Purchasing Procedure in Malta

Buying a property is a big step in any one’s life. It is a step that needs to be taken carefully and in full knowledge and understanding of one’s rights and obligations involved in such a transaction. At RE/MAX our Associates, backed by the experience of the respective office managers as well as a host of related professionalbuying property malta advisors, are well equipped to beable to guide the client through this whole process, always ready to listen and answer to the various concerns normally accompanying such an undertaking.

In preparing this document we have called upon our knowledge and experience and put down in writing a step-by-step guide that can better explain the normal procedure involved when making such an investment.

As a first Approach

Try to have a clear idea as to what the requirements are, the type, the size, thinking in terms of some years into the future

Is it a must to have entertaining area, indoor, outdoor?
Is it going to be a modern or a more traditional if not a character property?
The location. Is it important to be in a particular location, due to work-place or children’s schools perhaps?
Does the property need to have room for say, a children’s playroom or a hobby room?
How is the purchase going to be financed? Are the banks being involved?

Of-course answering all of the above may not be completely possible especially if one is a first time buyer and has no experience or feel of the market prices. Our suggestion would be to form the best idea possible and then put it forward to one of our Associates, preferably scheduling an office meeting where amongst other things, our Associate will be able to call up on computer all the available properties, most of which complete with pictures, that suit the requirements.

Once this initial meeting has been held and a list of properties to view has been selected, the Associate will proceed to organise the viewing appointments. This is typically the most demanding part of the whole process on the part of the client. At RE/MAX we know the pitfalls and how to avoid them. Our Associates are well drilled in the importance of being respectful towards the client starting from our strict dress code to punctuality to polite manners and a general pleasant attitude. In this way we hope to turn this task into something of an enjoyable and least stressful possible experience.

Property has been selected, what next?

Once the immovable property has been selected and the price as well as any special conditions duly negotiated and agreed upon an appointment is set to sign the Preliminary Agreement or what is commonly known as ‘konvenju’. This is essentially an agreement binding both the purchaser and the vendor to conclude the transaction within an established date (term of konvenju) subject to a set of conditions as listed below:

The agreed selling price
Ground rent, if applicable, temporary or perpetual
Any works to be completed by the seller, if any, (normally attached in list form)
Any items (movable) included in the selling price, if any, (normally attached in list form)
Any other particular terms as requested and agreed upon form either party, eg subject to bank loan, subject to permits
Conditions of payment (at times scheduled with works) as requested by vendor
Term of konvenju, (time between the signing of the Preliminary Agreement and the signing of the Final Deed) unless otherwise agreed, is typical to be three months

This konvenju is written by a Notary Public, normally chosen by the client (purchaser).

All the above mentioned points, as a minimum or as the case may be, will be drawn up and attached to form an integral part of this important document.

At the time of the signing of the konvenju, a sum equivalent to 10% of the final selling price, as is usually the norm in such circumstances, is paid to the vendor as deposit on account. It is very important to ensure that this payment is in fact recognised by both parties as being a property maltadeposit and never termed as ‘earnest’ which is not as binding to either party as it does not oblige either one to appear on the final deed of purchase. This deposit is binding and should the purchaser not appear for the final deed of sale without a valid reason at law the sum is forfeited by way of pre-liquidated damages in favour of the vendor.

Once the konvenju is completed and duly signed by all parties concerned, the Notary Public has a period of 21 days during which to register this document at which time he is required to effect payment of 1% stamp duty to the Commissioner of Inland Revenue. This sum is therefore to be paid at the time of signing of this konvenju by the purchaser as part of a total sum due, detailed below, by the purchaser in all cases when purchasing immovable property.

What happens in the ‘Term of Konvenju’?

Notary Public carries out the necessary searches to verify legal title and to ensure that there are no outstanding debts, hypothecs or liens on the property
Purchaser is to complete all the special requirements e.g. organise bank loan, check on building permits, etc. as agreed upon with seller and stipulated in the konvenju
Vendor will complete all special requirements e.g. complete the building, or finishing certain works etc. as agreed upon with buyer and stipulated in the konvenju

During this time RE/MAX as agents can be called upon to assist in any queries the client might have. We have very good relationships with all the leading banks on the island and can therefore also assist you as the client in setting up meetings with the bank of your choice.

As mentioned before we also have access to a host of professional people amongst which Notary Publics and Architects to mention two categories. These people can easily be contacted through us to assist in any questions a client might have, ensuring not only reliable but also timely replies.

Achieving Full Ownership

Once all the above has been completed by all parties concerned a date is set for the actual signing of the Final Deed.

Aproperty maltagain the duty for the preparation of this document lies upon the Notary Public who in fact will keep track of and ensure that the actual term of konvenju does not lapse. It is perhaps important to note at this stage that the date of expiry of the term of konvenju determines the final date by which both parties have to meet to sign the final deed but as long as both parties are satisfied that all is in order this document can be signed at any time within the term of konvenju.

