The Government of Malta has by means of Legal Notice 419 of 2021 published new rules entitled ‘Exemption from tax on property transfers (set-off of tax arrears) Rules’.
The legal notice is applicable to any person who owes relevant tax arrears to the Commissioner for Revenue (CfR) and who transfers immovable property subject to tax under Article 5A of the ITA which was originally acquired before 31st March 2021 and which is transferred by not later than the 31st December 2022.
Relevant tax arrears include income tax, social security contributions, value added tax, interest, additional tax and administrative penalties.
The aim of this legal notice is to grant a benefit to those persons who utilise the net proceeds from the transfer of an immovable property situated in Malta to settle their relevant tax arrears with the CfR. The benefit takes the form of a deemed payment of tax arrears.
By way of an example, if a person transfers immovable property situated in Malta for a transfer value of Eur150,000 (on which he pays tax of 8% in terms of Article 5A of the ITA), and at the same time owes the CfR an amount of Eur300,000 as tax arrears, he may wish to apply the net proceeds of Eur138,000 (transfer value of Eur150,000 less tax due on transfer amounting to Eur12,000) to settle his tax arrears. The benefit would be that although such person would have effected a payment of Eur138,000, he would be deemed to have effected an additional payment of Eur12,000 which is equivalent to the payment of the tax made on the transfer of the said immovable property.
A number of conditions need to be satisfied:
- person has submitted all his income tax, vat and FSS returns
- person gives notice to the CfR of his claim for an exemption under these rules, within 3 months from the date of the property transfer
- person provides such further information and produces such documents and evidence as the CfR may consider necessary for the proper application of these rules
- the person effects payment of the relevant tax arrears within the time allowed in the request for payment to be issued by the CfR (which shall not be less than 30 days).
This legal notice contains a number of rules to calculate the amount of the additional allocated payment in case the net proceeds exceed the tax arrears or if only a portion of the net proceeds will be utilised to offset tax arrears.
These rules are without prejudice to the provisions of Article 51 of ITA and of regulation 6 of the European Union Anti-Tax Avoidance Directives Implementation Regulations.