Malta has long been reputed to
be a property investor’s utopia

The Maltese Islands

Aerial night view of a more modern development in Malta

A Maltese Gem

The Maltese Islands consisting of the three major islands of Malta, Gozo and Comino are a picturesque group of islands located within the Mediterranean basin, boasting of stunning scenery which the Mediterranean sea imposes on their shoreline. An agreeable climate yielding temperate winters and hot summers further provides an ideal yearly destination for tourists.

A large number of classic and protected heritage sites complimented by today’s modern influx of urbanisation, makes the Maltese Islands a unique hot spot wherein one is able to transcend from a quite rural village atmosphere to the bustling city life and back to a serene seaside resort literally within an hour of traveling by car.

Further, within 15 minutes by ferry, anyone can leave the Maltese mainland for a visit either to the sister islands of Gozo or Comino for a truly holistic experience of the Maltese way of life. The proximity of Malta and its sister Islands to Europe, a stable governance together with the possibility of future low cost air travel make this location one which is difficult not to find appealing to all, either for pure travel or investment.

Currency

The present currency used in Malta is the Maltese Lira (Lm), which is equivalent to 2.33 Euros or 2.98 US Dollars. The Maltese Lira shall be changed permanently to Euro on the 1st January 2008.

Market Growth

Malta has long been reputed to be a property investor’s utopia, and this reputation is incremented with its market and geographic conditions. The fact that Malta does not have such a large physical developable area contributes to a strong property Market. Thirty years in the making of continuous incremental estate value is a strong basis for any investor to establish a portfolio within the island. Recent figures released by the European Mortgage Federation show Malta’s rise of property prices was over 18% higher than both France and Spain, and recent news released by the same authority could further gallop property value within the medium term. This type of sustained and continuous property increment in value is a combination cycle of a holiday island concept together with an urbanised infrastructure, one which is wedging Malta firmly within the European property market. This cycle has already occurred, as any local will tell you that any property three years ago were a bargain when compared to today’s prices. It is within this ambient that an investor with a Maltese property always wins!

Investor Qualification

The legal system in Malta and Gozo is mainly based on Continental Civil Law with an influx of English common law, making the property buying process in Malta is relatively familiar as a result. Since Malta joined the Union in 2004, its laws relating to foreign property ownership are in brief the following. Permission has to be sought by certain groups of non-Maltese residents for the purchase of real estate on either island;

1. If a person residing within the European Union (EU) wishes to purchase property to establish his sole and ordinary residence in Malta, then no permit is required.
2. If a person residing within the EU wishes to purchase property in Malta for secondary residence purposes, then the property must be valued minimally at Lm39,730 for an apartment/maisonette or Lm66,198 for a house/bungalow/villa. If such person has already been continuously residing in Malta for a period exceeding five years during any point of his lifetime, then no permit is required.
3. Property required for the person’s business activities; a person residing within the EU requires no permit.
4. Persons not residing within the EU generally require a permit to acquire any type of property, except in certain specially designated areas.

Breathtaking Views

Taxation on Purchase/Selling

Tax at 5 per cent is levied on prospective investors on acquisition of property. This is payable immediately on the signing of a contract for the acquisition of a property. Should the investor seek to purchase a property for his permanent residency, after a declaration to this effect, then the tax due is 3.5 per cent on the first Lm30,000, and the balance is taxed at 5 per cent, and in this manner the investor would then be considered as domiciled and resident in Malta. This further entails that the investor would pay income tax in Malta on his world-wide income. On the other hand, an investor residing in Malta but not considered as a resident and not domiciled elsewhere, pays income tax only on Maltese sourced income. Moreover, local interest and royalty income are exempt from tax, as are capital gains on holdings in collective schemes or securities. Basically, any asset (unless it is real estate situated in Malta) is exempt from payment of such tax.

Upon sale of the immovable property the investor is faced with a three-fold scenario:

1. If the investor acquired the property for his residential use and resided within it for a continuous period of three years prior to the sale, then upon the sale no tax is levied on income derived. Such exemption from tax however must be accompanied by a declaration to the effect of establishing prior residence.
2. If the investor seeks to sell a property which does not qualify for the above and such property was acquired less than five years from the date of the sale, then the investor can choose to be taxed under one of two systems:
   • Profits derived from the sale of the property after one deducts the cost price, and expenses paid and taxes paid on acquisition, are taxed together with income tax in Malta at normal income tax rates. Under this scenario, tax on the contract of sale is levied at the rate of 7 per cent and is a Provisional Capital Gains Tax.
   • The investor declares that he wishes to be taxed at the rate of 12 per cent on the sale price, and on deed of sale said tax is paid as a Final Withholding Tax, without any further tax being levied.
3. In the event when the investor is seeking to sell the property after five years from acquisition, then tax is applied at the rate of 12 per cent as Final Withholding Tax and without any option. The above apply to both individual and corporate entities.

Taxes are payable to the Notary on the final deed of transfer who shall take care and pay the relative taxes due and settle all contract maters without the need for intervention from the investor. Property purchased for investment purposes, in the majority of cases, can also be rented out without further authorisation being required.

Service

We offer a professional consultation service regarding purchasing/selling of property in Malta, and the relative taxation incurred in the process. This article is not intended as advice, but purely as a guideline to a prospective investor. If you have any queries kindly submit these queries by e-mail on mmangion@mangionnotaries.com, or contact us by telephone.

Corporate Profile

Mangion & Mangion Notaries is a civil partnership established in the Island of Malta. The firm possesses, between the partners, over 25 years of experience in factual transactions within the real estate sector, spanning the entire island and effectively concluding negotiations for every type of property.

Email: malcolm@mangionnotaries.com
Fax: + 356 2166 4327
Tel: + 356 2182 0405
Mob: + 356 9945 4319