In the exercise of the powers conferred by articles 5A (13) and 96 of the Income Tax Act, the Minister for Finance and Financial Services, introduced Legal Notice 191 of 2020.

The latter highlights that for an assignment of a promise of sale agreement to be valid:

  • it has to be made in writing and 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,
  • a notice of the assignment thereof, must be given to the Commissioner in 3 copies within 21 days from the date of the relative written agreement and,
  • payment of the tax is made in accordance with these rules.

Moreover, when the assignment is not valid or the notice has not been issued (or issued in part) to the commissioner, the full amount of that income shall be taxable at a rate of 35%.

It is to be noted that in the event of having a consideration for an assignment which does not exceed €100,000, the income derived from said assignment shall be subject to a taxable rate of 15%.

Also, this aforementioned tax shall be considered to be final and separate from that paid or payable under any other provisions of the Income Tax Act or of the Income Tax Management Act.

The income derived from said assignment shall not form part of the total income of the person deriving that income. 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 made pursuant to article 10 of the Income Tax Management Act. When the assignor is a company resident in Malta, it shall allocate the distributable profits derived from the assignment to its final tax account.

On the other hand, when having a consideration of an assignment exceeding €100,000, the first €100,000 shall constitute the final tax portion whilst the residue shall constitute the excess portion.

The excess portion shall be considered to be part of the assignor's chargeable income for the year of which the assessment is being done. Said portion shall also be subject to tax rates according to a case by case basis. Moreover, it can be highlighted that for companies, the tax rate is 35%.

*Both portions shall be taken in consideration after deducting the allowable expenses*

In order to determine whether the consideration for the assignment exceeds €100,000, certain point shall be considered, including:

  • when rights are assigned to 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;
  • when rights  acquired  under  a  promise  of  sale  are assigned by means of more than 1 transaction entered into between the same parties, the said rights shall be deemed to have been  assigned  by  means  of  1  assignment  for  the  total consideration paid or payable in terms of all the transactions in questions.

As of the 1st of January 2020, this Legal Notice shall supersede any other provisions regulating the taxation of assignments of promise of sale agreements in the Capital Gains Rules and the Property Transfer Rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.