The Maltese Islands
The three main Maltese Islands, namely Malta, Gozo and Comino are located in the heart of the Mediterranean Sea, 93 kilometres south of Sicily and 288 kilometres north of Africa. The serene landscape in the middle of the Mediterranean and its Neolithic, prehistoric remains, historic buildings, beaches, timeless architecture, beaches, swimming and diving facilities has made Malta a magical destination. Malta's Mediterranean climate with mild winters and hot dry summers, coupled with a low crime rate, serene way of life and relatively low cost property entices foreigners to purchase property in these small islands.
A very high proportion of the Maltese population speaks English very fluently, and a large segment can also speak other languages, such as Italian and French. The cost of living compares very well to that of other countries. Malta’s currency is the euro and the country has a number of different banks, among which are major international banking groups. The country is very well connected through the multiple daily flights from its airport and also has an efficient public transport service. Malta also has a number of top-notch yachting facilities and yacht marinas, casinos, and multiple night life facilities
Types of Properties in Malta
There is a wide variety of properties on the local market ranging from the high-end villas and villa apartments to houses of character, maisonettes, town houses and apartments. In particular, upscale apartments in Malta remain attractive choices for foreigners who wish to buy a property in Malta. At the moment, such properties are in very high demand by people who enjoy spending part of the year in Malta.
The Acquisition Transaction of a Malta Property
Promise of Sale Agreement (Konvenju)
As soon as a prospective buyer and a prospective seller agree on the price and conditions of purchase of a particular property, the Promise of Sale Agreement (the konvenju) is entered into and signed by the parties, usually (but not necessarily) in front of a notary public. In the case where the buyer has already left the island, the promise of sale agreement can be signed by his legal representatives in his stead, as long as there is a valid Power of Attorney Document in place. A standard promise of sale agreement normally includes:
- Details of the contracting parties;
- Detailed description of the property;
- Details on payment of a deposit;
- Minimum conditions surrounding the purchase;
- Agreement on the remaining works to be undertaken (if any);
- Clauses on payment due to the estate agent (if any);
- Condition that on final deed, the vendor will warrant peaceful possession according to law;
- Date by which the Final Deed needs to be signed;
- Authority to the Notary Public to register the promise of sale with the Commissioner of Inland Revenue.
Normally, the agreement has a period of validity of 90 days (although the period can be longer or shorter as agreed between the parties). On signature, the prospective buyer would normally transfer 10% (which can be more or less as agreed between the parties) of the value of the property, which is usually held in escrow by the notary public. Subsequently, the agreement is registered, and provisional duty amounting to 1% of the purchase price is to be paid within 21 calendar days to the Inland Revenue Department. The outstanding duty is paid at the time of signing the Final Deed.
Promise of Sale Conditions
During the term of the promise of sale agreement, the conditions indicated in the agreement (e.g. conditions relating to architect’s inspections, bank loans, snag lists, AIP permits etc.) are fulfilled. Thereupon, the parties will be able to enter into and sign the Final Deed, which deed effectively transfers ownership in the relevant property. At this stage, the balance of the price duties paid to the vendor. The remaining duty is also paid to the Commissioner for Inland Revenue. The keys of the property are handed over to the purchaser or his representative.
Acquisition of Immovable Property Permit (AIP)
It is important to note the instances when this AIP permit is required before the acquisition of immovable property in Malta takes place. The law provides the following scenarios:
- Citizens of all European Union member states, including therefore Maltese Citizens, who have resided in Malta continuously for a minimum period of five years at any time preceding the date of acquisition may freely acquire immovable property without the necessity of obtaining a permit under Chapter 246 of the Laws of Malta.
- Citizens of all European Union member states, including therefore Maltese Citizens, who have not resided continuously in Malta for a minimum period of five years may only purchase their primary residence or any immovable property required for their business activities or supply of services without the necessity of obtaining a permit under Chapter 246 of the Laws of Malta.
- Citizens of all European Union member states, including therefore Maltese Citizens, who have not resided continuously in Malta for a minimum period of five years, require a permit under Chapter 246 of the Laws of Malta to acquire immovable property for secondary residence purposes.
- Individuals who are not citizens of a European Member state may not acquire any immovable property unless they are granted a permit in terms of Chapter 246 of the Laws of Malta.
Special Designated Areas
There are defined zones in Mata, referred to as special designated areas, where there are absolutely no restrictions to acquisition and are therefore exempt from the requisite of obtaining an AIP permit. The Special Designated Areas are the following.
- Portomaso Development, St. Julians, Malta
- Portomaso Extension I, St Julians, Malta
- Cottonera Development, Cottonera, Malta
- Tigne Point, Tigne, Malta
- Tas-Sellum Residence, Mellieha, Malta
- Madliena Village Complex, Malta
- SmartCity, Malta
- Fort Cambridge Zone, Tignè, Malta
- Ta’ Monita Residence, Marsascala, Malta
- Pender Place, St. Julians, Malta
- Metropolis Plaza, Gzira, Malta
- Fort Chambray, Ghajnsielem, Gozo
- Kempinski Residences, San Lawrenz, Gozo
The interesting feature about these properties (apart from being an ideal investment in Maltese real estate), is that no AIP permit is required to buy any property in a SDA - not even by non-EU citizens. Moreover, such persons may buy even more than one property in a SDA without the need of an AIP Permit. Once acquired, such properties may also be rented out, presenting their owners with significant investment opportunities.
Costs & Expenses
In general, the costs due by the purchaser to the notary public roughly amount to 1% of the price of the immovable property. The stamp duty payable to the Commissioner of Inland Revenue is normally 5% of the purchase price or of the value of the property (whichever is the higher) however this rate may be reduced to the 3.5% on the first €116,000 in cases where the property being acquired is the purchaser’s sole ordinary residence in Malta and where an AIP is not required.
With regards to the Vendor, as a general rule, capital gains tax has to be paid and this is calculated either at the rate of 7% provisional tax, 7% final tax or 12% final tax, depending on the particular case. There are certain exceptions to the payment of capital gains tax, for example, a Vendor who has resided in the property being sold for a minimum of three years and is selling the property within a year of when it was vacated, is exempt from the payment of capital gains tax if keys to the property are passed onto the purchaser & the public notary registers the contract at the public registry and at the Land Registry, if applicable.
