MALTA Law and Practice Contributed by: Damien Degiorgio and Ramona Galea, Fenech Farrugia Fiott Legal
8.4 Income Tax Withholding for Foreign Investors A foreign tax-resident lessor accruing or deriving rental income on immovable property situated in Malta can for the most part elect to be subject to either: • a final withholding tax of 15% on the gross rental income in terms of Article 31D of the Income Tax Act; or • the default tax provisions (Article 4 of the Income Tax Act) on the net rental income in terms of the applicable progressive rates for individuals or the statutory corporate income tax which is currently fixed at 35%. In terms of the final withholding tax regime, there are no exemptions. However, the law does allow abatements for long residential leases. Similarly, in terms of the default regime, there are certain allowances (eg, maintenance allowance). A foreign tax-resident alienator accruing or deriv - ing income from the alienation of immovable property situated in Malta, not being a project, can elect to be subject to either of the following: • property transfer tax (namely a final withhold - ing tax) on the gross proceeds in terms of Article 5A of the Income Tax Act; or • in terms of the default capital gains provisions (Article 5 of the Income Tax Act) on the net proceeds. On the one hand, property transfer tax is levied by the notary on the deed of transfer. The default tax rate for the property transfer tax is 8% but special rates, limited deductions and exemp - tions may apply.
On the other hand, unless exempted, in terms of the capital gains tax regime, a 7% non- refundable provisional tax is levied on the gross proceeds by the notary on the deed of transfer. Thereafter, in the year of assessment, tax on the capital gains is levied in terms of the applicable progressive rates for individuals or the statutory corporate income tax which is currently fixed at 35%. This tax on capital gains allows for a wider set of tax deductions, which are stipulated in the law. A foreign investor must evaluate which tax regime would be the most beneficial according to the specific circumstances, keeping in mind that turnover taxes (eg, property transfer tax) might limit the right for a double tax relief in their residence jurisdiction. 8.5 Tax Benefits The ownership of immovable property may result in a higher effective tax leakage in certain circumstances and therefore each case needs to be seen within its proper context. However, Malta does not levy capital taxes and ownership of immovable property is encouraged. Subject to certain limitations, Malta does allow for capital allowances deductions for an industrial build - ing or structure against trading income which is being produced through that qualifying indus - trial building or structure. This may be subject to balancing adjustments once such an immovable property is disposed of.
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