After the Maltese Government has announced a recovery package with the aim of restoring the economy following the effect of the COVID-19 pandemic, new rules have now been published to give effect to the various measures. By means of LN 241 of 2020, the Government published new rules with respect to the reduction in the income tax payable on transfers of immovable property situated in Malta that are made on or after the 9th of June 2020 but before the 1st April 2021.
A person who makes a transfer to which these rules apply shall be exempt from the tax otherwise chargeable on that transfer in terms of article 5A of the Income Tax Act to the extent that it exceeds the tax calculated in accordance with Rule 5, on condition that the tax so calculated is duly paid in accordance with the provisions of Article 5A(11) of the Income Tax Act.
In terms of the said rules, the applicable rate of tax on transfers of immovable property situated in Malta, on the first Eur400,000 of the transfer value, shall be of 5% (instead of 8% or 10%). The tax on the transfer value which is in excess of Eur400,000 shall be of 10% or 8%. In the case of a transfer of an undivided share of property, the reduced rate of 5% shall apply only to such portion of Eur400,000 as corresponds pro rata to the share that is transferred. The reduced rate of 5% is applicable on condition that the transfer would have been subject to tax at the rate of 8% or 10% on the transfer value, were it not for the provisions of these rules, and that the notice of the transfer is given to the Commissioner by not later than the 30th of April 2021.
The rules also include an anti-avoidance provision in which the Commissioner can ignore the provisions of these rules, if he is of the opinion that two or more transfers form part of a ‘structured arrangement’ designed to reduce liability to tax. ‘Structured arrangement’ is defined as a series of two or more transfers of portions of the same property made between the same parties within a period of 6 months, which are executed by two or more deeds, rather than by one single deed, solely or mainly for the purpose of inflating the applicable benefit in terms of these rules. In this case. the Commissioner may within 5 years from the date of the last transfer, order that the tax that shall be chargeable on such transfers will be that applicable in terms of Article 5A of the ITA, without any reference to the rules.