Luxury Real Estate

By Ron & Alexandra Siegel of Napa Consultants, International

Most vacation home buyers associate the island lifestyle with white sand beaches, tropical climate and also the escape from civilization. For those of you who would rather immerse yourselves in an island experience that is also rich in history and culture with year-round temperate climate, consider the Mediterranean island country of Malta for your next home.

Centrally located at the very heart of the Mediterranean Sea, just below Sicily, Malta is easily accessible from all major European and North African cites. A member of the European Union, Malta, with its relatively low cost of living, genuinely friendly people who speak English as one of two official languages, is politically stable, and is also one of the safest places in the area.

For sports enthusiasts, Malta has it all, from country club sports such as golf, tennis and squash, to water sports including world class scuba diving, water skiing, windsurfing and sailing, to mountain biking and hiking among ancient ruins. The variety of cultural experiences such as a carnival that dates back to the 16^th century, the world’s most successful Kung Fu show, music, dance and theatrical events, set Malta apart, not just as a wonderful island to visit, but also great place to live.

Malta also enjoys a stable property market with outstanding tax advantages for foreign buyers. An exemplary Maltese property currently on market is an impressive castle built in the early 1900’s. It is one of the architectural jewels of Rabat in Malta the other major island of the Maltese archipelago. The castle lies at the edge of an elevated plateau with spectacular 360 degree views from all four towers. It is surrounded by approximately 13,500 square meters of beautifully landscaped gardens and is enclosed within high protective walls. Complimenting this castle is a beautiful private chapel—the Rotunda church of St. Maria—that can be seen from miles away.

According to Carl Peralta of 77 Great Estates, “Malta is the Mediterranean’s best kept secret; why wouldn’t someone like living in Malta? It is safe & small therefore proximity to beaches & work/schools is an advantage. Everyone speaks English and schools including University enjoy an extremely high level of education ideal for kids. Foreigners find it easy to purchase real estate in Malta”

To learn more about the Castle and other extraordinary Maltese properties, plus the tax advantages of owning a second home in Malta, contact Carl Peralta: carl@77GreatEstates.com .

Carl Peralta is a member of the LOL Team of Experts & Discussion Leaders. Please introduce yourself to Carl and comment on his discussion at LOL on Linked In.

Carl Peralta of 77 Great Estates.

Photo : Matthew Mirabelli

The 301-foot long Tatoosh, belonging to Microsoft co-founder Paul Allen, is berthed at Lazzaretto Creek next to Manoel island. Ranked the world’s 26th-largest super yacht, she is not only equipped with the “standard” helicopter and tenders, but has a 40-something foot yacht tied to its port side. She was named after an island in the Pacific Ocean, northwest of the US, marking the entrance to the Straits of San Juan De Fuca, which lead to the more familiar Puget Sound and Seattle, home of telecommunications baron Craig MacCaw, who commissioned her. She was sold to Mr Allen in 2001.

“Tatoosh” was admired by everyone at 77 Great Estates’ office situated on Valletta seafront.

Courtesy of Carl Peralta of 77 Great Estates

Malta has denied “sensational” reports in a German publication suggesting the island was being used as a tax haven by German multinationals.

While admitting there was a recent surge in German investment in Malta, Finance Minister Tonio Fenech said “this is all above board and according to EU laws”.

“German investment in Malta has been present for a long time and the double taxation agreement with Germany is there to facilitate taxation between the two countries and promote investment. We have never had any negative reaction by the German government on this front… This is just sensationalism,” Mr Fenech said.

Describing Malta as “a new tax haven Mecca” for large German multinationals, Germany’s most popular news magazine Der Spiegel gave details of how large German companies were avoiding tax through the island.

The magazine, which sells more than a million copies around Europe every week, accused Germany’s Finance Minister Peer Steinbruck of turning a blind eye to what had become a known “tax loophole” used by Germany’s top companies to “optimise their tax structure” through Malta.

According to an investigation carried out by the magazine, renowned companies like Lufthansa, Puma, BASF, K+S and Fraport were all allegedly using Malta’s taxation system to avoid paying all their dues to the German tax authorities.

They were doing this by forming subsidiary companies in Malta to take advantage of loopholes in the EU taxation system and the double taxation agreement between the two countries to reduce their taxable incomes, the magazine claimed.

The report said this had been going on since Malta joined the EU and despite the German authorities knowing what was happening they did not seem to have the power to do anything to stop it. At the same time the magazine admitted there was nothing illegal in the system being adopted.

“In the global game of financial Monopoly, the small Mediterranean country has become one of German industry’s preferred locations in the time since it joined the EU in 2004,” Der Spiegel wrote.

