Tax and Duty Schemes on the Transfer of Immovable Property

Several schemes allowing for the reduction in tax and/or duty on the acquisition of immovable property are provided for in the Income Tax Act and Duty on Documents and Transfers Act, some of which are the following:

First-time Buyer Scheme;
Second-time Buyer Scheme;
Residential Property in Gozo Scheme;
Transfer of Family Business Scheme;
Old and Vacant Property Scheme;
Urban Conservation Area Property Scheme (II);
Property Developed in accordance with Approved Criteria; and
Property Leased at Affordable Rates.

Additionally, currently both transferors and buyers can benefit from the COVID-19 measure providing for a reduced tax and duty rate of 5% and 1.5% respectively on the first EUR400,000 of immovable property transferred inter vivos. This scheme was initially part of Government’s Economic Recovery Plan for Malta, pursuant to the COVID-19 pandemic, and became effective on 9 June 2020 through Legal Notices 240 and 241 of 2020. During his 2022 Budget Speech, the Minister for Finance and Employment announced that this temporary measure will not be extended further beyond June 2022. However, the measure has been limitedly extended, initially by three months until the end of September 2022 (through LN120 and LN121), and recently until the end of June 2023 (through LN224 and LN225).

Another scheme that applied in the past years for transfers of property located in an Urban Conservation Area (UCA Property Scheme (I)) closed on 31 December 2021. The UCA Property Scheme (II) has however been launched in November 2021 instead.

Hereunder is a summary of each scheme.

First-time buyer scheme

The incentive is for first time buyers of residential property. If made until the end of 2022, acquisitions of such property are exempt from duty on the first €200,000, or on a pro-rata portion in case of co-acquisition, of the aggregate value of the consideration paid for the acquisition of such immovable property. The incentive applies provided that:

This is the first immovable property acquired inter vivos by such person as evidenced thereby and declared to the notary in writing.
- An amendment passed in July 2021 made it possible for persons who had acquired a garage of not more than 30m2 before the acquisition of their first ‘sole residence’ property, to avail themselves of the First Time Buyer Scheme on such latter property as long as certain duty relief was not availed of on the acquisition of the garage.
The acquisition is made for the purpose of establishing therein or constructing thereon their sole ordinary residence.
The acquirer does not require a permit in terms of the Immovable Property (Acquisition by Non-Residents) Act.
The relevant duty form reaches the Revenue by 28 February 2023.

The scheme applies also to buyers of residential property even if they had previously acquired inter vivos an undivided share of immovable property representing less than 25% of the real value of the whole of such property.

View at traditional front door from building on Malta

Second-time buyer scheme

The incentive is for individuals who, by 31 December 2022, replace their sole residential property with another within 12 months from vacating the first. Duty on the first €86,000, or the pro-rata portion in case of co-acquisition, of the value of the replacement property is refunded. Such incentive applies provided that:

The replaced property has been owned and occupied as own residence for a period of at least 3 consecutive years immediately preceding the date of transfer.
The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.
Replaced property must have qualified for a reduced rate of duty upon acquisition for the purpose of establishing therein or constructing thereon the sole, ordinary residence of the transferor.
The replacement property is acquired by the transferee inter vivos for the purpose of establishing therein or constructing thereon their sole, ordinary residence but not through a donation from close relatives as defined.
At time of acquisition, the transferee must not own any other residential property acquired inter vivos other than the replaced property.
If the replaced property had qualified for the duty exemption under the First Time Buyer Scheme certain duty exemptionor as a donation granted for the purpose of establishing / constructing a sole, ordinary residence, 5 years must pass before this incentive can be availed of.
Whereas the relevant duty form must reach the Revenue by 28 February 2023, the claim for duty refund must be made in writing within 6 months from the contract.

Residential property in Gozo scheme

The incentive is for individuals who acquire residential property situated in Gozo by the end of 2022, including a garage as defined, or land on which only one residential unit is to be built. This incentive reduces the rate of duty from the standard 5% to 2% on the higher of the consideration or value of the property. Such applies provided that:

The final deed is notified to the Revenue by 28 February 2023.
The acquirer does not benefit from the part-exemption from duty available on the gratuitous transfer of property to descendants in the direct line for the purposes of establishing one’s sole ordinary residence.
The acquisition is not made in the course of a trade or business or for the purpose of demolition and construction of more than one unit.

