|
Procedures
for buying property in Malta The
procedure for completing a property purchase in Malta is simple. On
finding the right property and agreeing on a price, the buyer and seller
sign a preliminary agreement binding the vendor to sell and the
purchaser to acquire the property in Malta on the terms and conditions
agreed upon and subject to good title and the issue of all relative
permits. Conditions for Non Maltese Non-Maltese Residents may purchase one property in Malta for a holiday home or permanent residence. The main conditions which apply for purchase are:
* Note: When purchased for permanent residence purposes the property must not be valued at less than Lm50,000 or Lm30,000 in the case of a flat. How Non-Maltese could obtain a Permanent Residence permit ConditionsIncome Qualifications
Annual Income To Be Remitted To Malta
Acquisition Of Property
Activity Clause
Concessions Income Tax
Exemption From Customs Duty
Repatriation Of Capital And Income
Death Duties
The main expenses payable on the completion of contract are as follows:
More info on the following can be found in the article below Car
Imports
* Information
about the Economic and Financial A Very detailed report on Malta's Economy
Residence and Domicile in Malta and Gozo.
Section 4(1) of the Income Tax Act lays down the
imposition of income tax, that is who and what is subject to tax. This
section lays down the principle that everyone is subject to tax, however
a proviso to this section restricts the imposition of income tax by the
notions of domicile and residence. A resident in Malta, when applied to an individual
means an individual who resides in Malta except for such temporary
absences as to the Commissioner of Inland Revenue may seem reasonable
and not inconsistent with the claim of such individual to be resident in
Malta. Residence in a foreign country does not establish non-residence
in Malta since it is possible to be resident in more than one country at
the same time. A person physically present in Malta for 183 days (not
necessarily consecutive) in a tax year is generally considered to be
resident in that particular year, irrespective of such person’s
nationality. Unlike residence, the concept of domicile is not
defined in the statute, and in practice Malta has adopted the English
definition of domicile. Individuals are normally regarded as domiciled
in the country that they regard as a permanent home and to which they
intend to return one day. An individual cannot have more than one
residence at any time, and changing domicile is not easy. The domicile
of origin is acquired at birth and is the strongest type of origin an
individual can have. A domicile of choice may replace the domicile of
origin if an individual has spent extensive time in another country and
it can be proved that such individual has the intention to live and
settle permanently in that country. In certain circumstances domicile by
operation of the law may come into existence. An individual who is both resident and domiciled in Malta is subject to tax on a worldwide basis, that is on income and capital gains arising in Malta or abroad whether received in Malta or not. An individual who is either resident in Malta or domiciled in Malta, but not both, is subject to tax on income arising in Malta, on income arising abroad but received in Malta, and on capital gains arising in Malta. Individuals who are neither resident nor domiciled in Malta are subject to tax on income and capital gains arising in Malta only. Permanent
Residency
As an alternative to the permanent residency scheme, individuals may obtain an extended tourist permit to enable them to stay in Malta for a longer period than the three months allowed by law for a tourist to stay in Malta. This permit is renewable at fixed periods (presently 6 months/yearly) by the Principal Immigration Office. Persons who stay for a period exceeding 3 months are required to show proof that their income will enable them to live in Malta without becoming a financial burden on the Government. Generally, temporary residents are subject to local tax conditions only if their stay exceeds an aggregate of 182 days in one calendar year. They are subject to tax only on remittance to Malta emanating from income, since remittances of a capital nature do not attract tax. Rates of tax applicable to Temporary Residents on remittance emanating from income: Employment
of Expatriates Permanent Residents
Permanent residence is a scheme given to foreigners
wishing to retire, settle, or stay indefinitely in Malta. To fall under
the permanent residence scheme, such persons must fulfill the following
conditions: The permanent resident must have a proven net
worldwide capital of Lm150,000, or an annual income of Lm10,000. This
capital does not have to be brought into the country. An applicant for permanent residency must either
own a residence valued at not less than Lm50,000 for a house or Lm30,000
for an apartment. Alternatively the permanent resident may lease or rent
immovable property at not less than Lm1800 per annum. The permanent resident must produce a certificate
of conduct from their last place of residence. The permanent resident may not work or otherwise
engage in business in Malta. The minimum annual income to be remitted to Malta
is Lm6000 per person plus Lm1000 for each dependant. Permanent residents are taxed at a rate of 15% (the first Lm2500 is tax free in the case of a married person, and the first Lm1800 is tax free in the case of a single person) on all income received or remitted to Malta, whether from foreign or Maltese sources, subject to a minimum amount of Lm1000 after allowing for any double taxation relief which the permanent resident may be entitled to. DEPARTURE
TAX SEVERE DISABILITY PENSION The existing measure whereby
when two disabled people receiving this pension marry, will not lose
their right to this pension, is now being extended to cases when one
disabled person marries a non disabled person. In this case the
disability pension shall not be lost for the first five years of their
marriage. WIDOW / WIDOWER PENSION With effect from 1 January 2007
the right to receive this pension shall be extended to those who earn
more than the minimum wage as well as to those who re-marry for the
first five years of their marriage. Regarding Sales of
Property Documentary evidence, satisfactory to the Ministry
of Finance, must be produced prior to the signing of the final deed of
sale, showing that the funds used for the acquisition of property have
originated from an external source. Once an applicant has purchased a property in Malta
and wishes to acquire another one after having sold the first one, he
may do so after obtaining permission from the Ministry of Finance.
