paying any duty at all.
Stamp duty is payable on the final deed of acquisition of the property. However, a promise of sale agreement is not valid unless a provisional payment equivalent to 1% of the tol stamp duty is paid to the Commissioner for Inland Revenue.[2]
Rates of Stamp Duty on Malta Property
Default Rates
The default rate of stamp duty amounts to 5% in cases of a transaction involving the transfer of any immovable property, or any real right over an immovable property.[3] Duty is calculated on the value of the consideration for the transfer of the immovable, or on the value of the immovable, whichever is the higher.
A contract of exchange, whereby one immovable property is exchanged for another, is deemed to constitute one transfer for the purposes of the calculation of stamp duty. As such, the duty is calculated on the basis of the higher amount of the values of the things transferred. However in the case where different rates apply due to the nature of the transferee and the thing transferred, the applicable duty to the contract of exchange is the higher amount of duty.[4]
Reduced Rates
A person who does not require a residence permit[5] in terms of the Immovable Property (Acquisition by Non-Residents) Act[6] is entitled to a reduced rate of 3.5% duty with regards to the first €150,000 of the value of the immovable property in question.[7] In order for a person to qualify for this default rate, the immovable property has to be acquired for the purpose of establishing therein or constructing thereon one’s sole, ordinary residence.[8] The reduced rate also applies in the case of the redemption of the ground rent or other burden imposed on the property.[9] The value in excess of the first €150,000 is subject to the default rate of 5% duty.
The reduced rate of 3.5% duty applies to the entire value of the property in the case where a person transfers immovable property by a gratuitous title to his descendants in the direct line acquiring the property for the purpose of establishing therein, or constructing thereon, their sole, ordinary residence. This rate will only apply if it is the first transfer by the person to his descendants for this purpose. Any subsequent transfers will be regulated by the default rate of 5% duty.[10] In this case it is important to note that the rate of duty will be calculated on the basis of 80% of the market value of the land in addition to the costs to make the improvements thereon, depending on the state they are in on the date of the transfer, if these improvements exist.[11]
Exemption from Duty on Malta Property
An exemption from stamp duty on the first € 150,000 of the purchase price applies where the purchase is first purchase of property worldwide and purchased for the purpose of establishing their sole ordinary residence. This exemption is valid until June 2015.
The assignment/transfer of immovable property between spouses who are married, or were formerly married, is exempt from the payment of any duty.[12]
Moreover it is important to note that where the Commissioner for Inland Revenue issues a certificate attesting to the fact that an immovable property is being transferred from one company to another, no duty is chargeable on the transfer if the companies form part of the same group of companies.[13] In the same manner, no duty is due in the case where a transfer of immovable property is effected between a company and its shareholder in the course of its winding up, or in accordance with a scheme of distribution, if the shareholder owns no less than 95% of the share capital and the voting rights of the company. The shareholder must have held this capacity, and the company must have owned the property, for a period of not less than five years immediately preceding the date of the transfer. A certificate by the Commissioner for Inland Revenue confirming these factors must be issued in order for this exemption to apply.[14]
Values used in the calculation of Duty on Malta Property
The value ordinarily used in the calculation of duty is the average price that the immovable property would attract if it were to be sold on the open market on the date of the transfer.[15]
The only exception to this rule is in the case of a transfer by gratuitous title by a person to his spouse, descendants, and ascendants in the direct line, and their relative spouses, or, in the absence of descendants, to his brothers or sisters and their descendants. Another condition in this regard is that the transferees acquiring the property must have the intention of establishing therein, or constructing thereon, their sole, ordinary residence. Once all of these conditions are met, the rate of duty will be calculated on the basis of 80% of the market value of the land in addition to the costs to make the necessary improvements thereon, depending on the state they are in on the date of the transfer, if these improvements exist.
Where a share of an immovable property is acquired
Where an immovable property is not acquired in full ownership, the calculation of any reduced rate of duty up to an amount of € 150,000[16] is calculated in proportion to the share of the immovable property being acquired only.[17] This means that if half a share of an immovable property is acquired and the buyer is eligible for a reduced rate of duty, then the reduced rate will only extend to an amount of half of € 150,000, i.e. € 75,000.
