New Tax rules applicable to assignment of rights in a promise of sale agreement

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New rules have been published through LN 121 of 2020 on the taxation on the assignment of rights acquired under a promise of sale for immovable property situate in Malta.

Such rules shall be applicable to any assignments made:

  1. on or after 1 January 2020;
  2. through a written agreement which is signed by the assignor and assignee and authenticated by a notary or an advocate.

A notice of the assignment must be given to the Commissioner for Revenue within 21 days, and the tax is paid in accordance with these rules.

The regulations mandate that where the consideration does not exceed €100,000, the gain (being the consideration net of allowable deductions) shall be subject to tax at the rate of 15%. Such tax constitutes a final tax and shall not be available as a credit against the tax liability of any other person or as a refund. The tax is to be paid to the notary or advocate who is also required to authenticate the relative written agreement within 21 days from the assignment.

On the other hand, where the consideration exceeds €100,000, the first €100,000 shall be subject to tax in the manner as described above. The excess shall form part of the assignor’s chargeable income for the particular year in question and shall be subject to tax at the rates applicable to the assignor. Provisional tax at the rate of 7% is payable within 21 days, on the excess consideration less any allowable deductions.

In order to determine the gain, the following are considered as allowable deductions (which must be supported by the relevant documentation):

  • any brokerage fees in relation to the assignment being transferred; and
  • any consideration paid by the assignor to acquire the promise of sale in the event that the assignor had acquired the rights from another person.

Where the consideration exceeds €100,000, the allowable deductions are to be apportioned and taken as a deduction separately against the first €100,000 of consideration and the excess.

The rules also specify how to compute the value of the consideration when the assignment is done in stages, or when the assignees or assignors are more than one person.