Applications for permission to acquire another property are normally
considered. Permission will be granted only if the first property being
sold. Moreover, any association or other body of persons,
whether corporate or not, is also considered to be a non-resident if
constituted in a foreign country or has its principal place of residence
or business abroad. This also applies if 25% of its share capital is
owned by non-residents or is directly or indirectly controlled by
non-resident.
Temporary Residents Temporary residents are persons residing in Malta
for some temporary purpose only and not with the intent to establish
residence in Malta. Temporary residents must not have resided in Malta
at one or more times for a period equal to six months. Temporary residents are not liable to tax on any
income arising outside Malta. Temporary residents and individuals who
are not ordinarily residents in Malta but have earned income from Malta
are taxed at the normal rates applicable to individuals who are
ordinarily resident and domiciled in Malta. Foreigners holding a work
permit in Malta are subject to tax on income arising in Malta and on
income remitted from abroad. Expatriates All expatriates working in Malta are taxed at the
normal rates of tax with the exception of those working with qualifying
companies, which benefit from the incentives contemplated under the
Industrial Development Act. Investment services and insurance
expatriates, although taxed at the normal rates of tax are granted
special allowances and deductions. Expatriates employed by companies qualifying under
the Industrial Development Act may qualify for a maximum tax rate of 30%
on their taxable income provided that the tax is not less than Lm1000
per annum. Expatriates employed by investment services
companies or by insurance companies are liable to tax at the normal
rates up to a maximum of 35%. However for the first ten years from
taking up employment, a number of reimbursement of expenses, allowances
and benefits in kind are not liable to income tax. These are: 1.
removal costs in respect of relocation to or from
Malta 2.
accommodation expenses incurred in Malta 3.
travel costs in respect of visits by the expatriate
and his family to or from Malta 4.
provision of a car for the use of the expatriate in
Malta 5.
a subvention of not more than Lm250 per calendar
month 6.
medical expenses and medical insurance 7.
school fees incurred for the children of the
expatriate
To date, Malta has signed tax treaties with almost all countries in
Western Europe, Canada and Australia. These agreements enable residents
in Malta to either obtain an exemption from tax on certain income in the
country from where that income originates or obtain tax relief in Malta. Returned Migrants An individual born in Malta who, after emigrating
has returned as a resident in Malta after the 1st of January 1988, is
charged to tax at the normal rates. However he may opt to be taxed at
the rates applicable to permanent residents on all his income except
employment income and income from any trade, business, profession or
vocation. The minimum tax liability if the latter option is availed of
shall be Lm1000 after allowing for any double taxation relief that such
individual may be entitled to. The above is only applicable to individuals who
satisfy certain conditions, namely period of residence outside Malta,
income remitted to Malta and other conditions applicable to permanent
residents.
Main
Taxes in Malta The principal direct taxes currently in force are income tax, inheritance tax (pre 1992 - 7%), Property Sale tax @ 12% and inheritance tax (stamp duty 5% with some exception see Property acquired by inheritance). The principal indirect taxes currently in force are
Value Added Tax (VAT) at 18% from 1st January 2004, customs and excise duties, and stamp duties. Income Tax in Malta In Malta income tax legislation is embodied in the
Income Tax Act, the Income Tax Management Act, the Industrial
Development Act and several tax treaties eliminating the incidence of
double taxation, which Malta has concluded with various foreign
countries. The Income Tax Act of 1948 is regarded to be the principal
source of income tax legislation. This act has undergone considerable
amendments throughout the years but none the less retains its foremost
importance of establishing: 1.
What
is taxable? 2.
How
much is taxable? 3.
Who
is taxable? 4.
When
is a person taxable? 5.
