Buying Property in Malta: An Overview
Malta’s notoriety as the English speaking, friendly people, the sun-soaked island has in recent years received a huge boost. Thanks to its reaffirmation as one of Europe’s highly lucrative property investment propositions.
At a time when the European property market has witnessed a downturn, the Maltese realty market has earned itself an envied reputation. For being relatively stable with an excellent return on investment benefits.
In this article, we are reflecting on our previous blog post, ‘Buying property in Malta ’ with the intention of providing some guidelines for those of you who are still toying with the idea but are not quite sure how to go about it.
Possibly, much of this is due to the fact that immovable property in Malta is still favored by a legal system that does not impose a tax on ownership or wealth.
This has been the catalyst for attracting many foreigners to take up residence in Malta or the sister island of Gozo, described as the place where time stood still. Correctly investing in real estate ownership appreciates handsomely over the years.
Adding to the appealing fiscal conditions surrounding property ownership by foreigners in Malta, other factors, such as a new high-rise policy, have fueled further growth in the property sector.
Effectively, thanks to this new policy, additional development to existing buildings in specified areas in Malta have extended the return on investment possibilities to large-scale development owners amongst others.
Investing in a property is a practice which offers returns in the long run, if the investor spends his or her money prudently.
Where to buy in Malta? (Best Areas to buy Property in Malta)
When deciding on the Location of buying an investment property in Malta.
Think logically, and
Think of long-term profits.
No matter how much money you are willing to spend on purchasing property in Malta, you’ve got to make sure that it is located in a popular area, which will attract potential tenants.
The first major property investment is always a huge step in a person’s life. When searching for that perfect spot you need to consider your circumstances. For instance, if you are married and have children then keep in mind to search for a commercial district with a decent school, along with various amenities and hotspots; such as public gardens, shopping malls, supermarkets, restaurants and so on.
Malta may be a small island, but it is incredibly diverse, one side of the island may be completely different from the other.
Some of the most popular areas for buying property in Malta as a foreigner could be:
Valletta (The capital city of Malta)
They provide amazing sea views, are close to all essential amenities, benefit from great public transport and offer plenty of good schools to boot. Here apartments are common but it is also possible to get houses of character, villas or maisonettes.
Buying property in Gozo could also yield good returns in the longer run, with the price steadily rising. The purchase prices of the properties in these areas may be at the pricier end of the market.
The Benefits of Buying Property in Malta
You might think that living on a beautiful sun-soaked Mediterranean island is something only the very wealthy could afford. Not so in Malta.
The Maltese market has earned itself an envied reputation for being stable with an excellent return on investment benefits, especially when the European property market has witnessed a downturn.
This can be explained by the fact that immovable property in Malta still benefits from a legal system with no tax on ownership or wealth, attracting many foreigners to take up residence in Malta or Gozo.
In addition to the attractive fiscal conditions for property ownership by foreigners in Malta various components, such as a new high rise policy, have boosted further development in the property sector.
Effectively, additional expansion to existing buildings in specified areas in Malta has extended the return on investment possibilities. If you are a non-EU national, there is a minimum amount you must spend in order to obtain a permit to purchase the property.
An AIP (Acquisition of Immovable Property) permit is required from the Ministry of Finance and is normally granted within two months of application.
Conditions for Buying Immovable Property (by individuals)
Meanwhile, as a means of boosting the mobility of the property market and attracting to the islands’ further property investment. The Maltese government has come up with a number of measures that have charged up the market to higher levels, enhancing the prospects of a sound investment.
Buying a Property in Malta as an EU Resident
Effectively by virtue of having resided continuously on the island for a minimum period of 5 years, EU citizens are accorded the facility of acquiring immovable property in Malta without the need to apply for an AIP permit.
EU citizens who have not resided continuously in Malta for a minimum period of 5 years preceding the date of acquisition may still acquire their primary residence, or any immovable property required for their business activities, or supply of services, without an AIP permit.
