Duty on Documents and Transfers
The Duty on Documents and Transfers Act is administered by the Capital Transfer Duty (Inland Revenue Department) which is housed at the Monte di Pieta’ Building, 46 Merchants Street, Valletta. The said Act caters for transfers done by way of a deed "Inter Vivos" and those done by way of a declaration "Causa Mortis". The department also receives "Share Transfers" both "Inter Vivos" and "Causa Mortis".
Inter Vivos Following a Promise of Sale agreement
Once a promise of sale is signed, it is to be presented at the Capital Transfer Duty within 21 days of the actual signing. At this stage a provisional duty of 1% is paid by the purchaser; i.e. if the price declared for a property is €200,000, then the duty payable on contract would be €10,000. Hence, the provisional duty payable would be €2,000. A receipt for such payment is issued. The market value of the property does not necessarily have to be the same as the price declared on contract. Thus, the duty payable should be calculated on the higher value.
After a Contract is Signed
Upon signing of the contract, the notary publishing the deed submits the relative ‘DDT1’ form at the Capital Transfer Duty together with site-plans, a copy of the Public Registry note, the stamp duty payment (due by the buyer), the capital gains tax payment (due by the seller) and Schedule 8 (for residential property only). The relative receipts are normally issued not later than 3 weeks from the date of submission of the notice of transfer (DDT1) at the department.
At this stage, an internal departmental board will decide whether an architect is sent to inspect the property in order to establish the market value of the property. Although valuations are carried out professionally, they still remain subjective. For this reason, the law allows a 15% tolerance between the declared value and the market value established by the department’s architect. If the difference between the market value as established by the department’s architect and the price declared is more than 15%, the department will issue a claim (assessment) both on the buyer and the seller.
In the case of the buyer, the claim issued will include the duty due together with the additional duty (penalty). In the vendor’s case, only the additional duty (penalty) is charged. The duty is calculated on the value added by the architect at the applicable rate; the additional duty (penalty) is equivalent to 20% of the duty due. In addition, if the claim is not paid, the transferee shall be liable to pay interest at the rate of zero point seven five per cent (0.75%) for every thirty (30) days or part thereof, which interest shall start accruing after the expiration of three months from the date of notification of the original assessment.
What happens after an Assessment
An objection in writing will only be valid if it specifies the valid grounds it is based upon and if submitted within thirty days from the date of service of assessment. If no agreement upon objection is reached, the Commissioner shall issue a Refusal. The refusal may be appealed before the Administrative Review Tribunal within 30 days from date of notification of the refusal.
Legal Action for Collection by the department
If a claim is not settled or not objected to, the Department may initiate legal action for collection of the duty/additional duty as the case may be. At this stage, legal fees will start to accrue upon the pending claim.
Causa Mortis relates to the succession of immovable property from a deceased person. The succession of immovable property must be made by means of a deed of Declaration Causa Mortis published by a Notary Public and duly registered in the Public Registry of Malta.
Each heir may go to a Notary Public and make a declaration Causa Mortis for his share only. The heirs are not obliged to make the declaration Causa Mortis together. The declaration Causa Mortis shall contain a statement by the heirs stating the true value of each property or share thereof which is being transferred to them.
Stamp duty to be paid on declarations Causa Mortis is regulated by the Duty on Documents and Transfers Act. To benefit from rebates on stamp duty, a deed of Causa Mortis must be concluded within six months from the date of death. Failure to conclude the Causa Mortis deed within one year from the date of death will result in the incurring of interest on the amount of tax due at the rate of 8% per annum.
As in transfers made by way of Inter Vivos, Causa Mortis transfers are also subject to the usual vetting by the department’s assessors and an internal departmental board to establish the correctness of the workings and the values attributed to the immovable property being transferred.
Transfers of shares both Inter Vivos and Causa Mortis are subject to duty as per the Duty on Documents and Transfers Act. The relative forms and share valuations are usually prepared by an Accountant and should be submitted at the Capital Transfer Duty Department. Vetting is carried out to verify the correctness of the workings submitted.
If the company whose shares are being transferred owns property, the case is referred to an internal board to decide whether or not to accept the values of the property declared. If the values are not acceptable, the department’s architect is sent to establish the market value of the property. If a miscalculation is found or if the department finds that the value of the property declared is under declared, the same procedure, as in the case of Inter Vivos, is adopted.