Foreign Investment in Residential Property
Permit Requirements
Citizens of all European Union member states, including Maltese citizens, who have resided in Malta continuously for a minimum period of five years at any time preceding the date of acquisition may freely acquire immovable property without the necessity of obtaining a permit under Chapter 246 of the Laws of Malta. However, if an EU citizen did not reside in Malta for a minimum period of five years, he would require a permit to acquire immovable property for secondary residence purposes.
Individuals who are not citizens of a European Member state may not acquire any immovable property unless they are granted a permit in terms of Chapter 246 of the Laws of Malta.
There are 5 defined zones in Malta, referred to as special designated areas, where no permits are required and there are no restrictions to acquisition. This applies to both EU and non-EU citizens.
Purchase Procedures
Once a property has been decided upon and price and conditions have been agreed, a convenium/preliminary agreement is signed between both parties. The agreement, which is usually of 3 months duration binds both parties to purchase/sell the immovable property under the terms and conditions agreed upon. On signing the agreement the buyer pays a 10% deposit with the agent as stake-holder.
During the 3-month period a Notary Public is engaged by the purchaser to carry out necessary researches into the property to confirm good title as well as to obtain any necessary permits and finance arranged.
Once the relative permits have been issued and researches have proved clear title to the property the final contract of sale may be entered into – the deed of sale being drawn by the purchaser’s Notary. The balance of the purchase price plus legal expenses and stamp duty are paid on the signing of the contract when vacant possession to the property is handed to the purchaser.
Buying / Selling Costs
The expenses borne by the purchaser connected with the acquisition of property are as follows:
- Duty on documents 5%
- Notarial fees 1% (approx)
- Searches Lm100 (approx)
- Ministry of Finance fee Lm100
On the other hand brokerage fees due to the estate agency, as detailed hereunder, are borne by the vendor:
- Sole agency 3.5%
- General agency 5%
Bank Finance
The bank will recommend a loan which will depend the individual’s circumstances, and also on the income, taking into account the value of the property one wants to buy. If you are borrowing in Maltese Lira, you can borrow up to 90% of the purchase price or cost of construction.
Loans may be repaid over a maximum period of 30 years, provided your age does not exceed 65 years upon last repayment. The interest rate is 1.5% over bases rate on full loan amount. An effective rate of 4.5% per annum.
Permanent Residence
Any person may apply for permanent residence status provided that their stay in Malta exceeds an aggregate of 182 days per annum.
Residents may wish to benefit from the extremely favourable flat rate of 15% tax on remittances to Malta. To qualify for this tax concession, applicants must have an annual income of Lm10,000, or a proven capital of Lm150,000 (€350,000). The capital does not have to be brought in Malta except for the amount needed to purchase a property, should the applicant so desire. The minimum annual income to be remitted into Malta is Lm6,000 for one person, plus Lm1,000 for each dependent. A married couple would have to bring in Lm7,000.
Taxation
Captial Gains
Tax on capital gains may be charged on the sale of immovable property. This is based on the gain realised after taking into consideration the cost of purchase and sales, as well as any improvements carried out on the property. The tax is not charged on the sale of properties, which have been the owner’s place of residence for the last three years. Otherwise there is a full rate of 15% or 35%.
Inheritance Taxes
There is no inheritance tax in Malta. However in the event of death, the beneficiary is liable to 5% transfer tax on the value of the immovable property in Malta, as at time of death. If the property is jointly owned and one of the spouses passes away, the 5% is levied on half the value of the property.
Rental Income Tax
Letting of property is allowed as long as a letting licence is obtained from the Malta Tourism Authority. Licences will be issued once the property meets first class standard requirements or consists of a villa with a pool. Properties may be rented under a long let or holiday licence. Effectively there is a rental income tax of around 25%.
Annual Property Tax
There is no annual tax or rates on property.
Sale and Repatriation
There are no restrictions on owners to sell their property at the prevailing market value. Proceeds from the sale of the resident’s property and/or other investments in Malta may be repatriated. Any unspent income in excess of the minimum requirement may also be repatriated.
Forced heirship provisions
One third of the estate must be left to the children. However no permits are required for the transfer of property through inheritance or between co-heirs.
Observations
Malta is a small country of circa 300 km 2 with tight restrictions on new building. It is a stable, democratic country practicing a policy of non-alignment, whose people live a life-style, adhere to standards of law, and order equable to those of Western countries, opening the doors of its beautiful sunny islands to foreigners. Anybody seeking a peaceful way of life, a home in the sun and an opportunity to benefit from a considerable reduction in tax payments, should give Malta his or her number one consideration.
For further information, kindly contact us and we will be happy to assist you.
