RSM Malta

Property Transfer Tax

Property development companies who raise funds for a building project by way of a public share issue on a recognized stock exchange are able to benefit from recently introduced changes to the property transfer tax rules.

Subject to certain conditions qualifying Companies may choose to opt out of paying transfer tax in favour of paying capital gains tax in respect of transfers made on or after 1 April 2015.

Provisional tax payable under the opt out rules means that tax is payable at 8%.

Under the new rules income derived from such transfers will be considered as separately chargeable to income tax at 35%. Where a person owns more than one project each project is treated as a separate and distinct source of income.

A decision to opt out under the new rules must be made at the first transfer and will be applicable to the whole project thereafter.

Excess provisional tax paid will be refundable. However, the refundable amount is determined by way of a formula and cannot be set-off against any tax charges in respect of other sources of income.

Set-off amounts are capped each year based on the amount of chargeable income less any provisional tax paid.

Unutilised provisional tax for any year can be carried forward to subsequent years and set-off against the tax chargeable on income derived from the property forming part of the project.

Under the normal Property Transfer Tax rules the total value of property sales would be subject to tax whereas under the opt out scheme it is the profit of the project which is subject to 8% tax, representing an opportunity for significant tax saving.

Anyone in receipt of a dividend which has been distributed out of the profits from the transfer of any property under the opt out scheme will not be entitled to a refund or set-off of the tax paid by the company distributing the dividend.  

Where the person receiving a dividend is a company such dividend will be treated as profits chargeable to tax on the basis that such dividend is in relation to immovable property situated in Malta.  

For more information, please do not hesitate to contact George Gregory, Tax Partner or your usual RSM Malta contact.