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Guidelines for Buying Property in Malta / Gozo

PROMISE OF SALE AGREEMENT

It is common practice in Malta that once a person decides to purchase a property, an agreement of a preliminary nature is signed with the vendor - this is referred to as a promise of sale agreement. This consists of a preliminary agreement containing a promise on the part of the seller to sell the property to purchaser and a promise on the part of the purchaser to buy the property. From the date of signing of the preliminary agreement until the final contract of sale, the prospective purchaser will be able to verify the title of the seller on the property and also whether the property is burdened with any kind of charges. If the title and the property are not clear, the purchaser will be entitled to withdraw from the agreement. Otherwise, and unless parties agree on specific conditions to which the agreement would be subject, parties may not withdraw from the agreement and will have to appear on the contract of sale within the term stipulated on the promise of sale agreement.

A promise of sale is signed in front of a notary or an advocate. It contains all the conditions agreed upon between the parties. It is very important for both parties to ascertain that all conditions agreed or desired are provided for in the agreement. Eventually the final contract of sale will only contain the conditions contained in the preliminary agreement, and no person may insist for conditions to be imposed on the sale other than those stipulated on the promise of sale.

Normally a deposit calculated at the rate of 10% of the purchase-price is paid on the agreement in favour of the vendor. In normal circumstances, this deposit is forfeited in favour of the vendor if the sale is not concluded for any reason attributable to the vendor. However both parties may agree otherwise, and the amount of the deposit may be refundable to the purchaser should the final sale not be concluded.

The promise of sale should clearly identify the parties appearing thereon as well as the property merit of the agreement. For the avoidance of any doubts, it is advisable for a plan of the property to be attached to the agreement. It should also be specified in the agreement whether the property is subject to any ground rent, whether it is subject to rights in favour of third parties etc. The agreement should also contain the conditions upon which the sale is being made, including the following:

  1. the price of the sale;
  2. whether a deposit is being paid to vendors;
  3. the term upon which the final contract of sale will be concluded. In the absence of a term stipulated, the contract will have to be published within 3 months from the date of the preliminary agreement.

As already explained, parties should also specify any other conditions agreed to between them relative to the sale. If not stipulated on the agreement, they may not be imposed.

After the promise of sale is signed by all parties, and in order for it to be legally binding, it should be registered with the Inland Revenue Department. The Notary will carry this procedure by duly filling all forms necessary. The purchaser should pay an amount equivalent to 1% of the total purchase price on the immovable property in favour of the Inland Revenue. This will be eventually deducted from the duty due from himself on the final contract of sale. Should the preliminary agreement be rescinded, then this payment will be refunded by government in favour of the purchaser.

The term stipulated on the agreement should give enough time for the purchaser (through the notary and/or his advocate) to verify that the title of the property is correct and also for the Notary to make all necessary preparations to draw the contract.


DEED OF SALE

The final deed of sale may only be published by a Notary Public and it should be signed within the term stipulated in the agreement. If the other party fails to appear for the sale, seek the advice of your lawyer as there are remedies which may be taken in court against the vendor.

The contract should contain all the terms and conditions agreed to by the parties on the promise of sale agreement, and also other terms required by law.

Once the contract is read by the Notary and signed by the parties, the sale is concluded. However, for the sale to be known to third parties, it should be registered in the Public Registry. For certain areas in Malta and Gozo property transfers should also be registered in the land registry.

Apart from the purchase price of the property, several other payments will be due by the purchaser on the contract of sale:

  1. Upon the contract, stamp duty at the rate of 5% on the purchase-price is due by the purchaser to the Inland Revenue Department. 1/5th share of this amount would have already been paid on the promise of sale agreement, and therefore the purchaser would have to pay the balance on the contract. This rate of stamp duty is reduced to 3.5% on the first Lm30,000 in case of citizens of the EU, having their permanent residence in Malta and who shall be establishing their sole and ordinary residence on the premises purchased. Where a ground rent on the property is being imposed for the first time on the contract of sale, a further amount of Lm100 is due as stamp duty.
  2. The fees of the Notary and refund of expenses incurred by the Notary are paid by the purchaser – these normally amount to approximately 1.5% of the purchase-price.


SPECIAL CONDITIONS WHICH APPLY TO FOREIGN PERSONS PURCHASING PROPERTY IN MALTA

Persons who have their permanent residence in Malta may buy property in Malta without any limitations. However, non-residents may only buy property in Malta subject to the following conditions:

  1. The price of the property being purchased – and in case of property purchased in shell form, the price plus the cost for finishing the property - should be of a minimum of around Lm 40,000 in the case of an apartment or maisonette and of around Lm 67,000 in respect of other types of residential property. These values are index linked and are subject to regular revision.
  2. Documentary proof should be provided to evidence that the money utilised for the purchase of the property has come from outside Malta.
  3. An AIP (Acquisition of Immovable Property) permit is required from the Ministry of Finance and is normally granted within 3 months of the application. Normally the Notary Public takes care of procedures to obtain this permit.
  4. Non residents are further prohibited from purchasing property having historical value or that are listed, as part of the Island’s heritage.

EU citizens buying their property in Malta for the purpose of establishing their permanent residence therein need not obtain an AIP Permit prior to the sale.

Furthermore, EU citizens who have resided in Malta for a continuous period of 5 years during their lifetime, need not obtain an AIP Permit for the purpose of buying a secondary residence or other immovable property.

