In Malta, Capital Gains Tax is actually a transaction cost and not a tax on capital gains. Capital Gains Tax is generally levied at a flat rate of 12% on the transfer value or the selling price of the property in Malta or Gozo. Only brokerage fees can be deducted from the selling price. During the sale, a provisional tax equal to 12% of the selling price must be paid to the notary public who will then pass it on to the Inland Revenue as payment of the tax liability. Capital gains earned when the property was held for less than five years can be taxed in two ways. It can be taxed at a flat rate of 12% on the selling price or at progressive rates under the old system.
Under the old system, a provisional tax levied at 7% of the deed must be initially paid through the notary public, who will then pass this on to the Inland Revenue as initial payment. This amount is credited to the total tax payable.
The capital gains realized from the sale of the property in Malta must be declared on the income tax return and will then be taxed at progressive income tax rates. To calculate the capital gain under the old system, the following can be deducted:
- the price at which the property was acquired;
- the inflation element;
- any ground-rent paid on the property and for which a deduction has not been already claimed in any other way;
- a maintenance allowance at the rate of 0.4% for every year that the owner held the property;
- improvements carried out;
- any duty paid on acquisition;
- notary’s fees;
- brokerage fees;
- other expenses directly related to the transfer but not exceeding 5% of the selling price
However, a non-resident seller may be subject to tax on the gain in his country of residence. Normally he would have the right to claim double taxation relief in his country of residence. However, it is possible that the relief would only be granted if the tax paid in Malta were a tax on the gain.
To avail this, he needs to produce a notarized statement from the tax authorities in his country of residence confirming his residency and certifying that he is subject to tax in that country.
Consequently, residents of tax-haven countries and countries whose basis of taxation is the source of income and not the residency status of the taxpayer cannot avail of this option.
A real estate agent in Malta or a Notary Public will be able to provide you a more elaborate explanation. It is recommended that before you plan on buying a property in Malta you look up a reputable real estate agent’s website or contact a Maltese Notary Public