“German companies have their offices in the town of St Julians, near the Stiletto Gentleman’s Club, and the pubs where foreign language students drink themselves into oblivion. The offices of the BMW Malta Group are near the casino in the upscale Portomaso waterfront development,” the magazine commented sarcastically.

Other German big names, such as Deutsche Bank would also be investing in the island, the magazine reported.

Quoting a partner in an accounting firm in Malta, the report said the number of German companies in Malta was growing rapidly and gave details of how the “tax avoidance system” worked.

Der Spiegel said that, although companies in Malta paid 35 per cent tax on their profits, a rate higher than Germany’s, shareholders could then apply for a refund of the bulk of these taxes. On balance, profit distribution in the form of dividends was taxed at only five per cent. The magazine affirmed that, after taxation, the net dividends were returned to the coffers of the German parent companies, 95 per cent tax-exempt.

Directly criticising the German government for allowing such a system to go on, the magazine charged that “No one (in Germany) seems to be troubled by the fact that this loophole deprives the German Treasury of massive amounts of revenue”.

The magazine also pointed a finger at the German Embassy in Malta saying it was encouraging other German companies to use this system and invest in Malta.

A spokesman for the Foreign Office in Berlin said, when contacted, that the ministry was aware of the article but had no comment to make.

By: Carl Peralta of 77 Great Estates

There aren’t specific incentives. An investment in immovable property in Malta would be due to the stability of such property’s value and as a good medium to a long term investment.

On the other hand, there might be various tax incentives for Malta companies set up to hold immovable property outside of Malta, usually through a company in such country. Whereas any income or gains from the immovable property, and the company holding it, will be taxed in accordance with the domestic law in that country – lex situs – where a Malta company holds at least 10% of the equity shares in such foreign company, other conditions can be satisfied – such as €1.1m investment – such would be considered a ‘participating holding’. Where the Malta company receives income from such ‘participating holding’ or gains from the disposal of shares in such participating holding, such profits will stand to be exempt at the level of the Malta company. Furthermore any subsequent dividend distribution to shareholders wherever they may be situated will not be subject to ant withholding tax in Malta. This creates a very interesting immovable property investment vehicle through a Malta company for investors around the world.

Other specific tax planning opportunities have in the past worked, for example with immovable property in Portugal. These can be considered on a case-by-case basis. One may look into setting up property funds in Malta, again for the purpose of allowing foreign investment in immovable property around the world.

A company incorporated in Malta must keep 5 tax accounts, amongst which the Immovable Property Account (IPA). Profits derived directly or indirectly from immovable property in Malta must be allocated to this tax account. There is a legal notice which details what is considered to be profits derived from immovable property in Malta; this is quite exhaustive. Such profits are taxed in various manners whether capital gains or as income – Art. 5A/Art 4 Income Tax Act (ITA). Either way the tax paid in Malta on such profits would be final since no refunds of tax are contemplated out of profits derived from immovable property in Malta and allocated to such IPA.

Please feel free to contact our real estate tax department on info@77GreatEstates.com or (00356) 2125 2455 should you require any further clarifications. We would be glad to analyse any specific transactions.

By: Carl Peralta of 77 Great Estates

Thousands of people yesterday gathered at the Luxol grounds for the spectacular concert given by Maltese tenor Joseph Calleja and international superstar Michael Bolton.

The two teamed up marvellously to give the cheering crowd an unforgettable event. Song after song, Calleja and Bolton thrilled their many fans – and probably earned many more after last night’s show – with their engaging performance.

Singers Ivan Grech, of Winter Moods fame, and Chiara also took part in the concert, together with Gillian Zammit’s children’s choir.

By Carl Peralta of 77 Great Estates

The most beautiful yacht to fly the Maltese merchant flag sailed majestically out of Grand Harbour this afternoon under the admiring eyes of all those who happened to be at Grand Harbour.

The 88-metre Maltese Falcon evokes the nostalgia of the old sailing clippers, but it is packed with technology, including sophisticated radar, navigation and steering equipment . Its three masts are made of carbon fibre and can rotate. The 15 square sails are stored inside them when not in use, and they can be unfurled into tracks along the yard arms in six minutes.

The yacht has two 1,800hp engines enabling it to rule the waves even when there is no wind.

The Maltese Falcon is owned by American venture capitalist Tom Perkins and is rented out for €335,000 a week. It can accommodate twelve guests plus four guest staff and 18 crew.

By Carl Peralta of 77 Great Estates

Around 50 cars dating from the pre-war period to the 1970s took part in the Valletta Grand Prix on Sunday 17^th May 2009.

