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Capital Gains Tax in Malta

Capital Gains Tax in Malta

Malta’s taxation system resembles that of other European countries, as it is made of several taxes. Among these, the capital gains tax in Malta is one of the most important as it is imposed on the disposal of various types of assets held here.

The levy is applied to both companies and natural persons in the insular state, however, it is important to note that in some cases it is applied as a withholding tax. Below, our accountants in Malta explain the main rules under which the capital gains tax is imposed. We also explain the capital gains rules in Malta and how you can obtain the advantages offered by this country from a taxation point of view.

What are capital gains?

Over time, both individuals and companies in Malta obtain various assets. The value of the respective assets can increase or decrease over time. Taxation in the case of such assets occurs when they are sold.

In Malta, capital gains are considered investments, thus, taxed accordingly. In most cases, individuals are subject to the capital gains tax. However, an important aspect to consider is that the levy is imposed when the asset is sold at a higher price than bought.

Capital gains are treated differently based on the residency of the payer, which is why when dealing which such particularities, you can rely on our accountants in Malta.

The types of assets for which the capital gains tax is levied are explicitly defined by Maltese law. The tax generally applies to intellectual property, securities, and associated instruments. Such gains are often factored into the company’s or person’s taxable income for determining the tax rate. It is important to note that capital gains made outside of Malta are only subject to taxation in Malta if they accrue to taxpayers who are citizens or have their primary residence there.

Malta’s capital gain tax and its appliance

In order to establish how the capital gains tax in Malta is levied, you should first know the types of assets that can be imposed with this levy. These are:

  1. immovable property, out of which real estate is the best known;
  2. shares and other financial instruments held by companies and natural persons;
  3. income derived from intellectual property rights (copyrights, patents, trademarks, etc.);
  4. interests in partnerships or trusts held in Malta.

An important aspect to consider according to the capital gains rules in Malta is that in the case of companies that are not domiciled or tax residents here and obtain capital gains outside the country exemptions apply. In other words, such entities are not subject to the capital gains tax.

Our accounting firm in Malta is at the service of local and foreign companies with activities here and can help them obtain all the benefits that come with doing business in this country, including applying for various tax incentives.

Particularities of capital gains in Malta

Capital gains have a few particularities and can be recognized after the following:

  • they represent the increase in value and are realized when the asset is sold;
  • they cover various types of assets, among which goods bought for personal use or for investment purposes;
  • they are purchased on a short or long term and must be declared when filing the income tax returns.

Our accounting firm in Malta offers tax filing services and can advise on whether you must pay the capital gains tax or not.

How is the capital gains tax established in Malta?

Taxation in Malta is based on residency, therefore, in order to pay the capital gains tax, one must be registered for taxation here. This principle applies to both individuals and companies. Non-residents may also be subject to taxation here provided that they spend a certain number of days per year in this country and they make taxable activities.

Special attention is paid to real estate property that is taxed in Malta (the country it is built in) no matter if the owner is a Maltese citizen/resident or a non-resident.

As an individual, you should note that capital gains that are not subject to the final income tax must be reported with the entire income levy. This way, the whole amount can be taxed at once. It is also possible to obtain capital gains tax exemptions in Malta. For example, the sale of real estate or any other type of immovable property can be exempt from this levy if it was owned/used as the sole residency of the taxpayer for a minimum period of 3 years.

However, it is also worth noting that the sale and transfer of immovable property are treated differently from a taxation point of view. Instead of capital gains tax, Malta applies the property transfer tax to the transfer of immovable property. This tax is not one levied on the element of gain, but rather a cost of the transaction.

Even if they are transferred to a Maltese bank account, capital gains from overseas sources are exempt from the income tax in Malta. According to the Maltese legislation, capital gains from selling or buying shares on international stock exchanges are not subject to the income tax, which makes the country very appealing for foreign citizens and investors.

Filing tax returns in Malta can be difficult if you are not a resident or you are not acquainted with the tax system here. For this purpose, you can rely on our local accountants who provide such services.

The payment of the capital gains tax in Malta

Compared to the corporate tax or personal income tax in Malta, the capital gains levy is imposed after the sale or disposal of the assets qualifying for it.

In the case of Maltese companies, the transfer of assets is added to the other income of the business and the total amount of the tax will be charged at once. This implies a simplified taxation regime so that companies do not have to pay levies several times.

Foreign businesspersons interested in setting up businesses here can rely on our accountants and auditors in Malta for personalized assistance in taxation matters.

Capital gains taxation in respect to real estate assets

Malta is one of the most appealing countries in Europe to own a property in. In the past few years, the possibility of acquiring a property through special programs that come with Maltese passports has led to the development of the real market and the disposal of such an asset will attract the payment of a transfer tax.

Malta’s capital gains tax when it comes to the transfer of a property is known as the Property Transfer Tax and it implies the payment of a fee related to the transaction and not the asset that was obtained from the transfer.  This levy is imposed at different rates, depending on the time of the acquisition.

The capital gains tax in Malta must be carefully considered which is why if you need guidance, our accounting firm can offer tailored services related to the transfer of assets.

The Maltese capital gains tax imposed on other assets

Intellectual property such as copyrights, trademark utilization, patents is some of the most transactions assets nowadays, as research and development activities have reached a peak. Such assets usually enter the portfolio of holding companies which from a capital gains tax point of view can benefit from the participation exemption.

When it comes to natural persons, it should be noted that the capital tax gains tax in Malta is also levied on the transfer of assets such as jewelry.

In order to pay this tax in Malta, a person or company must be registered for taxation with the Commissioner for Revenue.

Rates of the capital gains tax

The capital gains rules in Malta provide for different levies of this tax, as it depends on the types of assets transferred and the best example in this sense is real estate.

Here are the main aspects to consider about the imposition of Malta’s capital gains tax:

  • the withholding tax rate applicable in Malta is set at 15%, however, lower rates may apply;
  • in the case of property transfer, the rate of the tax starts at 8%, however, lower rates of 2%, 5%, 7%, 10% and 12% are also in place;
  • these rates are also influenced by Malta’s double tax treaties that are more than 70 at the moment.

If you need assistance with respect to the capital gains tax in Malta, feel free to approach our accounting firm. Contact us for tailored accounting services in accordance with your needs.