Guide to Buying Maltese Property
The Guide to Buying Maltese Property: Procedures to Know
Are you a foreigner trying to buy Maltese property? Have you found your pick, but looking to understand the paperwork?
If so, keep reading. The paperwork is what we’ll discuss today, and it can be broken down into the following steps.
- Signing the Kovenju
- Signing the Final Dead
- Legal expenses involved (for buyers)
- Legal expenses involved (for sellers)
- Taxes incurred by sellers
Step #1: Signing the Kovenju
Kovenju is the Maltese term for “Preliminary Agreement.”
Both sides (buyer and seller) negotiate and sign a Kovenju upon agreeing to transact the property.
The purpose of a Kovenju is to detail what the buyer and seller are responsible for in the transaction. It smoothens out the process, ensuring little to no problems arise.
The conditions of the agreement are mutually decided upon.
In short, the agreement binds the seller and buyer. The seller promises and is obliged to sell the property to the buyer. And likewise, the buyer is obliged to buy the property from the seller.
The following is a list of conditions that both buyers and seller need to mention in the document:
- Sell price (mutually decided)
- Ground rent to be paid (if any) before the transaction is completed
- Details that the seller should fix or install (written as a list in the Kovenju)
- Moveable items that affect the final price (also written as a list)
- Agreed upon special conditions requested by buyer or seller (such as permits or bank loans)
- Pre-set payment conditions – as decided by the seller
- Timeframe to final deed signing (this is normally 3 months)
- An approval of the Kovenju by the Notary Public
Additional conditions to note:
- As the Kovenju is signed, the buyer needs to pay 10% of the property price (mainly in the form of a bank deposit)
- If the buyer doesn’t show up for the final deed signing, the 10% is kept by the seller (they are not obliged to refund it)
After buyer and seller agree on the Kovenju, a 3 week grace period is given for the Notary Public. During that time, certain financial obligations must be met, which include:
- Payment of 1% stamp to the Inland Revenue
That sum is only paid by the seller. They must pay it every time they sign a Kovenju to sell an immovable property piece.
Anything Else to Know About the Kovenju?
Yes. Before committing to a purchase, be sure to perform security, safety, and legal checks over the property.
The Notary Public takes on that role for you. It ensures that a property has no liens and debt remaining.
As for the financing, it’s the buyer’s responsibility to arrange those processes, which will include the permit checks, the bank loan, all while agreeing to what’s set by the Kovenju.
On the other hand, sellers should manage and adjust the property as specified. That’ll include the construction, incomplete chores, and putting into effect what’s listed in the Kovenju.
Step #2: Signing the Final Deed
After the Kovenju’s requirements are completed, both sides need to set a date to sign the deed.
Buyer and seller should have agreed upon that when signing the Kovenju. However, the Final Deed can always be signed beforehand if both sides agree.
What’s the Notary Public’s Role?
After ensuring that the Kovenju’s agreements are fulfilled, their job shifts towards setting a final day for signing.
If there was a bank loan involved in the property purchase, then the signing will occur at their legal office (of the bank). Otherwise, the Notary Public hosts the signing.
Before the deeds are signed, the contract must be read in detail to each party. If both sides are satisfied, the signing proceeds.
The seller should’ve paid the remaining costs of the selling process by that time – which include stamp duty fees, notary charges, and security deposits.
This leads us to the next steps, which will discuss the expenses required from buyers and sellers…
Step #3: Expenses Required from Buyers
Notary fees are paid by the buyers.
That’ll amount to 1% of the property’s sell price. It’s paid for the issuance of a stamp duty, and from the Commissioner of Inland Revenue.
Additionally, there’s a 5% fixed rate that buyers are supposed to pay on immovable property. However, they do get a concession if they’re EU citizens.
EU citizens are allowed to pay 3.5% for every 50,000 MTL instead of the regular 5%. This only applies to EU citizens who have resided constantly in Malta 5 years prior to buying the property.
After that, property buyers should pay annual ground rent to the land’s owner.
The ground rent doesn’t apply if it is the 1st time for the owner to ask for ground rent. In that situation, the buyer only pays a one-time 100 MLT fee, similar to the Inland Revenue’s stamp duty.
Step #4: Expenses Required from Sellers
If you’re a seller, we highly recommend getting a tax advisor or personal accountant to help you through the process.
They’ll give you a realistic outlook on the fees which go to the government. After all, taxation is what follows after the transaction is completed.
When it comes to taxes, sellers are divided into two major groups. Some are exempt from taxes after selling their estate. Others have to pay them.
Sellers are ONLY excluded from tax schemes based on the property type they were selling. Those include:
- Property registered with the seller’s name for 3 years, with it being sold within 1 year of vacancy.
- Properties with a garage, or close to a garage that underlies the property location – applies even if property is in a block of flats.
- Residential properties with garages that do not exceed 30 square meters. The garage should be within ½ KM of the estate, and is transferred into the purchase deed as part of the estate.
In the previous scenarios, a seller can apply for a tax concession with the Inland Revenue. Otherwise, taxes are levied on the property purchase.
Minor concessions might be offered to sellers who haven’t owned the home they’re selling for too long (less than 5 years).
However, after the 5 year period is exceeded, the tax becomes mandatory (called the Final Withholding tax or FWT). We’ll explain its details below.
Step #5: Taxes to be Paid by Sellers
The FWT is paid based on the following:
- Selling price stated in contract
- Agency fees (which may reach 5% not including VAT)
Overall, the tax should total at no more than 8% – as mentioned in Malta’s Income Tax Act (Article 5A).
Regardless, there are certain exceptions on how the FWT is calculated. Taxes may range from 2% to 10%, depending on buying purpose, ownership period, and use for residence.
We’ll mention those conditions below.
First Exception – 2% Rate.
A 2% tax is levied on sellers who had originally owned the property while intending to buy its land, redesign the property, and then transfer it to a different buyer. The selling purpose should conform to Article 32(4).
Also, the sale should be made in less than 3 years after owning the property.
The Notary supervising the deal should make sure that the seller doesn’t own any moveable items in the Kovenju. Also, the seller shouldn’t have resided in the property for 3+ years.
Second Exception – 5% Rate.
A 5% tax is levied if the property isn’t part of a commercial or public project. Also, the seller should be selling the property after owning it for less than 5 years.
In certain situations, this’ll apply to property that was bought before December 31st 2018. The seller should not have owned the property for 5+ years after that date.
Third Exception – 7% Rate.
Applies to restored estate that hasn’t been auctioned since November 17th 2014.
Fourth Exception – 10% Rate.
Applies to property that was owned by the seller before January 1st 2004. If the property’s sale or transfer wasn’t given to the Inland Revenue, then a 10% tax is levied on the sale.
At the tax payment stage, extra payments or refunds should be settled with the buyer and other supervising agencies.
Other Fees to Note – Estate Agency.
The estate agency receives a service fee from buyer and seller conjunctly. Both parties should pay a total fee that is equal to 1 month of rent (in addition to 18% VAT).
Alternatively, the fees can be calculated based on the property’s rental value (if the buyer is leasing, not buying). In that case, 10% of 5 months of rent is paid after each party signs the agreement.
Paid commissions are not refundable.
If the buyer (or lessee) decides to buy the property instead, then the seller is charged a commission equaling 5% of the contract price. 18% of VAT is included in the fee.