At
what rates? On the other hand, the Income Tax Management Act
contains the mechanics and procedures that enable the relevant
authorities to determine, collect and enforce income tax. The
Commissioner of Inland Revenue (CIR) administers the tax system through
the Inland Revenue Department (IRD), which forms part of the Ministry of
Finance. New legislation, or proposals to amend existing
legislation must be approved by parliament. Parliament amends the Income
Tax Act regularly to give legislative effect to the Government’s
budget proposals. Case law plays an important role in the interpretation
of tax law. Since Malta’s tax legislation is originally based on the
English legal system, cases decided in the United Kingdom and other
Commonwealth countries have persuasive authority. Income Tax
Administration The administration of income tax in Malta is vested
in the Commissioner of Inland Revenue, with powers of delegation to
officers of the Inland Revenue Department or any other persons who may
be authorised by him to carry out certain duties. In addition specific
duties are placed upon the Commissioner of Inland Revenue in connection
with issues such as returns, raising assessments, and dealing with
objections. For the purpose of hearing appeals, an administrative
tribunal was established, known as the Board of Special Commissioners. Tax Year The tax year for individuals and other bodies of
persons, excluding companies, is the calendar year. In the case of
companies, permission may be granted for companies to change their
accounting yearend and close their accounts in a month other then
December. Permission has also to be requested for a company to prepare
its accounts for a period exceeding twelve months, even if December
continues to be the year end. Filing of Returns Companies have to submit their tax return,
together with audited financial statements for the relative basis
year, within nine months from a company’s accounting date or no the 31st
of March of the following year, whichever is the later. Therefore if a
company’s accounting date fell on the 30th of June on
earlier, the tax return should be submitted by the 31st of
March of the following year. On the other hand, if a company’s
accounting date fell between the 1st of July and the 31st
of December, the tax return date is as follows:
Individuals and other bodies (excluding companies)
have to submit their income tax returns by the 30th of June
of each year. Together with the income tax return, individuals are
required to submit any other documents and attachments which are
necessary for the Commissioner of Inland Revenue to ascertain the
chargeable income. Certain individuals are eligible to file a simple
declaration rather than the normal income tax return. The declaration is
to be submitted to the Inland Revenue Department by the 30th
of April. Self Assessment (Example: from year of
assessment 1999) Tax Payments Final Settlement System A system of provisional tax is in place whereby
companies, self-employed persons and other bodies of persons pay
provisional tax in three installments. The provisional tax payment is
calculated as a percentage of the tax due in the benchmark year of
assessment. The benchmark year of assessment is the last year of
assessment in respect of which a tax return was due to be submitted to
the Commissioner of Inland Revenue before the commencement of the
calendar year in which the first provisional tax payment for the basis
period falls due. Payments are spread over three installments as
follows:
The tax payable as per benchmark year of
assessment, upon which the provisional tax payments are to be calculated
should exclude provisional tax on capital gains, tax at source on
dividends received and Final Settlement System on employment income, but
should include provisional tax paid on account for the benchmark year of
assessment in accordance with provisional tax rules. During the first
year of operation, no provisional tax is to be paid. Provisional tax payments fall due on 30th
April, 31st August and 21st December. Any balance
is to be paid when the income tax return is submitted. The date on which
the first provisional tax payment for a basis period falls due is that
date which comes first during that basis period and the order of the
other provisional tax payments are regulated accordingly: Provisional tax amounts are calculated by the
Inland Revenue Department, and statements are sent to provisional tax
payers. A provisional tax payer may request a reduction in the
provisional tax payable if he feels that the amount resulting from the
calculation of his provisional tax exceeds the total tax payable by him
for the current year. A provisional tax reduction form may be obtained
from the Inland Revenue Department. The provisional tax installment due
would be the lower of the payment due in accordance with provisional tax
rules, and the total estimated tax excluding any provisional tax
payments already made. Assessments, Objections
and Appeals Penalties If the tax return is submitted up to six months
late an additional tax of Lm20 is imposed. If the return is more than
six months late the additional tax is increased to 1% of the total tax
per month, with a minimum of Lm5 per month. On provisional tax payments, additional tax of 1%
per month is due on late payments. Additional tax is also due where the
provisional tax payer opted to pay a lower amount and then results from
the self assessment that there was an under estimation of tax so that
more provisional tax should have been paid. Taxation of Individuals Taxation of Residents With effect from the year of assessment 2007, the
following tax rates shall apply for Maltese residents: Table 1: Married persons
Table 2: Single persons
and/or married persons opting for a separate computation
The table above is for reference only, please check http://www.ird.gov.mt/services/taxrates.aspx The income of married persons is charged at the
rates laid down in table 1. Income tax is charged in the name of the
responsible spouse, which is chosen by the spouses themselves or by the
Commissioner of Inland Revenue. The tax return is signed either by both
spouses or by one of the spouses. However both spouses are jointly and
severally responsible. Married persons may opt to be taxed separately at
the rates laid down in table 2, if both the husband and wife earn income
which is chargeable to tax, and which is derived from trade, business,
profession, vocation, employment, office or pension. Other income such
as interest, dividends, and rents must be added to the income of the
spouse with the highest earned income. Single and separated persons are taxed at the rates
laid down in table 2. However when a single parent maintains a child,
and is not in receipt of any financial assistance from the other parent,
and is not living or residing at the same house with the other parent,
such person may opt for a married computation. Non-residents Non-residents are charged at the following rates:
Other Individuals
Income subject to Tax As a general principle, income is taxable whereas
capital is not, and all expenses of an income nature are deductible
whereas all expenses of a capital nature are not. However certain
exceptions exist. For example certain types of income are exempt from
tax, whereas certain capital gains are taxable. The Income Tax Act lists
various sources of income but the term income is not defined in the Act.
