Real Estate 2024 Comparisons

The main sources of real estate law are the following:

• Civil Code, Chapter 16 of the Laws of Malta;
• Private Residential Leases Act, Chapter 604 of the Laws of Malta;
• Reletting of Urban Property (Regulation) Ordinance, Chapter 69 of the Laws of Malta;
• Housing (Decontrol) Ordinance, Chapter 158 of the Laws of Malta;
• Agricultural Leases (Reletting) Act, Chapter 199 of the Laws of Malta;
• Government Lands Act, Chapter 573 of the Laws of Malta;
• Real Estate Agents, Property Brokers and Property Consultants Act, Chapter 615 of the Laws of Malta;
• Development Planning Act, Chapter 552 of the Laws of Malta;
• Immovable Property (Acquisition by Non-residents) Act, Chapter 246 of the Laws of Malta;
• Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta;
• Income Tax and Duty on Documents and Transfers on Transfers of Dwelling Houses to Shareholders Exemption Order, Subsidiary legislation 123.54 of the Laws of Malta; and
• Income Tax and Duty on Documents and Transfers on Transfers of Dwelling Houses by Commercial Partnerships Exemption Order, Subsidiary legislation 123.58 of the Laws of Malta.

The cost of real estate in Malta has increased at a consistent rate as can be seen from the Property Price Index (PPI). The inclusion of first-time and second-time buyer schemes and reduced taxes for both purchasers and sellers of immovable property can be seen to sustain the demand for property, and also aims to encourage first-time buyers in acquiring property.

In fact, first-time property buyers shall continue to benefit from a EUR1,000 grant for a period of ten years. In addition, all property buyers (including non-first-time buyers) will continue to benefit from an income tax and stamp duty exemption on the first EUR750,000 of the higher of the value of or consideration paid for the acquired property if the property prior to the transfer date;

• has been constructed for a period of 20 years or more;
• has been vacant for more than seven continuous years; and
• is situated in an Urban Conservative Area (UCA).

In addition, property restoration schemes have also been introduced with the aim of preserving Malta’s national heritage, whereby homeowners of qualifying properties will be able to benefit from a refund of VAT expenses incurred such as architect’s fees, project management fees and planning permit fees (up to EUR54,000 on the first EUR300,000 of the property’s total purchase price). Qualifying properties means those properties which satisfy the aforementioned conditions.

Also, property purchases in Gozo outside an Urban Conservative Area (UCA) have drastically increased mainly due to a government incentivised reduction of the applicable stamp duty from a rate of 5% to 2%. Although the incentive has now been removed, this nevertheless created an unprecedented tide of real estate investors attempting to acquire property in Gozo, which does not seem to be slowing down any time soon.

Furthermore, it does not seem that the pandemic had any lasting effect on the inflation prices of real estate as purchasers continue to face difficulty in obtaining bank loans to acquire immovable property in Malta.

A number of recommendations have been made to address the shortcomings seen to be present in the regulation of the construction sector and its enforcement. In this respect, it would also be relevant to mention Legal notice 37 of 2024 on the Avoidance of Damage to Third Party Property (Amendment) Regulations, and Legal notice 38 of 2024 on Construction Sites Insurance Obligation Regulations, as these have been implemented to regulate contractors.

In fact, contractors are required to have a licence covered by a valid insurance policy that covers any loss, damage, injury or death that may be suffered as a consequence of an act or omission by the contractors, its/their employees or any person operating under its/their direction. Should such licensed personnel not be covered by a valid insurance, they shall be personally liable for any damage that may ensue. Additionally, a vetting process has been introduced to ensure scrutiny and guarantee transparency whereby any natural or legal person applying to become a construction contractor must fulfil certain requirements such as being in possession of a mason’s licence or employing people who have a minimum number of years of experience.

As mentioned, a number of recommendations that target the construction sector have also been made. It has been suggested that a set of National Building Codes should be concluded and published on the basis of European Building Codes to ensure that architects are compliant with the Building Construction Act. The issue of health and safety has also been delved into and it has been suggested that site safety officers should have the authority to suspend any construction works until any wrongdoing has been remedied, especially when the health and safety of workers have been grossly prejudiced.

It has been recommended that administrative practices be further scrutinised, to ensure that work permit applications by employers for third-country nationals are better verified. Lastly, and of note, is the carrying out of workplace inspections in that no construction site should ever operate in an uninspected manner.

In addition to the above, the government is set to amend the current law on leases, by regulating the number of tenants that a residence can have. It is expected that the government shall prescribe that the number of people allowed to share a bedroom shall not exceed that of two tenants in the case of shared rentals. Also, landlords shall be able to register between eight and ten tenants in residences with four to five bedrooms, provided that there is a minimum of two bathrooms in the property. Such proposals have been made as response to the current tenant situation whereby landlords in Malta have been accepting more tenants than they should, given the size of the property being leased.

Although most of these recommendations have been implemented, it still remains to be seen whether such provisions shall be enforced and, if enforced, then the manner in which they will impact the construction industry and landlords choosing to rent out their property.

There are various titles by which property may be conveyed, and institutes by virtue of which rights may be secured, the following being the principal rights.