The cars were driven around Valletta for three times each starting from the near the Gun Post, past 77 Great Estates’ seafront office and finishing close to the Phoenicia hotel.

They were divided in four categories – pre-second world war, 1950s to 1960s, 1960s to mid-1970s and classic, such as Maseratis and Ferraris.

This Grand Prix this year was restricted to Maltese drivers.

By Carl Peralta of 77 Great Estates

Aaron Ciantar steers Team Seagull to overall victory

Aaron Ciantar and Angelo Tedeschi claimed overall victory in the Malta Grand Prix of the Sea for the second year in a row as the current world champions, aboard Team Seagull, were declared winners of yesterday’s endurance race in Sliema.

Ciantar and Tedeschi, who last year topped the charts at the end of the season-opening Malta GP aboard Conam Yachts, had finished second behind Team 26 in yesterday’s race. However, the race jury imposed a four-minute penalty on the British duo for overspeeding, meaning that Ciantar and Tedeschi were awarded victory ahead of Baia Attolini.

Audrienne Ciantar and Shelley Jory completed a podium double for Chaudron and the Ciantar family yesterday as their Iko Casa team were promoted to third place.

In the Evolution class, victory went to Giancarlo Ciangiano and Hannes Bohinc aboard OSG Racing Team. Bullet Racing Team, of Jan Falkowski and Drew Langdon, placed second. Lucas Oil and Cigarette Smash Poker had to retire while Cranefield failed to start the race.

Inevitably, much of the attention of the thousands of local watersports enthusiasts was focused on the Supersport class were a keenly-contested fight ensued along the Sliema seafront with Team 26, Team Seagull and Baia Attolini fighting neck-and-neck for victory.

The Donzi boat of Team 26 sped to victory when taking the lead with three laps to go but were adjudged to have exceeded the speed limit and were subsequently penalised. Thus, victory was assigned to Ciantar and Tedeschi.

“It’s a great feeling to be on top of the podium once more,” Aaron Ciantar told The Times yesterday.

“We knew at the start of the season that we had a very competitive boat and I think that our performances here show that we are among the top teams in the Supersport class. Still, winning the world championship will not be easy but we’re ready to fight to keep the title.”

“Team 26 will be disappointed with the outcome but race rules on speed limit are very clear and all the teams know well that when the rules are broken, penalties are imposed immediately,” Ciantar said of the punishment handed out to Team 26.

“It’s important that everyone competes within the rules so that safety is maintained in all the races of the P1 world championship.”

For his part, Tedeschi said the weather conditions in Malta last weekend did not suit their Chaudron boat.

“When the sea is calm, as it was today, it’s always very difficult for us to race to our full potential. Our rivals have smaller boats and that makes them very strong in mild conditions,” Tedeschi said.

“The race for the world championship is certainly going to be very interesting this year. Baia Attolini and Team 26 are very competitive while another Donzi boat is expected to enter the championship in the next round in Turkey.

“But, this is healthy for the sport as it makes it more interesting. We have always enjoyed competition and in the coming weeks, we intend to work on making our boat even faster as our target is to defend our Supersport title.”

Audrienne Ciantar, making her competitive return to the Powerboat World Championship after a year’s break, was delighted with her podium finish.

“A top-three position was my main objective ahead of the first race,” Audrienne Ciantar said.

“To finish third aboard a boat I had never driven before in a race and with a new partner, is a great achievement. We have made a very encouraging start and I believe we can only get better as the season progresses. Our goal is to challenge the leading teams and I think we have the package to stay in the top positions this season.”

The 2009 Powerboat P1 championship continues on the weekend of June 19- 21 when the Turkish Grand Prix of the Sea is held in Istanbul.

Results

Evolution class: 1. SNAV OSG (Italy) 1:00:25.15; 2. Silverline (Britain) 1:04:47.00; 3. Lucas Oil Budweiser (US) retired after 11 laps; 4. Cigarette Smash Poker (Italy) retired after three laps; 5. Cranefield Wines (Germany) did not start.

Supersport class: 1. Seagull Chaudron (Ukraine) 1:04:40.70; 2. Baia Attolini (Italy) 1:05:44.27; 3. Iko Casa (Italy) 1:05:49.43; 4. Big Sergio (Italy) 1:07:11.14; 5. MasForce (Belgium) 1:08:03.89; 6. Team 26 Racing (Britain) 1:08:14.19; 7. Blue Shaft (Italy) 59:06.10 (retired after 10 laps).

Overall standings

Evolution class: 1. SNAV OSG (Italy) 181; 2. Lucas Oil 171; 3. Silverline 163; 4. Cigarette Smash Poker 100; 5. Cranefields Wines 66.