Section 4(1) of the Income Tax Act lists the types of income that are
taxable and refers to section 5 for gains of a capital nature that are
taxable. Once it is ascertained that the income of an
individual or entity is subject to tax in Malta, it is necessary to
calculate the chargeable income, that consists of the aggregate amount
of the income from all sources after omitting exempt items and deducting
allowable expenses. Income from Employment or Office Income tax is charged on earnings from employment
or office. No deductions are allowed against employment income. The
gross amount of income (inclusive of national insurance contributions)
earned from full time employment, and from part time employment, which
has not been subject to final withholding tax of 15%, is taxed at the
normal income tax rates. Business Income Business income includes any gains or profits from
trade, business, profession, or vocation, including the profit arising
from the sale of any property acquired by any individual for the purpose
of profit-making by sale, or from the carrying on or carrying out of any
profit-making undertaking or scheme. Business income is taxed very
similarly to the income of companies. Trading profits are calculated in accordance with
generally accepted accounting principles, and such profits are adjusted
to arrive at the chargeable income. For expenses and
outgoings to be deductible for tax purposes, they must be wholly and
exclusively incurred in the production of the income to which they are
related including repairs and maintenance, bad debts, rent paid on land
and buildings, interest on borrowed money and capital allowances
(initial and wear and tear). The Income Tax Act also lists down
non-deductible expenses. Expenses and outgoings, which are not deductible,
include: 1.
expenses not incurred in the production of the
income 2.
domestic or private expenses, other than alimony
payments 3.
expenses of a capital purpose 4.
costs of any improvements, alterations, additions
and extensions to assets 5.
losses or expenses which are recoverable under any
insurance 6.
donations and other payments of a voluntary nature 7.
amortisation of goodwill 8.
provisions 9.
bad debts arising from loans 10.
legal and professional fees connected with income
tax appeals 11.
stamp duties on share transfers, increase in
authorised share capital, etc 12.
pre-trading expenses Where the capital allowances for a particular year
exceed income from trade, business, profession or vocation, such
unabsorbed capital allowances may be carried forward to be offset
against future income from the same source. Losses from trade, business, profession or vocation can
be offset against income from other sources and against capital gains.
Any unabsorbed trade losses can also be carried forward unlimitedly to
be offset against future income or capital gains. Upon dissolution any
unabsorbed losses are lost. Losses incurred outside Malta that if they
had been profits had been retained outside Malta, and so would not have
been charged to tax in Malta, are not deductible for taxation purposes. Income from Rent If rental income is considered as an investment income
rather than trading income, interest, licence fees, rents and ground
rents payable may be deducted from such income if incurred in the
production of the income. An additional 20% maintenance allowance,
calculated on the difference between rents receivable less licence fees,
rents and ground rents payable, may also be taken. Investment Income Investment income includes:
1.
bank interest 2.
interest, discounts or premiums payable by the
Government of Malta 3.
interest, discounts or premiums payable by a
corporation or authority established by law 4.
interest, discounts or premiums payable in respect
of a public issue in Malta by a company, entity or other legal person
whether resident in Malta or otherwise 5.
