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Once you have chosen the property you would like to purchase, and feel that it fits your requirements, in terms of size, space, location and price, it is time to finalise. Agree the following items with the owner of the property: final price, mode of delivery (i.e. whether the property will be finished or in shell form, what the finishes comprise of), when it will be finished/delivery date. Once this is finalised the next step would be to appoint a Notary Public to formalise the agreement and to give legal validity to what has been agreed upon by the parties. This agreement is known as a Promise of Sale agreement.
Terms of the Promise of Sale agreement.
The promise of sale agreement will contain all the relevant points that were previously agreed upon.
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The purchaser, vendor and property in question must be identified clearly in the promise of sale agreement.
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Inclusion of any conditions agreed by the parties i.e. whether the agreement will be subject to the obtaining of a bank loan, or subject to the issuance of a building permit, or subject to an architect's approval regarding the state and compliance of the property, or subject to the obtaining of an Acquisition of Immovable Property Permit and any other conditions depending on the particular circumstances.
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The Promise of Sale Agreement has to be given a validity term. The parties would be legally bound to appear on the final deed of transfer within such term.
The promise of sale agreement has to be registered with the Inland Revenue Department and a provisional duty amounting to 1% of the Purchase Price is to be paid to the Notary Public by the Purchaser. The provisional duty will be set-off against the final duty due on the contract sale, or refunded should the deal fail to materialise.
The Notary drafts the final deed, prepares it for signature and notifies the parties concerned. Once every condition of the promise of sale agreement is complete and all duties fulfilled, all parties get together to sign the final deed. The normal procedure is the following:
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If a bank loan is required for the purchase, the final deed is signed at the bank.
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Expenses
Incurred Upon Buying Immovable Property
Upon the transfer of immovable
property the following expenses must be taken into consideration as the
purchaser:
Stamp duty - 5% on the purchase price of the immovable property. This is collected by the Notary Public and paid to the Commissioner of Inland Revenue as follows: 1/5 upon signing of Promise of Sale Agreement, 4/5 upon signing of the final deed. A concession exists for Citizens of a Member State of the European Union who would have their permanent residence in Malta or who would be establishing their permanent residence in Malta and who would be purchasing their sole and ordinary residence. In this case only 3.5% stamp duty is paid on the first €117,000 (Lm50,228) of the immovable property contract price.
Notary – The notary is normally chosen by the purchaser who must pay any notarial fees and any expenses incurred by the Notary relating to the deed such as searches into the title of the vendor.
Recognition Fee – If the property is subject to a ground rent, a recognition fee equivalent to one year's ground rent is due upon the signing of the contract of sale to the owner of the groundrent. This fee is payable just once.
If the present owner is imposing the ground rent on the deed, no recognition fee is due to the vendor but an extra €233 (Lm100) of stamp duty would be due to the Commissioner of Inland Revenue.
Points for non-Residents of Malta
Conditions for Property Purchase
Non-residents may purchase a holiday home in Malta under the following terms and conditions:
A preliminary agreement or promise of sale must be signed undertaking to purchase a property of not less than €92,546 (Lm39,730) in the case of an apartment or maisonette and not less than €154,200 (Lm66,198) for any other type of residential property. Naturally, properties in shell form or requiring renovation may be purchased at lower figures, provided that the estimated cost of works for completion plus purchase price total not less than the abovementioned figures. An A.I.P. (Acquisition of Immovable Property) permit (costs €233 - Lm100) is required from the Ministry of Finance and is normally granted within 3 months of application. The property being purchased must be used solely for personal use by the purchaser and his/her immediate family. In its negotiations with the EU, Malta has obtained an arrangement whereby:
A. EU Citizens (including Maltese Citizens) who would be purchasing their primary residence (therefore becoming Permanent Residents of Malta) do not need to obtain an AIP Permit prior to purchasing the property, irrespective of how long they have resided in Malta.
B. EU Citizens (including Maltese Citizens) who would have resided in Malta for a continuous period of 5 years through-out their lifetime would not need to obtain an AIP to purchase their secondary residence or any other immovable property.
C. EU Citizen (including Maltese Citizens) who would not have resided in Malta for a continuous period of at least 5 years would need to obtain an AIP Permit to purchase their secondary residence or any other immovable property.
It is to be noted that when referring to ‘secondary residence’, it does not only mean the second property in Malta but it also means another residence apart from the primary residence which could be situated in any other Member State of the EU. Therefore in the case of an EU Citizen who would be a permanent resident of another EU State, thus having his primary residence in such other EU State, who would be acquiring his first property in Malta, such property in Malta would be considered as a ‘secondary residence’.
Sale of Property
When non-Residents of Malta or else residents of Malta who would intend not to remain so, would be selling their property in Malta, prior authorization is need from the Inland Revenue Department for the sale to take place. This authorization is merely required for tax purposes. Once a preliminary agreement is signed, the Notary taking care of the deed would have to send a copy of the agreement to the Inland Revenue Department so that the final Capital Gains Tax is computed. The Notary would then be informed in the Authorization, the amount of Capital Gains Tax to be collected from the vendor on the signing of the final deed.
Tax on Sale of Property: On the sale of property which would have been acquired more than five years prior to sale, a final and withholding tax of 12% would be due on the deed of sale on the selling price less any agency fees paid on the sale of the property. If the property would have been purchased less than 5 years prior to sale, the Sellor has the option to choose between the abovementioned 12% rate or else to be taxed on the capital gain of the property which would be the profit made less any expenses made in the acquisition of the property (taxes, fees and expenses incurred upon purchase) and any expenses made in the property to be evidence by providing fiscal receipts of such expenses. The rate to be charged on such capital gain would depend on the income tax rate applicable to the sellor since the capital gain would be added to the sellor’s yearly income and taxed accordingly. The Sellor would have to pay a 7% provisional capital gains tax on the deed of sale which would be on account of the final tax due on the capital gain.
Capital Gains Tax Exemption: 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 year period.
Death and Donation duties: If a property is purchased in one name, the heirs of the deceased are liable to pay 5% duty on the value of the property in question. In the case of joint ownership, and one of the title holders passes away, provisional tax of 5% is paid on only on the value of the share of the deceased.