Supersport class: 1. Seagull Chaudron 190; 2. Baia Attolini 163; 3. Team 26 160; 4. MasForce, Iko Casa 147; 6. Blue Shaft 115; 6. Big Sergio 73.

By Carl Peralta of 77 Great Estates

Banif Bank (Malta) are 77 Great Estates “Preferred Partner” when it comes to banking. This will strengthen 77 Great Estates “one-stop shop” service offered to 77 Great Estates’ clients - mainly local property owners (vendors/lessors) and foreign buyers/lessees.

Banif Bank (Malta) plc is a Maltese bank owned by the Banif Financial Group and prominent Maltese investors.

Banif has positioned itself as the alternative bank by offering simple and innovative solutions that meet the clients’ financial requirements.

Banif is deploying a network for both retail and business segments supported by a local internet banking platform. The Bank also offers an executive banking service for professionals.

Be it a personal dream, a professional requirement or a new business project, Banif is the right partner for you.

So go ahead, ask Banif for a second opinion – you will be pleasantly surprised.

For more information kindly contact Banif Bank (Malta) plc at 203, Level 2, Rue D’Argens, Gzira GZR 1368, Malta or on (+356) 2260 1000 or e-mail: customercare@banif.com.mt

Courtesy of Carl Peralta of 77 Great Estates

Introduction

The Maltese Islands, consisting of Malta, Gozo and Comino, cover an area of about 320 square kilometres and have a population of about 400,000. The islands are located in the centre of the Mediterranean just south of Sicily.

Malta has a rich European historic and cultural heritage. This is reflected in its Catholic religion dating from the time of St. Paul, its architecture, and in all major aspects of business, government and social activities. The British and Italian influences are particularly strong, given the country’s proximity to Italy and the fact that Malta formed part of the British Empire from 1801 to 1964. Malta is today an independent Republic within the Commonwealth and became a full member of the EU on 1 May 2004. As from 1 January 2008, the unit of local currency is the Euro (€).

English is, with Maltese, an official language and is spoken by practically everyone. Laws are published in English and Maltese, and business correspondence is usually conducted in English.

A number of real estate projects currently exist, aimed at providing qualitative properties to foreigners wishing to invest in Malta.

Malta’s full imputation system of taxation may be utilized efficiently by entrepreneurs who wish to invest in non-Maltese real estate through a Maltese holding company.

Malta as a holding company location for acquiring non-Maltese real estate

Residence of a Maltese incorporated company

Under the Maltese Income Tax Act (”ITA”) chargeability to Malta tax on a worldwide basis is attracted if a person (whether a company or otherwise) is both domiciled and ordinarily resident in Malta. For income tax purposes, a company is considered domiciled in the country of incorporation. The corporate income tax rate is 35%, but due to Malta’s full imputation system of taxation, in certain circumstances the effective tax burden can be significantly reduced on profits distributed to the shareholder.

 
The normal corporate tax rate applicable in Malta in respect of any rental income or capital gains derived from real estate is 35% subject to any applicable double taxation relief. On a distribution of dividends by MaltaCo (being a Maltese company owning non-Maltese real estate as per Figure 1) to its shareholders, the existence of a full imputation system of taxation (where the highest rate of shareholder tax is 35%) and of a number of tax refunds which are available in certain circumstances can result in an effective tax burden of between 0% to 10% on profits distributed.

In terms of Maltese tax law, distributable profits are allocated to different tax accounts i.e. the Final Tax Account (”FTA”), the Immovable Property Account (”IPA”), the Foreign Income Account (”FIA”), the Maltese Taxed Account (”MTA”) and the Untaxed Account. Tax refunds are only available on distributions effected from the MTA and FIA.

On the basis that the real estate is situated outside Malta, any foreign rental income or capital gains derived by MaltaCo should be allocated to the company’s FIA as they represent capital gains and rents derived from investments situated outside Malta. Such profits should be charged to Maltese tax at the standard corporate rate of 35% subject to any relief of foreign tax.

However, apart from the possibility of MaltaCo qualifying for double taxation relief on such income, and subject to certain other conditions, upon distribution of the relevant profits by MaltaCo to its shareholders, the latter should also be entitled to a tax refund of part of the tax suffered by MaltaCo. The extent of tax refund depends primarily on whether or not MaltaCo will be claiming any double taxation relief on the income.

If no double taxation relief is claimed (and subject to the satisfaction of all statutory requirements for the claim of a refund e.g. registration for refund purposes by the shareholder claiming the refund), the refund should amount to 6/7ths of the tax suffered by MaltaCo, hence potentially reducing the effective Maltese tax leakage to around 5% (1/7 of 35%).


