Tax/Duty Schemes on transfers of immovable property - Amendments

Through Legal Notice 11 of 2022, certain amendments have been passed to three Tax / Duty Schemes introduced in November 2021 applicable on certain transfers of immovable property. These are namely transfers of old and vacant property, property located in an Urban Conservation Area (UCA) and transfers of property developed in accordance with approved criteria.

Hereunder is a summary of the Schemes as amended:

These schemes, effective from 12 October 2021*, provide an exemption from income tax and duty on the first €750,000 of the higher of the value and consideration of buildings which either;

• had their construction completed at least 20 years before the date of the transfer, are vacant on the transfer date and have been so vacant for a period of 7 continuous years immediately preceding transfer date; or
• are located in a UCA.

The incentives apply provided that:

• The conditions relating to completion and vacancy of the building are confirmed by an architect’s report and a report issued by ARMS Ltd [this being the company that manages water and electricity billing in Malta] and/or other evidence as may be determined by Commissioner for Revenue .
• All the prescribed documents and declarations are duly supplied.
• The UCA status is confirmed by a certificate issued by the Planning Authority and/or other evidence as may be determined by Commissioner for Revenue.
• At any point after the transfer but until the date when the property is transferred again inter vivos or causa mortis;
  • the building is neither demolished nor subjected to structural alterations or additions as a result of which it is divided into more transferable units than the number of transferable units that comprised the property at the time of the transfer. In addition, no permit for such demolition or works must be issued to the owner who benefited from the exemption.
  • no transfer is made of any divided part of the property.
• Should the latter conditions be breached within the said timeframe, the relevant tax and duty would become payable to the Revenue by the acquirer of the property at the time of relief, due on the date of the breach.
• When there is a transfer that benefitted from one of these schemes followed by a subsequent transfer of a divided part of the same property, the latter transfer cannot benefit from these schemes.

This measure, effective from 12 October 2021*, provides an exemption from duty on the first €750,000 of the higher of the value and consideration of a property that is developed subsequent to the date of the transfer in conformity with certain criteria, as approved by the competent authority. Such authority, comprising of a board or any other entity that will be designated for the purpose may publish guidelines relating to procedure, terms and conditions and architecture / design requirements.

The incentive operates as a refund scheme with the duty being refunded to the payor of the duty upon application and after fulfilment of all conditions.

The incentive applies provided that:

• The approval of the competent authority is filed with the Revenue within 3 months from the date of its issue together with any other required evidence.
• At any point after the transfer, but until the date when the property is transferred again inter vivos or causa mortis, the property is neither demolished nor subjected to structural alterations or additions as a result of material changes to the approved architectural design, nor divided into more transferable units, unless expressly allowed by the competent authority.
• Should the latter conditions be breached, the duty benefit would become refundable to the Revenue by the owner of the property at the time the approval was granted, due on the date of the breach.

For all three schemes:

• The transfer must be made by the end of 2024.
• When the transfer value is higher than €750,000, the excess is taxed and/or dutiable at the normal rates.
• The transfer must be one whereby the acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act or, if the property is situated in a Special Designated Area (‘SDA’), the acquirer would not have required such permit had the property been located in a non-SDA.
• The relevant notice of transfer is filed with the Revenue by not later than 31 January 2025.
• There shall be communication between Commissioner for Revenue, the Planning Authority and the competent authority in connection with properties benefiting from the schemes.

Additional provisions in the Rules cover, amongst others, intra-group transfers of properties falling within these schemes and the interaction of these schemes with other property schemes.

For further details on other immovable property measures, you may wish to refer to Tax and Duty Schemes on Transfer of Immovable Property.

The introduction of these three measures through LN461 of 2021 followed the announcement by the Minister for Finance and Employment during the 2022 Budget Speech of a ‘tax exemption on sale and purchase of property that is vacant, located in a UCA [Urban Conservation Area], or built in a traditional style’. ‘Guidelines on Income Tax and Stamp Duty Benefits on Certain Property Transfers - Budget 2022’ have later been published by the Commissioner for Revenue to explain the schemes.

^{* However, our understanding is that at least until the publication of LN11 on 25th January 2022 notaries had reservations on the manner the schemes were initially introduced last November. Indeed, in December 2021, the Maltese Notarial Council issued a directive to notaries not to apply the schemes until certain aspects thereof are clarified through legal amendments. It is presumed that the publication of LN11 in January 2022 is aimed at addressing such reservations and/or ironing out any shortcomings in the first version of the law.}