Meanwhile, citizens of all European Union member states, who have not resided continuously in Malta for a minimum period of five years, require an AIP permit in order to acquire immovable property for secondary residence purposes.
Buying Property in Malta as a Non-EU Resident
Individuals who are not citizens of a European member state may still have the possibility of acquiring immovable property in Malta. Through the acquisition of an AIP permit if they intend to use the property as their primary residence.
A body of persons, other than a commercial partnership, established in, and operating from, an EU member state, may freely acquire immovable property that is required for the purpose for which it has been set up as long as its ultimate beneficial owners must be EU citizens.
A commercial partnership established in, and operating from, an EU member state (hence including Malta) may freely acquire immovable property that is required for the purpose for which it has been set up and at least 75% of its share capital is held by a person/s who is/are an EU member state citizen.
Any other body of persons will require a permit which is only granted if the property is being used for an industrial or touristic project or as a contributor to the development of the economy of Malta.
There are defined zones in Malta, referred to as specially designated areas, where there are absolutely no restrictions to acquire property.
These exclusive high-end zones include:
Fort Chambray, limits of Għajnsielem, Gozo; Madliena Village, Madliena; Portomaso Development, St Julians; SmartCity; San Lawrenz Kempinski Development, Gozo; Fort Cambridge, Sliema; Cottonera Development; Manoel Island/Tigne Point, Gżira and Sliema; Tas-Sellum Residence, limits of Mellieħa; Ta’ Monita Residence, Marsascala; Pender Place and Mercury House, St Julians; Metropolis Place Gżira; and Vista Point, Marsalforn, Gozo.
Malta Property Transfer Tax System
Reasons for luring foreigners to invest in property in Malta include the highly appealing tax rates imposed on the person transferring the property to the new buyer at the time of transfer, should one decide to sell the property.
In this regard, the term transfer includes any assignment or cession of any rights over property.
All transfers of Immovable Property situated in Malta, or rights thereon, are governed by the final tax regime under article 5A of the Income Tax Act.
By default, the rate of 8% final withholding tax is applicable on transfers of Immovable Property situated in Malta. This does not hold in the following situations, where different final withholding tax rates apply as shown in the following table:
Final Withholding Tax Rate
2% of the transfer value
Property transferred, which, immediately before the transfer was owned by an individual or two co-owners who had declared in the deed of acquisition that such property had been acquired for the purpose of establishing therein, or constructing thereon, his/her or their sole ordinary residence, and the transfer is made not later than three years from the date of acquisition.
5% of the transfer value
Where the property being transferred does not form part of a project, as defined, and the property is transferred within five years from the date of acquisition.
5% of the transfer value
Transfer of property situated in Valletta, which was acquired before 31 December 2018, and where such property has been restored and/or rehabilitated and works are certified by the Malta Environment and Planning Authority (MEPA) before the 31 December 2018. Such transfer must not be made more than five years from 31 December 2018.
7% of the transfer value
The restored property where a notice of promise of sale has not been given prior to 17 November 2014.
10% of the transfer value
Property acquired prior to 1 January 2004 and for which transfer a promise of sale has not been presented to the Commissioner of Revenue before 17 November 2014.
Transfer of inherited immovable property will remain subject to 12% final tax on the difference between the transfer value and the cost of acquisition (valuation of property for causa mortis deed), or 7% final tax on the consideration if inherited before 25 November 1992. 12% tax on the profits made also applies in the case of transfer of immovable property acquired through a donation where the transfer is made more than five years after the date of the donation.
Exemptions to Property Transfer Tax
Some transactions are exempt from being subject to property transfer tax.