The net Malta tax leakage of around 5% after% after a distribution of dividends to shareholders should apply on the basis of certain assumptions e.g. that MaltaCo does not have non-deductible expenses (that would create a mismatch between the accounting and tax profits in the sense that there would not be sufficient distributable profits to cover all the profits that were subject to tax), that the company actually distributes all its taxed profits.

In the case that double taxation relief is claimed by MaltaCo (and the income is allocated to the company’s FIA), the refund should amount to 2/3rds of the Malta tax (before any credit for actual foreign tax suffered) in respect of those distributed profits.

On the basis that income would be allocated to the FIA, an alternative combined with the 2/3 refund may be for MaltaCo to claim the Flat Rate Foreign Tax Credit (FRFTC) - the FRFTC is a system of unilateral double taxation relief which assumes a deemed foreign tax of 20%.

As long as all taxed profits are distributed, the combination of the FRFTC and the 2/3 refund (in this case the refund would be calculated on the tax after the FRFTC) should produce (subject to certain conditions) a net Malta tax burden after a distribution of dividends to shareholders of between 6.25% and 2.5% of the net foreign income, with the actual tax leakage depending on the level of deductible expenses. In this case the Malta tax leakage can never be below 2.5% on net foreign income due to the specific mechanics of the FRFTC.

Therefore on the basis of the assumptions set out above, the post-refund tax leakage in respect of such income could be reduced even to around 2.5% - 6.25% (possibly in the region of around 5%).

Holding shares in a foreign entity

Therefore on the basis of the assumptions set out above, the post-refund tax leakage in respect of such income could be reduced even to around 2.5% - 6.25% (possibly in the region of around 5%).

If a company registered in Malta (MaltaCo) holds shares in foreign entities that qualify as a “participating holding” under Maltese tax law and satisfy an additional condition (see below), dividends derived therefrom and capital gains derived from the disposal of such holding should (at the company’s option) qualify for either (i) the participation exemption which results in a straight exemption at corporate level on such dividends and capital gains or (ii) taxation under Maltese tax law, but on a distribution of dividends, the shareholders should be entitled to a refund of 100% of the tax suffered on the distributed profits.

Unless the participation exemption is opted for (see below), dividends and capital gains received by MaltaCo from its participation in the subsidiaries are subject to tax at the normal Maltese corporate rate of 35% and should be allocated to the company’s FIA.


In terms of Article 48(4) of the Income Tax Management Act, upon distribution by a Maltese company of profits allocated to the foreign income account which are derived from a participating holding (PH) or from its disposal, to non-resident shareholders which are not owned and controlled by, nor act on behalf of a person who is ordinarily resident and domiciled in Malta, such non-resident shareholders are entitled to a 100% refund of the Malta tax paid on the distributed profits.

In terms of Article 2 of the Income Tax Act, a holding constitutes a PH in any of the following situations:

(a)  the company holds directly at least 10% of the equity shares (with such holding also providing at least a 10% entitlement with respect to all of votes, profits available for distribution and assets available for distribution on a winding up) of a non-resident company whose capital is wholly or partly divided into shares;

(b)    the company is an equity shareholder in a non-resident company and it is entitled at its option to call for and acquire the entire balance of the equity shares;

(c)  the company is an equity shareholder in a non-resident company and it has the right of first refusal in the event of any proposed disposal of the equity shares not held by it;

(d)  the company is an equity shareholder in a non-resident company and is entitled to sit on the Board of Directors or appoint a person to sit on the Board;

(e)  the company is an equity shareholder in a non-resident company with an investment in equity shares of at least of Eurol, 164,000 or equivalent in a foreign currency and such investment is held for an uninterrupted period of not less than 183 days;

(f)   the company is an equity shareholder in a non-resident company where such shareholding is for the furtherance of its own business and the holding is not held as trading stock for the purposes of a trade.

For the purposes of the PH situations set out above, qualifying holdings also include non-resident partnerships similar to Maltese partnerships en commandite where the capital is not divided into shares.

In order for the dividends received from a PH to qualify for the participation exemption or 100% refund, the following additional conditions must also be satisfied:

a)      The non-resident company must be resident in the EU, or

b)      The non-resident company must be subject to foreign tax at a rate of at least 15%, or

c)      More than 50% of the income of the non-resident company must not consist of passive interest/royalties.


If none of the above are satisfied, then the holding by the Malta company must not be a “portfolio investment”, and the non­resident company or its passive income must not have been subject to any foreign tax at a rate of less than 5%.

Participation exemption

As an alternative to the 100% tax refund, Article 12(1)(u) of the Income Tax Act exempts “any income or gains derived by a company registered in Malta from a PH or from the disposal of such holding, where the taxpayer has not shown such income or gain as part of his chargeable income..”

