The Regeneration Measures and the acquisition of immovables in Malta

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By Notary Cory Greenland

The COVID-19 pandemic has altered society and the economy drastically; and the immovable property transfers sector undoubtedly was also impacted. On 8th June 2020 the Government of Malta announced a number of incentives applicable to both duty on documents/transfers (the tax levied on Transferees) and the Property Transfer Tax (levied on Transferors) with the intent to stimulate the sector and are referred to as the “Regeneration Measures”.

On 15th June 2020 a number of legal notices were published, bringing into force the announced incentives and providing the regulatory framework to enable the tax authorities to accept reduced tax on property transfers. As always, there are limitations and definitions applicable to the new incentives.

Duty – Transferees

Legal notice 240/2020 amended Subsidiary Legislation 364.12 and introduced the “Regeneration Measure” and also amended the definition applicable to “First time buyers”. Previously, any acquisition made inter-vivos by a person, would imply disqualification from the definition of a first time buyer. This has now been amended to direct the tax authorities to ignore any acquisition inter-vivos by such person where his acquisition involved less than 25% of the shares in the immovable acquired and where such person had not benefitted from any duty benefit otherwise applicable when acquiring a sole ordinary residence.

Subsequently the novel rate of 1.50 Euro of duty payable for every 100 Euro of value was introduced and this is being referred to as the “Regeneration Measure” applicable to Transferees. This deviates from the standard 5 euro duty charge for every 100 euro of value, known as the default rate; however this novel rate applies solely for transfers taking place between 9th June 2020 and 1st April 2021 and up to a transfer value of 400,000 Euro only and in cases where no permit is required to acquire (i.e the non-residents permit referred to as the AIP). Otherwise, the said regeneration measure does not distinguish on the basis of who the Transferee is (physical or legal person) or on the basis of the type of property acquired (residential or otherwise). The said incentive may also be in principle utilised in conjunction with other schemes, however each case would need to be seen on its own merits. The regulation explicitly excluded the utilisation of the novel scheme in conjunction with specific donations: whereby the transferee is acquiring his sole ordinary residence and hence already benefitting from no duty on a substantial amount of value. The measures also apply pro-rata when acquiring an undivided share in a property.

Tax – Transferors

Legal notice 241/2020 then relates to the Property Transfer Tax paid under the Income Tax Act by Transferors. Here the tax authorities will apply a 5% tax rate on the value of the transfer (up to 400,000 euro of value) in lieu of the 8% rate (applicable otherwise to acquisitions post 1/1/2004) and the 10% rate (applicable to acquisitions prior to 1/1/2004). The scheme is likewise applicable to transfers made between 9th June 2020 and 1st April 2021 only.

Other information

The regulations exclude situations where the same immovable property is split up into a “structured arrangement” with intent to adjust the qualification value or by-pass certain essential provisions; in such cases the Commissioner can over-ride the submissions made by the tax payer. Clearly, the measures apply to independent properties and care should be taken when handling cases where the property is not explicitly an independent one.

The legal notices could be further amended by the Authorities, as unforeseen situations and contexts arise. It is hence always important that the tax payer consults professionals prior to entering into an agreement on the acquisition or disposal of a property to ensure the transaction qualifies for the “Regeneration Measures”.