Any EU citizens who have not resided in Malta for a continuous period of 5 years, having their ordinary residence anywhere in the EU (including Malta) and wanting to buy a secondary residence in Malta, also have to obtain an AIP permit for the purpose of purchasing their secondary residence in Malta.


MALTESE PERMANENT RESIDENCE PERMIT

A foreigner may file an application with the Department of Citizenship and Expatriate Affairs for the purpose of becoming a Maltese resident. In respect of the purchase of property, he will be treated nearly like any other Maltese person.

Several benefits are obtained by a foreign person obtaining a permanent residence in Malta, which benefits are not all enjoyed by natural Maltese persons. These include the following:

  1. the charge of income tax at a flat rate of 15% on imported funds;
  2. the purchase of several property in Malta are allowed in special designated areas;
  3. Special concessions on the importation of personal effects and pets;
  4. Speedy repatriation of capital, profits and income;
  5. Local loan facilities are available up to 80% of the purchase price;
  6. Complete freedom of movement;
  7. No death duties are payable in Malta – saving the duty payable on the inheritance of immovable property, as explained hereunder.

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The procedure for obtaining a permanent residence permit might be considered as lengthy and involves the presentation of several documents. But once having this permit in hand, a person has complete freedom of movement and no limitations of time in which he has to stay in Malta. Such permits need not be renewed but they are monitored annually by the Office of the Prime Minister. Furthermore, they can only be revoked for extremely serious reasons.

A person wanting to obtain a permanent residence permit needs to satisfy certain conditions, and present documents in proof thereof. These conditions are the following:

  1. Applicant must produce evidence of an annual income of Lm 10,000 or over, or capital assets of Lm 150,000 or over. In either case, the whole amount is not required to be brought into the country. Also, the value of the property purchased locally is considered as forming part of this capital requirement;
  2. Applicant must import to Malta a minimum of Lm 6,000 per annum, with an additional Lm 1,000 for each dependant.

The income received in Malta by a permanent resident is subject to tax at a flat rate of 15%, the minimum tax payable being Lm1800 per annum. If overseas capital funds are invested locally, tax due will be calculated only on the interest or dividends received thereon.

In order to make sure that tax is not paid twice in different countries, Malta has reached agreement with most European countries, Canada and Australia.

You can obtain further information regarding permanent residence permits by viewing the information provided at the following link:
http://www.legal-malta.com/immigration/permanent-residency.htm


TEMPORARY RESIDENT PERMIT

A speedier alternative to a permanent residence permit, is the obtainment of temporary residence permit. With such a permit, a person may stay in Malta for a period of 3 months without having to obtain a visa. Extensions of stay are usually approved without particular difficulty, provided a justifiable reason is given for such request.

For this purpose, one need not provide a limit proof of income to the local authorities. Proof of income would however be required by the authorities to ensure that the resident will not be a burden on the country. On the other hand, one would not enjoy the tax benefits given to a permanent resident. Local income tax payable is limited to funds imported into the country. (If resident in Malta for less than 6 months per calendar year no tax whatsoever is due). Otherwise the benefits enjoyed both by the permanent and temporary resident are substantially the same. An advantage particular to a temporary residence is the fact that funds plus profits may be repatriated using both country and currency of choice.

You may obtain further information regarding temporary residence permits by viewing the information provided at the following link: http://www.legal-malta.com/immigration/temporary-residence.htm


PROCEDURE TO FOLLOW WHEN RE SELLING PROPERTY

In the case of a non-resident in Malta and in the case of a Maltese resident who wants to establish his residence elsewhere, prior authorization is needed from the Inland Revenue Department for the resale of the property to take place. This is a procedure which the Notary in charge of the sale would apply for and follow. The need of this authorisation serves as a safeguard in favour of the Inland Revenue Department to collect all taxes due directly on the contract.

The sale of property is subject to a tax called capital gains tax. This is calculated at a flat-rate of 12% on the selling-price.

If the property being sold was purchased more than five years before the deed of sale and such property was not used as an ordinary residence, this tax is calculated on a flat rate of 12% of the selling price. In the of case of a property purchased within five years prior to the deed of sale and which was not used as an ordinary residence, the tax is calculated at the rate of 35% of the profit realised.

Should an EU citizen whilst being a permanent resident of Malta use a property as his ordinary residence for over 3 years, he would not be liable to pay Capital Gains Tax when selling such property after the said 3 years.


OTHER USEFUL INFORMATION

It is important to know that upon the death of a person having immovable property in Malta, his heir/s should make a declaration by virtue of a Notarial deed listing the property having been inherited. Inheritance of property in Malta, is subject to a further duty, known as the capital transfer duty (causa mortis), calculated at the rate of 5% of the value of the property, or of the share of the property which belonged to the deceased, at the time of death.


DISCLAIMER

It is important to note that this is general information, and certain cases may require further assistance and knowledge for the transactions to go smoothly. At Gozo Services Limited we attend and oversee these procedures on a daily basis and strongly advice that a professional real estate agency and a competent Notary Public are engaged to avoid mistakes, misunderstandings and erroneous decisions.

Magro Homes, a division of Gozo Services Limited, makes every effort to maintain the accuracy of the information on this website but cannot accept responsibility for any prejudice, loss or damage which may occur from use of the information. Gozo Services Limited does not provide quality control of external links, the inclusion of any company’s or trader’s name within these pages should not be construed as a recommendation of that company’s or trader’s products and/or services.

Although every effort is made to ensure reliability, accuracy and completeness of the above information, clients should be aware that some of the contents have been obtained from external sources and consequently, Gozo Services Limited assumes no responsibility arising from any reliance placed upon such information by the client.