[1] The Duty on Documents and Transfers Act (Chapter 364 of the Laws of Malta).
[2] Article 3(6) of the Duty on Documents and Transfers Act.
[3] Article 32(1) of the Duty on Documents and Transfers Act.
[4] Article 41 of the Duty on Documents and Transfers Act.
[5] This means that all Maltese or EU citizens who have resided in Malta for a continuous period of five years at any time preceding the relevant transaction would qualify for this reduced rate of duty.
[6] The Immovable Property (Acquisition by Non-Residents) Act (Chapter 246 of the Laws of Malta).
[7] Article 32(4)(a) of the Duty on Documents and Transfers Act and Rule 2(p) of the Exemption from payment of duty on documents and transfers order (S.L. 364.01).
[8] Article 32(4)(e) of the Duty on Documents and Transfers Act: For the purposes of the calculation of stamp duty, the term “residence” will “also include a garage attached to or underlying such residence or a garage situated in the same block of residential apartments of which the residence forms part or a garage of not more than 30 square metres situated within five hundred metres of such residence or block of apartments, where such garage has been acquired together with such residence on the same deed.”
[9] Article 32(4)(a) of the Duty on Documents and Transfers Act.
[10] Article 32C of the Duty on Documents and Transfers Act.
[11] Rule 3(2) of the Duty on Documents and Transfers Rules (S.L. 364.06).
[12] Article 32(3) of the Duty on Documents and Transfers Act.
[13] Article 32(6)(a) of the Duty on Documents and Transfers Act.
[14] Article 32(6)(c) of the Duty on Documents and Transfers Act.
[15] Rule 3(2) of the Duty on Documents and Transfers Rules (S.L. 364.06).
[16] Refer to Section 4 above.
[17] Article 32(4)(c) of the Duty on Documents and Transfer Act.
Introduction
Stamp duty in Malta is a transaction-based tax which is due upon the publication of a public deed which transfers immovable property from one party to another. Stamp duty is due by the person acquiring the property concerned and is regulated by the Malta Duty on Documents and Transfers Act.[1]
The law provides a default rate of duty applicable to most transactions, as well as lower, more equitable rates of duty ordinarily based on the close proximity of the relationship between the parties involved in the transfer. In certain cases, the law also exempts the person acquiring the immovable property from paying any duty at all.
Stamp duty is payable on the final deed of acquisition of the property. However, a promise of sale agreement is not valid unless a provisional payment equivalent to 1% of the tol stamp duty is paid to the Commissioner for Inland Revenue.[2]
Rates of Stamp Duty on Malta Property
Default Rates
The default rate of stamp duty amounts to 5% in cases of a transaction involving the transfer of any immovable property, or any real right over an immovable property.[3] Duty is calculated on the value of the consideration for the transfer of the immovable, or on the value of the immovable, whichever is the higher.
A contract of exchange, whereby one immovable property is exchanged for another, is deemed to constitute one transfer for the purposes of the calculation of stamp duty. As such, the duty is calculated on the basis of the higher amount of the values of the things transferred. However in the case where different rates apply due to the nature of the transferee and the thing transferred, the applicable duty to the contract of exchange is the higher amount of duty.[4]
Reduced Rates
A person who does not require a residence permit[5] in terms of the Immovable Property (Acquisition by Non-Residents) Act[6] is entitled to a reduced rate of 3.5% duty with regards to the first €150,000 of the value of the immovable property in question.[7] In order for a person to qualify for this default rate, the immovable property has to be acquired for the purpose of establishing therein or constructing thereon one’s sole, ordinary residence.[8] The reduced rate also applies in the case of the redemption of the ground rent or other burden imposed on the property.[9] The value in excess of the first €150,000 is subject to the default rate of 5% duty.
