So you found the perfect property. What happens next?
Together with a notary, you and the seller will sign a preliminary contract. This official document will be filed by the notary with governmental bodies, in which you reserve the exclusive right to purchase the property.
In the preliminary contract, you and the seller dictate the terms and conditions. The usual expiry date of the contract is set between 2 and 4 months from signing. During this time, the notary will conduct a thorough search to verify that all official documents are in place, that all permits are cleared, and to see if the seller has any existing mortgages on the property.
If you require a bank loan, the bank will give you clearance during this period of time based upon the searches of the notary and the reports of an appointed architect. The notary will register the preliminary contract with the government, which then becomes legally binding on both parties.
Upon signing the preliminary contract, the usual deposit is 10% of the selling price. You’re also required to pay 1% of the selling price as a preliminary tax. It is advised to pay both the deposit and mandatory tax to the notary’s client account.
Once the notary has conducted all of the required searches and the property is clear, you can sign the final deed and become the legal owner of the property. This can be done before, but not later than, the due date dictated in the preliminary agreement unless both you and the seller agree to extend the due date.
In fact, it is possible to move into your new home within 2 months upon signing the preliminary agreement. You are legally bound to pay the remaining balance in full no later than the due date. The seller is also legally bound to accept this transfer.
In the event that you, without legal reasons, do not pay the balance due, you will lose your deposit and preliminary tax. In the event you do not sign the final deed due to reasons that are dictated in the preliminary agreement, the deposit and the preliminary tax will be refunded in full.
When purchasing real estate in Malta, you’re required to pay a one-time stamp duty equal to 5% of the selling price. An exception is made when you register as a citizen of Malta and occupy the property as your primary dwelling. In this case, the stamp duty for the first €150,000 is reduced to 3.5% and 5% for any exceeding amount.
For example, if you purchase a new home for €250,000 and declare to use it as your primary residence, the stamp duty payable will be: 3.5% of €150,000 (€5,250) + 5% of €100,000 (€5,000) = €10,250
In all other cases, the stamp duty is 5% of the full selling price. The remaining tax – less the 1% already paid upon signing the preliminary agreement – is due and payable to the notary upon signing the final deed. No additional property taxes are due on an annual basis.
Notary costs for purchasing real estate in Malta are set according the amount of searches they conduct. This sum is usually around 1.5% of the selling price.
Buyers do not pay agency fees in Malta. Fees to the seller will vary between 3.5% in a sole agency agreement (exclusive selling rights) to 5% if the property is put on the open market. In addition, the fee incurs 18% VAT.
Taxation When Selling Your Property
Upon selling, you will not be taxed if you’ve used your property as a primary residence for more than 3 years. If you sell your primary residence within 3 years or have declared the property to be a second home, you’re subject to a 5% tax on the full selling price (if selling within 5 years after purchase) or 8% of the full selling price (if selling after 5 years after purchase). Agency fees inclusive of VAT are tax deductible.
You do not need a permit to purchase a private dwelling in Malta if you’re an EU citizen. If you want to buy a second home or multiple properties in Malta, you need to acquire a permit known as an Acquisition of Immovable Property (AIP).
The buying procedure will remain the same except that the notary will process the application with the authorities for an additional cost of €250. The AIP permit will be granted for EU citizens applying for a second home.
There are a number of luxury development projects spread across Malta and Gozo that have Special Designated Area (SDA) status. Developments with SDA status do not require an AIP permit and allow foreigners to buy as many units as they wish.