This Article operates a direct exemption, which would be claimed directly at the level of the Maltese company and it operates to exempt the above-mentioned dividends and capital gains.

Indeed, operating a straight exemption could facilitate the tax treatment in a number of instances, e.g. it would not create cash flow considerations arising from the payment of the tax and subsequent distribution and claim of the refund, it does not require the level of planning to ensure that the extent of distributable profits is not less than the company’s taxable profits (the refund referred to in (a) above only applies to the tax suffered on the distributed profits), and it does not require the distribution of a dividend in order to obtain the relative refund.

Naturally this exemption operates in lieu of the 100% refund referred to above.

The refund/participation exemption provisions outlined above can be particularly useful in tax planning considerations including those involving foreign real estate transactions when such real estate is owned through a foreign subsidiary of a Maltese company.

Acquiring real estate in Malta

The acquisition of real estate in Malta is carried out by means of a public deed, entered into in front of a notary public. Stamp duty and any legal expenses are paid upon the signing of the contract when the purchaser acquires real estate.

The standard rate of stamp duty is 5% (5 Euro for every 100 Euro or part thereof) of the amount or value of the consideration paid for the real estate, whichever is the higher. However, in the case of persons who acquire real estate as their sole ordinary residence, stamp duty is reduced to 3.5% on the first €117,000 of the consideration paid for the acquisition of the real estate.

Non-EU citizens may only acquire real estate in Malta after a permit is issued by the Ministry of Finance.


Maltese and EU citizens who have resided continuously in Malta for a minimum period of 5 years can acquire more than one real estate without the necessity of obtaining a permit. Furthermore, Maltese and EU citizens who have not resided in Malta for a continuous period of five years, have no restrictions as regards the acquisition of their primary residence, however they would require a permit in order to acquire real estate as a secondary residence.

Non-EU citizens can freely acquire more than one real estate located in Special Designated Areas, without requiring any form of permit.

The permit is granted by the Minister of Finance by making an application. All the above information concerning permits can be summarised in the following table:

 

 
   

Maltese & EU Citizens with five years continuous residence
   

Maltese & EU Citizens without five years continuous residence
   

Non-Maltese &

non-EU

citizens

Primary residence
   

No restrictions, with no permits required.
   

No restrictions, with no permits required.
   

Permit is required.

Secondary residence
   

No restrictions, with no permits required.
   

Permit is required.
   

Permit is required.

Real estate in a Special Designated Area
   

No restrictions, with no permits required.
   

No restrictions, with no permits required.
   

No restrictions, with no permits required.

There are no limitations or permit requirements when heirs, whatever their citizenship, inherit real estate in Malta from a person - whatever citizenship the deceased has - as long as the real estate was acquired legally in the first place.

Taking up residence in Malta

An individual may take up residence permanently or indefinitely in Malta by obtaining a certificate issued under the Residents Scheme Regulations, 2004. The certificate entitles the holder to a flat income tax rate of 15%, subject to a minimum annual tax liability (after taking into account any double taxation relief) of €4,193. The tax is calculated on chargeable income and capital gains arising in Malta and on foreign income (excluding capital gains) remitted to Malta.


Double taxation relief is available to a certificate holder in respect of tax levied outside Malta on any income remitted to Malta and which is also subject to tax in Malta. A distinct advantage to any non-residents who wish to take up residence in Malta, are the numerous Double Taxation Treaties Malta negotiated with numerous jurisdictions.

Eligibility

Any non-Maltese citizen is eligible to apply for a residence scheme certificate and consequently qualify for the particular tax treatment outlined above, if that person either owns assets outside Malta worth at least €349,000 or has an annual income of at least €23,000 arising from outside Malta

A residence scheme certificate can be obtained by filing an application form, duly completed and signed, together with a number of supporting documents and the payment of a small fee.

All documents must be certified original documents and a warranted notary public of the country of nationality of the applicant must attest that the information contained therein is correct. Furthermore, all documents must be legalised by an official at the Malta Diplomatic Mission in the country of nationality (or the Malta Diplomatic Mission accredited to the country of nationality) of the applicant.