capital gains arising on the disposal of shares or
units in a collective investment scheme licensed under the Investment
Services Act, where the collective investment scheme redeems, liquidates
or cancels such shares or units Resident individuals may opt to pay a 15% final
withholding tax on investment income. This may be treated as a final tax
at the recipient’s option, and need not be disclosed in his personal
income tax return. However the recipient may declare such investment
income, and be taxed at the normal tax rates. The recipient of investment income may inform the payor
not to withhold tax. If so, the recipient has to declare the investment
income in his personal tax return and so be charged at the normal tax
rates. Income from Dividends The Income Tax Act does not define the term
dividend. However the Act includes the following as being dividends: Bonus shares any distributions made by a Partnership en
Commandite, the capital of which is divided into shares, or by a
Partnership Anonyme, to its partners or shareholders, respectively, and
any amount credited to them as partners or shareholders any distribution made by a co-operative society to
its members and any amount credited to them as members, including any
patronage refund, bonus certificate or bonus share, made, paid or
allotted The Income Tax Act provides for the taxation of
gross dividends received by the shareholder, but full credit of the tax
paid by the company is given to the shareholder against his personal tax
liability. This is known as the full imputation system. A Company may distribute profits that were not
subject to tax. Under such circumstances, 15% tax has to be paid at
source. If a company distributes profits that were taxed at a rate less
than 35%, it must deduct a further topping up tax to arrive at 35%. Then
the shareholder is able to claim the whole 35%. If on the other hand a
company distributes profits that were taxed at a rate higher than 35%,
the shareholder can claim tax at source at the higher rate and not at
35%. Other Income The Income Tax Act also mentions the following
as being income: 1.
pensions, charges, annuities or annual payments 2.
royalties, premiums and any other profits arising
from property 3.
other gains or profits, provided that: 4.
in the case of income arising outside Malta to a
person who is not ordinarily resident in Malta or not domiciled in
Malta, the tax shall be payable on the amount received in Malta. 5.
no tax shall be payable on capital gains arising
outside Malta to a person who is not ordinarily resident in Malta or not
domiciled in Malta or to a person who is charged to tax at the rate of
fifteen cents in the lira. 6.
in the case of any person who is charged to tax at
the rate of fifteen cents in the lira, the tax shall be payable only on
any income or capital gains arising in Malta and on any amount of income
arising outside Malta and received in Malta. Property tax From Nov 2005, tax calculation on inherited property acquired before 25 November 1992, is calculated a7%. Property inherited after 1992 will taxed at a flat rate of 12%. All other acquisition of property is taxed at 12%
on the selling price. Some exceptions apply. Transfers subject to Capital Gains
Tax Capital gains are the profits derived from the
transfer of the ownership or usufruct, or the assignment or cession of
any rights over: 1.
securities 2.
business goodwill 3.
copyright 4.
patents 5.
trademarks 6.
trade names Definition of Transfer Transfer includes any assignment, sale, emphyteusis,
sub-emphyteusis, partition, donation, sale by installments, and any
alienation under any title, but does not include a transfer causa
mortis. However no tax is payable where the donation is made by a person
to: his spouse, descendants and ascendants in the
direct line and their relative spouses in the absence of descendants to his brothers or
sisters and their descendants approved philanthropic institutions. Exemptions The law contemplates various exemptions from
capital gains, the most important being: 1.
immovable property which had been owned and
occupied as the transferor’s own residence for a period of at least
three years; 2.
immovable property assigned between spouses
consequent to a separation (UNDER REVIEW); 3.
immovable property forming part of the community of
acquests between the spouses and is assigned to one of the spouses on
the dissolution of the community of acquests, or is partitioned between
the spouses , or the surviving spouse and the heirs of the deceased
spouse; 4.
immovable property assigned on emphyteusis for
fifty years or less; 5.
transfer of immovable property between groups of
companies; 6.
transfer of Malta Government bonds or stocks; 7.
transfer of listed securities of quoted companies
on the Malta Stock Exchange; Property acquired by inheritance
With
effect from 24 November 2003, sales of property acquired through
inheritance shall be taxable as all other property.
The value to be taken in the calculation of profit shall be the
value declared in the inheritance.
However sales of property acquired through inheritance before 25 November 1992
(the date when succession duties were removed) shall be taxed at a flat
rate of 7% of the selling price.
From 2007 - When an individual inherits property which was the residence of the individual from whom the property was inherited, the first Lm10,000 was exempt from stamp duty. This figure is being increased to Lm15,000. Furthermore, if the individual inheriting the property lived with the individual from whom the property was inherited, 3.5% rather than 5% stamp duty was paid on the second Lm10,000. This figure is being increased to Lm15,000. On the other hand when an individual lives in the property inherited but not the individual from whom the property was inherited, 3.5% rather than 5% stamp duty was paid on the first Lm20,000. This figure is being increased to Lm30,000. Immovable Property In ascertaining the amount of capital gains in
respect of transfers of immovable property, the following may be
deducted from the actual sales proceeds: Expenses
connected with the acquisition of property:
|