Through the publication on 12 May 2020 of Legal Notice 191, new tax rules entitled ‘Assignments of Rights Acquired under a Promise of Sale Agreement Rules, 2020’ have been enacted. As their name suggests, the Rules prescribe the income tax treatment of profits derived upon the assignment of rights on a promise of sale agreement relating to immovable property situated in Malta.  The new Rules follow the announcement made on the matter by the Minister of Finance in his last Budget in October 2019, the publication of a notice on the Revenue’s website in January 2020 and an amendment that has been passed in March 2020 to the Income Tax Act empowering the Minister to publish rules. 

In terms of the new Rules, as from 1 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%. 

Valid assignments of promise of sale agreements are those made in writing, signed by the assignor and assignee and authenticated by a notary/advocate, notified to the Commissioner for Revenue through a notice of assignment within 21 days from the agreement and in respect of which tax is paid according to the new Rules.

When the proceeds exceed €100,000, the allowable deductions against the first €100,000 and against the remaining proceeds shall be calculated pro-rata. 

On the first €100,000 proceeds, or part thereof in the case when the proceeds are less than €100,000, tax at 15% shall be withheld on the proceeds less deductions (prorated where applicable). The 15% tax is final and shall not be available as a credit against the tax liability of any person or as a refund.

On the remaining proceeds in excess of €100,000, the profits, i.e. after deducting the proportion of allowable deductions, shall form part of the assignor’s chargeable income for the year of assessment in question and shall be subject to tax at the standard rate applicable to the assignor (typically 35% in case of companies and the applicable progressive rates of tax in the case of individuals). 7% provisional tax shall be paid on the profits. The provisional tax will be refundable to the assignor if the absolute tax due by the assignor for the relevant year as computed in their tax return is less than the 7% provisional tax paid.

Both the 15% final tax and the 7% provisional tax shall be paid by the assignor to the notary/advocate who authenticates the agreement, who in turn shall remit the tax to the Revenue within 21 days of the relative assignment. 

The allowable deductions are brokerage fees and, where the assignor was not a party to the promise of sale in question but had acquired their rights from another person in terms of a previous valid assignment, the consideration, if any, which they may have paid to that other person for the acquisition of those rights in terms of that previous assignment. Such deductions are allowable provided that they are backed up by the relevant documentation as prescribed by the Rules. 

The new Rules further include provisions related to records to be kept, right of objection and appeal, anti-abuse, the computation of the consideration in cases when the assignment is made by/to persons conjointly, in undivided parts or in more than one transaction by the same parties and consequential amendments to the Capital Gains Rules and to the Tax on Property Transfers Rules.