Legal Notice 191 of 2020, which came into effect from the 1st of January 2020, introduces a final tax on the assignments of rights acquired in terms of a promise of sale agreement.
Criteria for an assignment of a promise of sale agreement to be valid:
An assignment of a promise of sale agreement is only valid under these conditions:
(a) it is made in writing signed by the assignor and the assignee and authenticated by a notary or an advocate who authenticates the relative written agreement and shall be in such form and contain such information as the Commissioner may require or approve;
(b) notice of the assignment thereof, is given to the Commissioner in three (3) copies within twenty-one (21) days from the date of the relative written agreement;
(c) payment of the tax is made in accordance with these rules.
Should the assignment not be valid, has not been reported or has not been reported fully and correctly in notice of the assignment furnished to the Commissioner, the full amount of that income shall be charged to tax at the rate of €0.35 on every euro of that income. This shall be payable upon demand with interest.
Tax on Assignments where the Consideration does not Exceed €100,000
When the consideration for an assignment does not exceed €100,000, the income derived from that assignment, shall be subject to tax at the rate of €0.15 for every euro or part thereof. Such tax shall be final and shall be separate and distinct from that paid or payable under any other provisions of the Income Tax Act (ITA) or of the Income Tax Management Act (ITMA). This final tax shall not be available as a credit against the tax liability of any other person or as a refund.
The income derived from such an assignment shall not form part of the total income of the person deriving that income and any loss that may be incurred in any such assignment shall not be available by way of deduction from or set off against income derived from any other assignment or from any other source. When the assignor is an individual, he shall not be required to disclose that income in any return of the Income Tax Management Act (ITMA). When the assignor is a company resident in Malta, it shall allocate the distributable profits derived from the assignment to its final tax account.
Tax on Assignments where the Consideration Exceeds €100,000
When the consideration for an assignment exceeds €100,000 (after deducting the allowable expenses), the first €100,000 shall constitute the final tax portion and the amount by which the consideration exceeds €100,000, shall constitute the excess portion.
The excess portion, after deducting the allowable expenses, shall form part of the assignor’s chargeable income for the year of assessment in question and shall be subject to the standard tax rates as applicable to that particular individual (parent, married or single rates). For companies, the tax rate is 35%.
Value of the Consideration
The following points explain how to determine whether the consideration for the assignment exceeds €100,000:
(a) when rights are assigned to two (2) or more persons conjointly or in undivided parts, the value of the consideration shall be deemed to be the total consideration paid or payable by all those persons;
(b) when rights are assigned by two (2) or more persons conjointly or in undivided parts, the value of the consideration shall be deemed to be the total consideration paid or payable to all those persons;
(c) when rights acquired under a promise of sale are assigned by means of more than one (1) transaction entered into between the same parties, the said rights shall be deemed to have been assigned by means of one (1) assignment for the total consideration paid or payable in terms of all the transactions in questions.
From the 1st of January 2020, this legal notice overrides all provisions regulating the taxation of assignments of promise of sale agreements in the Capital Gains Rules and the Property Transfer Rules.
Should you have any queries in relation to the above or require any assistance with any other taxation or property related matter, please feel free to contact us on firstname.lastname@example.org or on email@example.com