Buying and selling a property in Malta comes with both its unique opportunities and challenges. Malta’s climate, rich history and Mediterranean surroundings make the country an attractive destination for both foreigners and locals to invest in property. Different intricacies come with buying or selling a property here in Malta, such as legal considerations and essential steps that need to be taken. Whether you are a first-time buyer looking for your dream home or a property enthusiast looking to invest this article will help you with the ins and outs of buying and selling property in Malta and the property tax that comes with it.

Buying or selling a property in Malta

The process of buying and selling in Malta might sound tedious and lengthy, but all laws at hand are there to protect both the seller and the buyer. When buying or selling a property you can expect to come across different tax duties and processes.

The Process

The seller and the buyer may choose an estate agent to either help them find a property or help them sell their property. If you are the buyer, once you have chosen the property and a deal is agreed upon, you must appoint a Notary who will accompany you throughout the whole journey of buying your property. The notary fee incurred is 1% to 3% of the price of the property. The process starts with the signing of a Promise of Sale also known as “Konvenju” where the notary reviews the preliminary contract to ensure that it complies with law and has all the essential terms and conditions. When buying a property, the purchaser needs to pay 20% stamp duty or 1% if you are a first-time buyer. At this stage, a provisional stamp duty of 1% is paid by the purchaser. This stamp duty is based on the market price or transfer value that is written on the contract, whichever is higher.

Once the payment of the provisional stamp duty is received by the Capital Transfer Duty, a receipt will be sent to the taxpayer confirming that the notary has submitted the promise of sale to the Office of the Commissioner for Revenue.

The notary publishing the deed, when signing the promise of sale must submit a number of different documents including any site plans of the property being transferred, a copy of the public registry note, the stamp duty payment that is due by the buyer, the capital gains tax payment that is due by the seller and a Schedule 8 form that outlines the physical attributes of the property being transferred.

Once all the searches and requirements are done by the Notary, if you are getting a loan and buying through a bank, the bank will need to fill in a Form A which is finalised once the bank sends their own architect to ensure that the property is legal and the amount borrowing is realistic, you have purchased life insurance and property insurance.  As soon as Form A has been sent to the notary the appointment to sign the contract to transfer the property to the buyer can be made.

Taxes paid by the Buyer.

Stamp duty is a property tax that is transaction-based and is only paid on the deed from one person to the other. As previously explained the amount is calculated on the value considered for the property or the market value, whichever is higher. The flat rate of stamp duty is that of 5%, with 1% payable in the promise of the sale deed.

There are certain criteria where the buyer is exempted from paying stamp duty. First-time buyers are eligible to a reduction in stamp duty and no stamp duty is due on the first €200,000 of the property price.

In the case of inheriting a property Causa Mortis, the basic duty will be that of 5% of the market value as of the date of death, but if the person involved is already residing in the property, then a reduced rate of 3.5% is set on the first €175,000. There is no stamp duty when a spouse inherits the property or when the children inherit the property from their parents and are using it as their primary residence.

Another incentive is when it comes to individuals registered on the Register of persons with Disabilities and who benefit from assistance. These individuals will owe stamp duty on the first 150,000 of the replacement property refunded to them.

Capital Gains Tax

Capital gains tax, which when selling a property is referred to as Property Transfer Tax (PTT) is the tax amount that a seller needs to pay. This tax is not applicable to any profits made however it is based on the transaction cost. The PTT is set at a flat rate of 8% of the transfer value. In the case of properties acquired prior to January 2004, a 10% rate is applicable.

If the property is sold within five years of its purchase the tax will be reduced to 5%. PTT is not charged when the property has been the owner’s own residence for at least 3 years and has been disposed of within a year of vacating the property.

In the case of property acquired through inheritance, the tax is of 12% on the difference between the transfer value and that of the acquisition value as seen on the deed of the Causa Mortis.

Property tax when Renting

The landlord will always be the person paying tax when renting his property. The landlord has two options to choose from when renting his property in Malta. The landlord can choose to pay a flat rate of 15% on gross rent income. This would be a final rate, where the rental income does need to be declared in the annual income tax return. They also have the option to declare the rental income on their tax return and be subject to taxation based on the relevant portions, following a progressive tax rate established by the government.