Donations made by a person to certain family members, as defined, or to philanthropic institutions;
Transfer of property that had been owned and occupied by the transferee or, where this property was used as his/her principal residence throughout the period of three consecutive years immediately preceding the date of the transfer. This exemption will come into effect if the property is disposed of within twelve months from the date on which the seller has vacated the premises;
Assignment of property between spouses consequent to a judicial or consensual separation, or a divorce;
Assignment of property that formed part of the community of acquisitions between the spouses, or was otherwise owned in common between them;
Transfer of property from one company to another where the companies satisfy the conditions to be deemed as companies forming part of the same group; and
Transfer of property by a company to its shareholder in the course of its winding up, or in the course of a distribution of assets, provided certain conditions are satisfied.
Stamp Duty in Malta
Stamp duty at the rate of 5% of the value of the property is due by the buyer upon the acquisition of immovable property in Malta.
The acquisition of a person’s first residence is subject to a reduced rate of stamp duty at the rate of 3.5% on the first €150,000 of the price of the immovable property.
The price of property in excess of €150,000 is subject to stamp duty at the rate of 5%. The reduced rate of 3.5% on the first €150,000 is subject to the purchaser having the intention to establish within the property his/ her ordinary residence.
The reduction of stamp duty to 3.5% only applies to person/s who do not require an AIP permit as explained above.
Following recent amendments to the local tax legislation, upon the acquisition of property during 2019 for the purpose of establishing therein the sole ordinary residence of the buyer and where the buyer does not own any other immovable property anywhere else around the world, the first of €150,000 value of the property so acquired shall be exempt from stamp duty.
Following the Budget speech for 2018, the Minister for Finance has also announced that during 2018, a refund of up to €3,000 of stamp duty paid by a person acquiring their second home shall be granted as long as the acquirer does not own any other property and that the property which served as the first home has been disposed.
Another measure announced during the same speech was the reduction of stamp duty from 5% to 2% upon the acquisition of residential property in Gozo and the reduction of stamp duty from 5% to 2.5% upon the acquisition of property in an Urban Conservation Area.
Upon the acquisition of immovable property in Malta, stamp duty of 1% on the acquisition value of the property is payable upon signing the promise of sale agreement, and the balance is payable on the deed of purchase at the rate applicable.
All non-EU nationals have to pay 5% in stamp duty on the value stated in the final deed of sale.
What is the procedure to purchase immovable property in Malta?
After the buyer identifies the immovable property which they wish to purchase, they shall enter into a written agreement, referred to as a convenium, binding the buyer and the seller to effect the transfer of the chosen property. Following the signing of the convenium, notorial searches are conducted and the final deed of acquisition is signed within a stipulated time frame if searches are satisfactory.
If the buyer requires an AIP permit to acquire property in Malta, an application must be filed with the Ministry of Finance to issue such permit and the permit must be issued before the final deed of acquisition of property can be signed by the buyer and seller. To apply for the AIP permit, a copy of the convenium must be attached to the application form.
Renting Property in Malta
Renting a property in Malta is a straightforward and fast procedure. A rental agreement can be signed within a few days after all the aspects are agreed upon by lessor and lessee. Provided certain conditions are met, proceeds from the rental of immovable property in Malta may, at the taxpayers’ option, be taxed at a final tax rate of 15% on the gross rent receipts.
The rental of immovable property is generally considered as exempt without credit meaning that no VAT is chargeable on the lease of such property. Consequently, the lessor will not be able to claim any VAT on expenses incurred in maintaining such property. Similarly, no VAT applies on the transfer of immovable property.
Exceptions to this general rule, however, do exist, meaning that certain property leasing can be considered to be a taxable supply with credit. In such cases, the taxable person will be obliged to charge VAT according to the applicable rate and will be able to claim VAT on the expenses incurred in its upkeep and which are directly related to the leasing of the property.
These exceptions, amongst others, include:
Letting of, or the provision of, accommodation in any premises which, for the purpose of the said letting or accommodation is required to be licensed in virtue of the Malta Travel and Tourism Services Act. The chargeable VAT rate is 7%; and
Letting of immovable property by a limited liability company to another Article 10 tax-registered person where the property being leased is used for the economic activity of that registered person. VAT chargeable on such transaction will be 18%.