Introduction - Taxation on Profits from the Assignment of Promise of Sale Agreements
On the 12th of May 2020, a Legal Notice (Assignments of Rights Acquired under a Promise of Sale Agreement Rules, 2020) has been published, bringing into force another Budget Measure announced during the Budget speech for 2020. It is the change in the taxation of profits from the assignments of a promise of sale agreement relating to immovable property situated in Malta. As the name of the Legal Notice implies, the Rules issued, prescribe the method of taxation of such profits. Below you shall find the features of this new taxation system.
What makes an assignment of a promise of sale valid?
Only those assignments that are made by means of a written agreement, are signed by the assignor and the assignee and authenticated by a notary or an advocate, where notice thereof is given to the Commissioner for Revenue within 21 days from the agreement are considered valid, also provided that the tax due in accordance with these rules has been duly paid.
How are the profits from the assignment taxed in Malta?
As a general rule and also announced during the budget speech for 2020, as from 1st January 2020, proceeds derived from the valid assignment of rights on a promise of sale relating to immovable property, less allowable deductions, will be taxed at a final rate of 15% on the first €100,000. Proceeds over €100,000 will be taxed at the rate applicable to the assignor, subject to a provisional tax payment at 7%.
Tax on assignments where the consideration does not exceed one-hundred thousand Euro (€100,000).
When the consideration for an assignment does not exceed €100,000, the income derived from that assignment, being the consideration net of allowable deductions, shall be subject to tax at a final rate of 15%. Such tax constitutes a final tax and shall not be available as a credit against the tax liability of any other person or as a refund.
Tax on assignments where the consideration exceeds one-hundred thousand euro (€100,000).
When the consideration exceeds €100,000, the first €100,000 shall be subject to a final tax of 15% as mentioned above, with the remaining to be added up to that person’s / company’s chargeable income. The remaining will be subject to tax at the applicable rate accordingly (typically 35% in the case of companies and the progressive rates of tax for individuals). 7% provisional tax is still to be paid on the excess consideration less any allowable deductions.
In such a case, the allowable deductions are to be prorated between the first €100,000 and the excess.
What deductions are allowable?
The expenses which can be deducted against the consideration consist of (1) any brokerage fees in relation to the assignment being transferred and (2) any consideration paid by the assignor to acquire the promise of sale if the assignor had acquired the rights from another person.
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