Malta’s Duty on Documents and Transfers Act provides several schemes allowing for the reduction in duty on the acquisition of immovable property.
These are some schemes available:
• The First-time buyer scheme
• The Second-time buyer scheme
• The Gozo Property Scheme
• The Urban Conservation Area Property Scheme
• The Transfer of Family Business Scheme
Additionally, currently both sellers and buyers can benefit from the COVID-19 measure providing for a reduced tax and duty rate of 5% and 1.5% respectively on the first €400,000 of immovable property transferred inter vivos.
This scheme was initially part of Government’s Economic Recovery Plan for Malta, pursuant to the COVID-19 pandemic, and became effective on 9 June 2020 through Legal Notices 240 and 241 of 2020. It was extended in June this year following the recommendation of Malta Developers Association chairman Sandro Chetcuti.
First-time buyer scheme
Residential property purchased by first-time buyers until the end of 2021, is excempt from duty on the first €200,000), or on a pro-rata portion in case of co-acquisition, of the aggregate value of the consideration paid for the acquisition of such immovable property. The scheme applies also to buyers of residential property even if they had previously acquired inter vivos an undivided share of immovable property representing less than 25% of the real value of the whole of such property.
Second-time buyer scheme
Individuals who, by 31 December 2021, replace their sole residential property with another within 12 months from vacating the first will be refunded the duty on the first €86,000, or the pro-rata portion in case of co-acquisition, of the value of the replacement property.
Residential property in Gozo
Individuals who acquire residential property situated in Gozo by the end of 2021, including a garage as defined, or land on which only one residential unit is to be built, will also benefit.
Under this incentive reduces the rate of duty is reduced from the standard 5% to 2% on the higher of the consideration or value of the property. This scheme applies if:
• The final deed is notified to the Revenue by 28 February 2022
• The buyer does not benefit from the part-exemption from duty available on the gratuitous transfer of property to descendants in the direct line for the purposes of establishing one’s sole ordinary residence
• The acquisition is not made in the course of a trade or business or for the purpose of demolition and construction of more than one unit
Urban Conservation Area (UCA) Property Scheme
Individuals who acquire residential property situated within a UCA or a property that is scheduled by the Planning Authority by the end of 31 December 2021, will benefit from a reduced rate of duty from the standard 5% to 2.5% on the higher of the consideration or value of the property.
This does not apply in case of illegal development of the property or if the property is not regenerated according to the characteristics of the area or restoration of the said property.
Transfer of Family Business Scheme
Under this scheme, duty on the transfer of company shares and commercial tenements in intra-family donations is reduced from 2% or 5% to 1.5% on the real value. This applies until the extended date of 31 December 2021, provided that the relevant notice is filed with the Revenue by the same date.
COVID-19 temporary reduction in tax and duty on the transfer of immovable property
On the part of the purchaser of immovable property in Malta, the scheme provides that the duty rate chargeable will be calculated at 1.5% on the first €400,000 of the higher of the consideration and the market value of such property, with the remaining duty being calculated at the applicable duty rate (normally 5% unless qualifying for some other reduced rate). On the part of the transferor of the immovable property, where the transfer would otherwise have been subject to tax at 8% or 10%, the rate of final property tax is reduced to 5% on the same first €400,000, with the excess value taxable at the standard applicable rate.
The measure applies on transfers made by 31 December 2021 or on transfers made until 30 June 2022 where, in the latter case, a promise of sale or promise of transfer agreement is entered into by 31 December 2021. Standard procedures apply for the payment of the tax by the notary publishing the promise of sale or deed of transfer. The duty reduction applies provided that:
• The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.
• If the property is situated in a special designated area (‘SDA’), the acquirer would not have required a permit in terms of the Immovable Property (Acquisitions by Non-Residents) Act had the property been located in a non-SDA.
• The reduced rate of duty is not applied in conjunction with the exemption under Article 32C of the Duty on Documents and Transfers Act on the same transfer, applicable to donations of immovable property by a person to his descendants in the direct line for the purpose of the donee establishing therein or constructing thereon, his sole ordinary residence.
DATA: KPMG MALTA
This article originally appeared in Property Malta Supplement 02 published with the Malta Today on Sunday newspaper on 29 August 2021