The Notary Public will advise the purchaser and vendor as well as the RE/MAX Office/Associate of the day on which to meet to sign the Final Deed:

In the case where a bank loan is involved the parties will be asked to meet at the bank’s legal office, otherwise this document will be signed either at one of RE/MAX Offices or at the office of the Notary Public.
Contract is read out and as long as all parties are satisfied that all is in order it is signed.
Balance due (total selling price less previously paid deposit) on selling price is paid to seller.
Purchaser settles the remaining balance due to the Commissioner of Inland Revenue by way of Stamp Duty (rate as described below) as well as the notary’s fees.
Both parties settle their respective expenses due as described in detail below

Expenses involved

All expenses as described below become due upon signing of the Final Deed and are to be settled at the same time

Purchaser Dues

Notary fees – Elected by the Purchaser
Amounting to approximately 1% of the selling price of the immovable property
Stamp Duty – Due to Commissioner of Inland Revenue

In the case where the property being purchased is to be the main residence and no other property malta/property in maltaproperty results to be under the name of the vendor in question, then a special concession is made whereby the first €116,468.67 / Lm50,000 (fifty thousand malta liri) are subject to a discounted rate of 3.5%. The remaining balance will be subject to the normal rate of 5%.

This concession is applicable only to EU citizens taking up residence in Malta.
In all other cases this cost is established at a fixed rate of 5% of the total selling price of the immovable property.
Laudemium – Recognition Fee - Due to vendor or third party

In the case where Ground Rent is due, a one-off payment (laudemium - recognition fee) equivalent to a one-year’s ground rent is to be paid to the legal title holder of this said right.

In the case where the vendor is imposing this Ground Rent for the first time then no laudemium is due but instead a one-time recognition fee of Lm100 (one hundred malta liri) is due as stamp duty to the Commissioner of Inland Revenue.

Vendor

There exist two schemes of settlement of payments due by way of tax when selling immovable property in Malta. Whilst every case must be taken under its own merits the following could be taken as a general guide line. Specific advice should be sought in each case even through our agency but ideally directly from one’s own personal accountant or tax advisor:

Either one of these schemes has to be applied in all instances except in cases when:

(Exemption clause)

The immovable property has been the registered main residence of the vendor for a minimum of three years and is being sold within a year of when it was vacated.
The garage (if any) being sold is attached to or underlying the property being sold, even in cases where the property forms part of a block of flats.
The garage is not more than 30 square metres, and although not attached it is situated within 500 meters of the residential property and transferred through the same deed.

This exemption is granted by the Department of Inland Revenue upon application prior to the signing of the Final Deed of Sale.

In all other cases the following Tax Regime will apply:

At the time of the signing of the Final Deed of Sale, provided the property in question has been in the ownership of the seller for not more than 5 years, seller is given two options from which to choose, based on whatever may be the most beneficial to the seller at the time. Once the period of 5 years of ownership of the property has been exceeded the possibility of choosing is lost and the applicable tax will be that of Final Witholding Tax as defined in 'a' below.

Tax

Final Witholding Tax (FWT):

Calculated on the selling price of the immovable as declared on the Final Deed of Sale (Contract of Sale) less Agency Fees (if any paid and up to the allowed maximum of 5% plus VAT) with the resulting balance becoming subject (by default) to a FWT of 8% as governed by the final tax regime under article 5A of the Income Tax Act.

There are a total of five exceptions, outlined below, in which case the FWT will be calculated at a different rate:

Exceptions Governing Qualification:

FWT Rate - 2%: A transfer of property that was immediately before the transfer, owned by an individual, or co-owned by two individuals, who had for the purposes of Article 32(4)(a) of the Duty on Documents and Transfers Act declared in the deed of the acquisition of that property that the said property had been acquired for the purpose of establishing therein or constructing thereon his or their sole ordinary residence, and the transfer is made not later than three years after the date of the acquisition thereof. This shall only apply where the said individual does not own any other residential property at the time of the transfer. The notary who receives any deed of such a transfer shall record in the deed a written declaration by the individual so transferring that he does not own any other residential property at the time of the transfer and the notary shall warn the said individual of the importance of the truthfulness of such declaration.
FWT Rate - 5%: Transfer of property not forming part of a project, if the property is transferred before five years from the date of its acquisition. Transfer of property situated in Valletta, that was acquired by the transferor before the 31st December 2018, and such property has been restored and/or rehabilitated after the date of acquisition in accordance with any planning permit issued for this purpose by the Malta Environment and Planning Authority (MEPA), and on completion of such restoration and/or rehabilitation works are certified as satisfactory by MEPA before the 31st December 2018. The said transfer of property has to be made not later than five years from the 31st December 2018.
FWT Rate - 7%: Restored property where a notice of promise of sale has not been given prior to the 17th November 2014.
FWT Rate - 10%: Properties acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had not been given to the Commissioner of Inland Revenue before the 17th November, 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.

Additional payments / refunds, as applicable, are to be settled at this stage.

Needless to say this calculation is highly intricate but RE/MAX can offer their assistance should it be required.

Estate Agency Fees – Payable

RE/MAX Malta offers a selection of service products available for the Vendor to choose from at the time of listing of the property in question.

1. Open Agency Listings - Service Fees due are of 5% plus VAT;

2. Sole Agency Listings - Service Fees due are of 5% plus VAT;

3. Exclusive Agency Listings - Service Fees due are of 5% plus VAT.

Note: in all instances, Service Fees due are calculated on the total selling price which includes the values of both the immoveable and moveable items.

Disclaimer: The above information was accurate at the time of publication. RE/MAX Malta always recommends to their clients to seek legal and financial advise from a professional.