| Q |
Which transfers are exempt from tax?
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| A |
The following transfers of property situated in Malta are exempt from tax:
- certain donations;
- your residence
- assignment of property that was owned in common between spouses
- property transferred between companies in the same group
- a business or a partnership en nom collectif that is incorporated into a company
- other circumstances where the law grants an exemption under the old system (e.g. where an exemption order has been issued).
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| Q |
If I donate a property, do I have to pay tax?
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| A |
Yes, and the tax must be paid not by the person receiving the donation but by the donor. However, you will not be charged any tax if you donate the property to:
- your spouse or your descendant or ascendant in the direct line or to the spouse of any such descendant or ascendant (this will also apply if, in the absence of any descendants in the direct line, you donate the property to your brother or sister or to their descendants); or
- a philanthropic institution declared to be exempt by the Minister of Finance in a legal notice.
Otherwise, if you are going to make a donation, you will have to pay the same tax that you would pay if you had sold the property. Again, the method of taxation will depend on how the property was acquired and the date on which it was acquired.
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| Q |
Is the exemption on the transfer of one’s own residence still applicable?
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| A |
Yes. If you owned the property and you occupied it for at least three consecutive years immediately preceding the date of transfer, and as long as the property is transferred within twelve months from when you vacate the premises, the transfer is exempt.
According to the Income Tax Act, "own residence" must be a dwelling house which is your only or principal residence. A garage attached to or underlying a house or a block of flats, or a garage of not more than 30 square metres situated within 500 metres of the dwelling house, and transferred through the same deed with the principal residence, is considered to be part of the residence.
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| Q |
I have been living in a property for more than three years with a permit issued by the Housing Authority pursuant to a promise of sale (konvenju) by that Authority, but the contract has been made only this year. I now intend to sell the property. Is this transfer going to be taxable?
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| A |
No, because the period during which you occupied the property as your own residence with the permission of the Housing Authority is considered to have been a period during which you owned that property. This transfer would be exempt from tax as long as you have occupied the property for a period of at least three consecutive years immediately preceding the date of the transfer.
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| Q |
I used to live with my mother for the past 10 years. The property had been my mother’s property. I have now inherited it and have kept on residing in it. I now intend to sell it, but I have not yet owned it for three years. Am I going to forfeit the exemption?
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| A |
No, such a transfer would still be exempt.
If you are going to transfer property that you have occupied for at least three consecutive years, and you have inherited it from a direct ascendant (parents or grandparents), the period during which your mother had owned and occupied the property as her own residence is considered to be a period during which the property was owned by you. In this case it is important that you had occupied the property for at least three consecutive years immediately preceding the transfer.
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| Q |
I am going to transfer property that I had acquired under an assignment of property following a judicial separation from my husband. This property is my own residence but less than 3 years have elapsed since I became the owner of the whole property. Do I have to pay tax if I transfer it?
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| A |
The period during which your husband owned the property and used it as his own residence is considered to be a period during which the property was owned by you. In this case you will not have to pay any tax as long as you occupied the property for at least three consecutive years immediately preceding the transfer.
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| Q |
Does this apply also where the separation was consensual?
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| A |
Yes, in this case the transfer would also be exempt from tax.
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| Q |
My husband and I owned property in common between us. The property is now going to be assigned to my husband. Shall I be deemed to have made a taxable transfer?
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| A |
No, you will not be charged any tax on this assignment.
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| Q |
My husband and I owned property in common. When my husband died, my children inherited his share and we are now going to partition the property amongst ourselves. Part of the property will be assigned to me, while the other part to my children. Are we going to have to pay any tax?
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| A |
No. The assignment of property owned in common by you and your children, as heirs of your husband, is not taxable.
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| Q |
If any condition for exemption is satisfied only with respect to an undivided part of the property, is the exemption forfeited or does it apply to the whole property?
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| A |
If any condition for exemption is satisfied in respect only of an undivided part of the property the exemption shall be restricted proportionately; it shall not be totally forfeited; nor will it be benefited in full.
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| Q |
When a company transfers property to another company within the same group, is it charged any tax on the transfer?
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| A |
The transfer of property from one company to another within the same group is exempt from tax. The conditions for a company to be considered as part of a group are found in article 5(9) of the Income Tax Act which is also applicable with respect to exemption under the new system. These conditions may be changed by regulations.
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| Q |
I am using an immovable property for business purposes. I now intend to incorporate my business into a company. Would this transfer be taxable?
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| A |
Such a transfer would not be taxable, as long you will be owning also 75% of the company’s shares. This is the same condition as that mentioned in article 5(15) of the Income Tax Act in the case of capital gains, and it is applicable both when the property belongs to a business as well as when it is owned by a partnership en nom collectif.
The exemption also applies where, on the contrary, a company is converted into a partnership and the property is transferred from the company to the partnership.
However, if the property is transferred by a partnership to one of the partners or by the company to one of its shareholders, the transfer would still be taxable.
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