Transfer of family business scheme

Under this scheme, duty on the transfer of company shares and commercial tenements in intra-family donations is reduced from 2% or 5% to 1.5% on the real value. Such applies until the extended date of 31 December 2022, provided that the relevant notice is filed with the Revenue by the same date.

The reduction applies in the case of a transfer of marketable securities issued by a company, or of immovable property being a commercial tenement used in a family business for at least 3 years preceding the transfer by donation from an individual to qualifying family members. A qualifying family member refers to one’s spouse or partner in a civil union, descendants and ascendants in the direct line and their relative spouses or civil union partners or in absence of descendants to one’s brothers or sisters and their descendants.

This reduction in duty applies provided that the donee does not transfer the securities/commercial tenement, inter vivos, within 3 years from the donation and uses the commercial tenement within a business carried on by the donee for 3 years following the donation.

No other exemption or relief from duty may be availed of.

Old and vacant property scheme and urban conservation area scheme (II)

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 transfer must be made by the end of 2024.

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 and/or other evidence as may be determined by Commissioner for Revenue [ARMS Ltd being the company that manages water and electricity billing in Malta].
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.
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.
All the prescribed documents and declarations are duly supplied.
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 subsequently transfer of a divided part of the same property, the latter transfer cannot benefit from these schemes.
The relevant notice of transfer is filed with the Revenue by not later than 31 January 2025.

When the transfer value is higher than €750,000, the excess is taxed and/or dutiable at the normal rates.

Property developed in accordance with approved criteria

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. According to the 2022 Budget Speech, such incentive is targeted at ‘new properties that are built in a typical traditional Maltese style and architecture’.

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 transfer must be made by the end of 2024.

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.
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.
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 dividend 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.
The relevant notice of transfer is filed with the Revenue by not later than 31 January 2025.

When the transfer value is higher than €750,000, the excess is taxed and/or dutiable at the normal rates.

Property leased at affordable rates

This measure provides that no transfer tax and duty on documents and transfers is due on the first €200,000 of the transfer value of immovable property transferred after 1 January 2022 where:

such property had been leased for a period of 10 years ending on the date of the transfer, and
during the whole 10-year period the tenant was entitled to a benefit in respect of that lease under the Private Rent Housing Benefit Scheme administered by the Housing Authority.

If the above conditions are satisfied, except that:

the transferee is not the said tenant, or
the lease period is for less than 10 years but more than 3 years; or
the tenant was entitled to the Private Rent Housing Benefit for less than 10 years but more than 3 years;

the applicable tax and duty rates are halved on the first €200,000.

Tax and duty on the transfer value in excess of €200,000 remain chargeable at the applicable rates.

The duty exemption/reduction does not apply if the acquirer requires 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 have required such permit had the property been located in a non-SDA.

Certain documentation would need to be filed with the Revenue for the exemption/reduction to apply.

Nice living room with couch, carpet, green plant on a bookcase and a copy space.

COVID-19 temporary reduction in tax and duty on the transfer of immovable property

On the part of the purchaser of immovable property in Malta, the scheme provides that the duty rate chargeable will be calculated at 1.5% on the first €400,000 of the higher of the consideration and the market value of such property, with the remaining duty being calculated at the applicable duty rate (normally 5% unless qualifying for some other reduced rate). On the part of the transferor of the immovable property, where the transfer would otherwise have been subject to tax at 8% or 10%, the rate of final property tax is reduced to 5% on the same first €400,000, with the excess value taxable at the standard applicable rate.

The measure applies on transfers made until 30 June 2023 where a promise of sale or promise of transfer agreement has been entered into by 31 December 2021. Standard procedures apply for the payment of the tax by the notary publishing the promise of sale or deed of transfer.

The duty reduction applies provided that:

The acquirer does not require a permit in terms of Immovable Property (Acquisition by Non-Residents) Act.
If the property is situated in a special designated area (‘SDA’), the acquirer would not have required a permit in terms of the Immovable Property (Acquisitions by Non-Residents) Act had the property been located in a non-SDA.
The reduced rate of duty is not applied in conjunction with the exemption under Article 32C of the Duty on Documents and Transfers Act on the same transfer, applicable to donations of immovable property by a person to his descendants in the direct line for the purpose of the donee establishing therein or constructing thereon, his sole ordinary residence.

Claw back provisions apply for both tax and duty in the case of transfers or acquisitions of immovable property with an abusive intent.