Conditions

Once in possession of a residence scheme certificate, the holder must:

•      Within 12 months from the issue date of the certificate, take up residence in Malta and make a declaration on a prescribed form at the offices of the Inland Revenue Department within 15 days of arriving in Malta

•      Within 12 months from taking up residence in Malta either purchase a residence in Malta at a cost of at least

€116,000 for a house or €69,000 for an apartment, or lease/rent a residence in Malta at a rent of at least €4,150 per annum. A copy of the deed of purchase or lease/rent agreement must be furnished to the Inland Revenue Department

•      Have an annual income equivalent to at least €23,000 arising outside Malta or at all times capital equivalent to at least €349,000

•      Remit to Malta (and not re-transfer out of Malta) at least €13,950 plus €2,300 per dependant annually

•      Not engage in any gainful occupation or any form of business activities in Malta unless duly authorised by the relevant authorities. This also applies to any involvement in political activities except for involvement in local council activities


At the end of the first year of residence and subsequently at the end of every calendar year, a certificate holder will be required to complete an annual income tax return showing any remittances of income to Malta for the particular year, and an annual declaration together with specific attachments (including copies of bank statements) confirming that the certificate holder has fulfilled the conditions pertaining to the permit.

The residence scheme certificate does not subject the holder thereof to any statutory minimum periods of presence in Malta.

Selling Real estate in Malta

As a general rule, transfers of real estate are taxed by the imposition of a final withholding tax of 12% on the transfer value. In this respect, the ITA defines the transfer value of the real estate as being the higher of the market value of that real estate and the consideration paid or payable for the transfer. Should the transferor incur any brokerage fees, tax will be calculated at 12% of the transfer value net of qualifying brokerage fees.

In a limited number of instances the transferor is also given the possibility to opt out of the final withholding tax of 12% and instead be taxed at the applicable income tax rates on the difference between the consideration received and the cost of acquisition of the real estate (subject to a number of conditions being satisfied). These instances include:

a.   Where the real estate is sold within 5 years from date of
acquisition, the vendor has the option to choose to be
taxed on the capital gain rather than at 12% of the selling
price.

b.   Transfers by non-Maltese-resident persons who will be
taxed again in their country of residence on any gain made
on the sale of the Maltese real estate and who wish to
claim the tax payable in Malta as a credit against their
home tax. This opt out is subject to a special procedure
and a number of specific conditions.

c.   In the case of transfers of real estate situated in a Special
Designated Area, the election is only applicable to the first
owner and it may be exercised only on the occasion of the
first transfer of real estate within that particular designated
area. Hence, if the option is taken, it will apply to all
subsequent transfers within that designated area.
Subsequent owners will therefore only qualify for the opt
out if they transfer within five years.

In the cases mentioned above, the said choice must be indicated on the deed of transfer. Tax is imposed on the difference between the consideration received by the transferor and the cost of acquisition of the asset plus any expenses, allowances and other deductions available in terms of law. The deductions may include:

a) cost of acquisition declared in the deed;

 

b) stamp duty paid on acquisition;

c)    other expenses related directly to deed of acquisition eg. notarial fees;

d)      proved costs of development and improvements;

e)      inflation;

f)     maintenance at 0.4% per year the real estate was held;

g)      selling expenses relating directly to the transfer (typically brokerage) not exceeding 5% of sale price

Capital gains are brought to charge as follows:

•      A 7% provisional tax (calculated on the consideration) is payable upon the deed

•      The capital gain is calculated at the self assessment (i.e. tax return) stage and this is taxed at progressive rates varying between 0% to 35% for individuals and at the statutory rate of 35% for companies. Any tax resulting as payable over and above the 7% paid provisionally is due to be paid with the submission of the tax return. Any excessive provisional tax paid is refundable.

A gain from a transfer (where the 12% final tax is not applicable) may be relieved by capital losses, bad debts from previous transfers and trading losses.

Inherited real estate

Capital gains on real estate acquired through inheritance are chargeable to tax at the rate of 12% on the difference between the transfer value and the value of the real estate as declared in the deed of transmission causa mortis. There is no provision for further reduction of the gain through any inflation or maintenance allowances in this respect. If the real estate was inherited before the 25th November 1992, the rate of tax is reduced to 7%.

Exempt Transfers

Various exemptions and reliefs are granted under the ITA and these include:

a.   No tax on capital gain is charged when the real estate
being transferred has been the owner’s own residence for
at least 3 consecutive years immediately preceding the
date of transfer and has been disposed of within 12 months
of vacating the real estate.

b.   Donations are considered as a deemed sale made at the
market value of the real estate at the time of transfer.
However, no tax is payable where the donation is made by
a person to:


•      his spouse, descendants and ascendants in the direct line and their relative spouses, or in the absence of descendents to his brothers or sisters and their descendents, or

•      philanthropic institutions

In cases where the real estate is subsequently transferred by the donee prior to the lapse of five years from the date of the donation, the cost of acquisition shall be that as acquired by the donor. In this case the normal rates of tax would apply. However, if a real estate acquired by donation is subsequently transferred after the lapse of five years, from the date of donation, the cost to be deducted from the transfer value is that declared in the deed of donation.   In such cases, the rate of tax on donations is reduced to 12% of the gain.

c.   Settlement of real estate on trust or a distribution by a trust
when it is deemed to be a donation referred to above or
when it is not deemed to constitute a transfer (e.g. where
the settlor and beneficiaries of the trust are the same
person or persons).

d.   Assignments of real estate between spouses following the
dissolution of the community of ownership.

e.   Assignments of real estate that had been co-owned by the
spouses made either between the spouses or, following
the death of one of the spouses, between the surviving
spouse and the heirs of the deceased spouse.