The reduced rate of 3.5% duty applies to the entire value of the property in the case where a person transfers immovable property by a gratuitous title to his descendants in the direct line acquiring the property for the purpose of establishing therein, or constructing thereon, their sole, ordinary residence. This rate will only apply if it is the first transfer by the person to his descendants for this purpose. Any subsequent transfers will be regulated by the default rate of 5% duty.[10] In this case it is important to note that the rate of duty will be calculated on the basis of 80% of the market value of the land in addition to the costs to make the improvements thereon, depending on the state they are in on the date of the transfer, if these improvements exist.[11]
Exemption from Duty on Malta Property
An exemption from stamp duty on the first € 150,000 of the purchase price applies where the purchase is first purchase of property worldwide and purchased for the purpose of establishing their sole ordinary residence. This exemption is valid until June 2015.
The assignment/transfer of immovable property between spouses who are married, or were formerly married, is exempt from the payment of any duty.[12]
Moreover it is important to note that where the Commissioner for Inland Revenue issues a certificate attesting to the fact that an immovable property is being transferred from one company to another, no duty is chargeable on the transfer if the companies form part of the same group of companies.[13] In the same manner, no duty is due in the case where a transfer of immovable property is effected between a company and its shareholder in the course of its winding up, or in accordance with a scheme of distribution, if the shareholder owns no less than 95% of the share capital and the voting rights of the company. The shareholder must have held this capacity, and the company must have owned the property, for a period of not less than five years immediately preceding the date of the transfer. A certificate by the Commissioner for Inland Revenue confirming these factors must be issued in order for this exemption to apply.[14]
Values used in the calculation of Duty on Malta Property
The value ordinarily used in the calculation of duty is the average price that the immovable property would attract if it were to be sold on the open market on the date of the transfer.[15]
The only exception to this rule is in the case of a transfer by gratuitous title by a person to his spouse, descendants, and ascendants in the direct line, and their relative spouses, or, in the absence of descendants, to his brothers or sisters and their descendants. Another condition in this regard is that the transferees acquiring the property must have the intention of establishing therein, or constructing thereon, their sole, ordinary residence. Once all of these conditions are met, the rate of duty will be calculated on the basis of 80% of the market value of the land in addition to the costs to make the necessary improvements thereon, depending on the state they are in on the date of the transfer, if these improvements exist.
Where a share of an immovable property is acquired
Where an immovable property is not acquired in full ownership, the calculation of any reduced rate of duty up to an amount of € 150,000[16] is calculated in proportion to the share of the immovable property being acquired only.[17] This means that if half a share of an immovable property is acquired and the buyer is eligible for a reduced rate of duty, then the reduced rate will only extend to an amount of half of € 150,000, i.e. € 75,000.
[1] The Duty on Documents and Transfers Act (Chapter 364 of the Laws of Malta).
[2] Article 3(6) of the Duty on Documents and Transfers Act.
[3] Article 32(1) of the Duty on Documents and Transfers Act.
[4] Article 41 of the Duty on Documents and Transfers Act.
[5] This means that all Maltese or EU citizens who have resided in Malta for a continuous period of five years at any time preceding the relevant transaction would qualify for this reduced rate of duty.
[6] The Immovable Property (Acquisition by Non-Residents) Act (Chapter 246 of the Laws of Malta).
[7] Article 32(4)(a) of the Duty on Documents and Transfers Act and Rule 2(p) of the Exemption from payment of duty on documents and transfers order (S.L. 364.01).
[8] Article 32(4)(e) of the Duty on Documents and Transfers Act: For the purposes of the calculation of stamp duty, the term “residence” will “also include a garage attached to or underlying such residence or a garage situated in the same block of residential apartments of which the residence forms part or a garage of not more than 30 square metres situated within five hundred metres of such residence or block of apartments, where such garage has been acquired together with such residence on the same deed.”
[9] Article 32(4)(a) of the Duty on Documents and Transfers Act.
[10] Article 32C of the Duty on Documents and Transfers Act.
[11] Rule 3(2) of the Duty on Documents and Transfers Rules (S.L. 364.06).
[12] Article 32(3) of the Duty on Documents and Transfers Act.
[13] Article 32(6)(a) of the Duty on Documents and Transfers Act.
[14] Article 32(6)(c) of the Duty on Documents and Transfers Act.
[15] Rule 3(2) of the Duty on Documents and Transfers Rules (S.L. 364.06).
[16] Refer to Section 4 above.
[17] Article 32(4)(c) of the Duty on Documents and Transfer Act.