Background information

Legal Notice 419 of 2021, entitled Exemption from Tax on Property Transfers (Set-off of Tax Arrears) Rules 2021, which falls under the Income Tax Act, came into force in the beginning of November 2021. The law, which the government introduced as a temporary measure aimed at helping enterprises during the COVID-19 pandemic, received criticism from social partners and Malta's main opposition party, the Nationalist Party (Partit Nazzjonalista - PN).

Content of measure

The legal notice allows for individuals and organisations with tax arrears who transfer immovable property which is subject to tax (8%) under the Income Tax Act to apply the net proceeds from the transfer to settle any tax arrears. The benefit of this legal notice is that property tax is considered an additional payment of tax arrears.

For example, should a person transfer a property for €400,000 and pays 8% property transfer tax (€32,000), the net proceeds from the sale are €368,000. If the person utilises this full sum to settle their tax arrears, despite making a payment of €368,000, the deemed payment is increased by the property tax of €32,000. Thus, the person's tax arrears would decrease by €400,000.

Additional formulas are included within the legal notice for situations where the amount exceeds one's tax arrears, as well as when only a portion of the proceeds are transferred.

For this to be applicable, the immovable property would need to have been acquired prior to 31 March 2021 and the transfer must have occurred before 31 December 2022.

Use of measure

No information available.

Target groups

Workers	Businesses	Citizens
Does not apply to workers	Applies to all businesses	Applies to all citizens

Actors and funding

Actors	Funding
National government	National funds

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	No involvement	No involvement
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• No involvement
• Main level of involvement: N/A

Involvement

Social partners do not appear to have been involved in the design, implementation or monitoring of this measure. In fact, several professional organisations, social partners as well as the political party in opposition all voiced their displeasure at the introduction of this measure.

Views and reactions

The Malta Institute of Taxation and the Institute of Financial Services Practitioners criticised the measure as one that favoured those defaulting on their tax obligations and who own immovable property in Malta. They also criticised the lack of prior consultation. The Malta Institute of Accountants also publicly denounced the measure stating that it rewarded those who failed to pay their dues.

The Malta Chamber also had similar criticisms, highlighting that it was unfair for employers who paid their taxes on time, and that it created an unfair playing field which favoured defaulters. The Chamber stated that legislation should instead prevent individuals from purchasing properties when they had defaulted on tax obligations. The Malta Developers Association also spoke out against the measure, stating that it created unfair competition and that it discriminated against those who did not have immovable property. Subsequently, the Nationalist Party (PN) called for the legal notice to be repealed.

Despite all the criticism, the Minister for Finance defended the measure and stated that it will not be repealed, explaining that he intended to do all he could to ensure that money owed to the state was recovered.

Sources

• 09 November 2021: L.N. 419 of 2021 - Exemption from tax on property transfers (legislation.mt)
• 10 November 2021: BDO - Legal Notice 419 of 2021 exemption from tax on property transfers (www.bdo.com.mt)
• 12 November 2021: Times of Malta - Chamber slams measure 'favouring' defaulters defaulters who are being spared property tax (timesofmalta.com)
• 13 November 2021: Times of Malta - Amnesty that rewards property tax defaulters criticised (timesofmalta.com)
• 19 November 2021: Times of Malta - Controversial tax scheme will not be revoked, finance minister pledges (timesofmalta.com)
• 30 January 2023: ACT - Amendments to the exemption from tax on property transfers (set-off of tax arrears) rules (www.act.com.mt)