4. Letting of Real estate

Owners of real estate may rent their real estate. A permit is required for any rentals to tourists.

Income derived from the letting of real estate is typically categorised under two headings - investment income and income of a trading nature. The difference between the two is distinguished by whether the rental agreement is for short periods (usually for furnished premises and not exceeding three months) or for longer periods.

The tax deductions taken against these two types of rental income are different. Any expense incurred in the production of income derived from trading rental income is an allowable tax deduction.

In the case of rental income derived from long lets where the rental activity is not a trade, the allowable deductions are (1) the MTA licence fees if any, (2) rents and ground rents payable (3) any interest incurred on a loan specifically taken to finance the purchase of the real estate from which rental income is derived, and (4) a further deduction equal to 20% of the rental income received less rents and ground rents payable and less the MTA licence fees


Acquisition of real estate by Companies

Some general points

Subject to conditions, a company operating from an EU member state may freely acquire real estate that is required for the purpose of carrying out the activity for which the company has been set up.

Non-resident companies (principally non-EU companies) require a permit, which the Minister must grant if the real estate is required for an industrial or touristic project or as a contributor to the development of the economy of Malta.

Transfers of real estate by a company

The sale of real estate by a company is subject to the rules outlined in Section 3 above as applicable. Profits subject to tax at 12% are allocated to the FTA and such profits are not subject to any further tax in the company’s hands and neither will they attract tax if distributed by way of dividend.

The transfer of certain real estate between two companies forming part of a group is exempt from tax on capital gains. This applies to a group of companies or companies controlled and owned directly or indirectly by more than 50% by the same shareholders. Whereas such transfers are deemed not to result in a gain or loss for tax purposes, the tax “saved” is actually deferred to the point in time where the relative real estate is transferred outside the group.

Where a trader is transferring real estate which has been used in a business for a period of at least three years and, within one year, replaces the real estate by another used solely for a similar purpose in the business, the capital gain arising from the sale of the old real estate may be offset against the cost of a newly acquired premises, rather than being subject to tax.   This applies for all traders and the objective is to give a cash flow advantage to the transferor, where business premises are being replaced. Such roll over relief in practice results in a deferment of tax rather than an exemption.

Transfers of securities

Transfers of marketable securities are subject to stamp duty at the rate of 2% (or 5% in the case of shares in companies owning real estate in Malta). Stamp duty is payable on the higher of the consideration or the real value of the securities transferred. The law provides for a number of exemptions from the payment of stamp duty on the transfer of shares in companies including certain intra group transfers of shares and transfers of shares by or in entities involved in international operations.


A transfer of shares in a Maltese company is also subject to tax on capital gains. However in cases where the transferor is a non-Maltese resident, such a transfer should be exempt from income tax in Malta. Certain conditions would have to be satisfied for this exemption to apply including that the assets of the company should not consist wholly or principally of real estate situated in Malta and the beneficial owner of the gain or profit, as the case may be, is a person not resident in Malta and such person is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.

VAT

A transfer of real estate is an exempt without credit supply i.e. no VAT is charged by the seller and such seller has no right to claim back/deduct any input tax incurred, including input tax incurred in the construction of that real estate.

Subject to certain exceptions, the letting of real estate is also exempt without credit. These exceptions include:

a.         The letting of real estate for the purposes of providing
accommodation in any premises, and which letting is
required to be licensed by the Malta Tourism Authority,
is subject to VAT at the reduced rate of 5%. In general,
this applies to ’short let’ holiday accommodation as well
as to letting to persons who have been in Malta for less
than one year.

b.         The rental of real estate for commercial or business
purposes by a limited liability company to a person
registered for Maltese VAT purposes is subject to VAT
at the standard rate of 18%.

c.         The letting of designated premises and sites for parking
and the letting of permanently installed equipment and
machinery is subject to VAT at the standard rate of
18%.

In the case of the above exceptions, the normal VAT rules in connection with the recovery/deduction of input tax apply and therefore the owner/operator/lessor should be in a position to claim/deduct input tax incurred in connection with the real estate letting activity.