• Ownership is the right of enjoying and disposing of immovable property in the most absolute manner and is acquired by the lawful owners following the transfer by title of full ownership to the purchaser.
• Lease is acquired whenever the lessor enters into a lease agreement with the lessee, granting the latter the right of possession of the property.
• Emphyteusis refers to when one of the contracting parties transfers to the other, by means of a contract, in perpetuity or for a specified period of time, a property subject to the payment of an annual ground rent. In perpetual emphyteusis, the emphyteuta can choose to redeem the ground rent and convert the right of emphyteusis into a title of ownership.
• Usufruct is a legal right to use and derive benefits from the property belonging to another person, subject to the condition that the manner and form of the property is preserved. This right can be constituted for a specified period of time or otherwise until the fulfilment of a particular condition.
• Hypothec is typically granted by the owner of immovable property as a way of offering security in lieu of a loan. Hence, ownership will only be lost in the event that property owner defaults on the loan.
• A property may also be the subject of an easement or a servitude. The right of easement is that created by law in favour of a property over another property for the purpose of making use of such other property, or of restraining the owner from the free use thereof. There are different types of easements such as that arising from the position of the property whereby the lower situated property is subject to receiving water which may pass from the higher property, and it shall not be lawful for the owner of the lower property to do anything that may prevent such waterflow. This is typically common in agricultural property. Similarly, the right of servitude occurs where a person holds certain rights over the property of another, such as the right of passage.

The main laws that apply to a transfer of title of real estate are as follows:

• Civil Code, Chapter 16 of the Laws of Malta regulating the transfer of property inter vivos and causa mortis (ie, through inheritance) including the sale by licitation of the property;
• Reletting of Urban Property (Regulation) Ordinance, Chapter 69 of the Laws of Malta (regulating pre-1995 commercial leases);
• Immovable Property (Acquisition by Non-residents) Act, Chapter 246 of the Laws of Malta;
• Private Residential Leases Act, Chapter 604 of the Laws of Malta;
• Housing (Decontrol) Ordinance, Chapter 158 of the Laws of Malta;
• Agricultural Leases (Reletting) Act, Chapter 199 of the Laws of Malta (regulating agricultural leases); and
• Notarial Profession and Notarial Archives Act, Chapter 55 of the Laws of Malta.

Any agreement that purports to promise the transfer or acquisition of the ownership of immovable property or any other right over such property, under whatever title, must be done by means of a public deed or a private writing. Whereas a public deed published by a notary public is required for a contract of sale of property or a contract of emphyteusis, a lease agreement can be effected by means of a private writing.

It may be the case that the immovable property to be transferred falls within a registration area requiring compulsory registration as classified by the responsible minister. In Malta, the Lands Authority together with the Public Registry are responsible for such registrations. In fact, if such registration is not effected as necessary, the following shall not become effective in respect of third parties, whether beneficially or in an adverse manner:

• any contract conveying the transfer of ownership, or any real right over such property, including transactions that relate to immovable property held under trusts, or any contract having the effect of dissolving, rescinding or revoking any such transfer of ownership or of any real right over immovable property;
• any judgment with the effect of dissolving, rescinding or revoking the ownership or any real right of immovable property or with the effect of adjudging any transfer of ownership, any real right over property, any hypothec created by law, or of creating a hypothec; and
• any transfer of immovable property by means of a judicial sale and any redemption of ground rent.

Registration is only completed once the duty on the property has been paid in terms of the Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta.

Similarly, all private residential lease contracts entered into, from 2020 onwards, must be registered with the Housing Authority within ten days from the commencement of the lease, and registration is subject to an administrative fee as levied by the responsible minister, as stipulated by the Private Residential Leases Act, Chapter 604 of the Laws of Malta. Failure to do so shall render such contract null and void, with the lessor liable for a fine. The law does, however, contemplate the right of either party to register the contract, always at the expense of the lessor.

When entering into a promise of sale, a notary is normally engaged to carry out examination of title over the relevant immovable property. Once the relevant searches and due diligence have been carried out, generally in the interim period between the promise of sale and the eventual sale/purchase agreement, the notary shall then inform the transferee of the facts and findings resulting from the searches carried out and report all information that has come to their knowledge.

It is normal practice for parties entering into a commercial real estate transaction to guarantee that they possess the necessary capacity and consent together with the other requirements stipulated by law to enter into such a contract. In such contracts, it is essential for the owner of the property to guarantee their title of ownership by means of the warrant of peaceful possession and against any latent defects that may render the property unfit for use or diminish its value.

The title of ownership is often guaranteed by means of a general hypothec, which, as explained previously, is a legal right over all the seller’s property, both present and future; or, otherwise, by means of a special hypothec over other specific property owned by the seller, which is more effective since it follows the property and not the person.

Customarily, the remedies available to a buyer in the event of misrepresentations made by the seller are:

• the rescission of the contract of sale;
• to restore the parties to the position they were in prior to entering the contract; or
• the payment of damages being either pre-liquidated damages or in the form of quantifiable damages as agreed by the parties in terms of the contract, subject to the highest applicable interest rate under the laws of Malta at the time (currently 8% per annum in civil matters).

The law does not provide any limit as to the amount of damages that may be liquidated in terms of misrepresentation, provided that the amount is considered equitable and just, according to the circumstances, and represents actual losses incurred.

In leases, the lessee may demand the annulment of the contract of lease together with the payment of damages, if they can prove that misrepresentations or fraud were used to their prejudice in regard to any conditions imposed on a lease. The new lease shall remain operative on the same conditions as the previous lease, at a rent to be fixed following valuation by experts depending on the present circumstances when the conditions so impeached were accepted.

Most notably, an investor should take cognisance of the applicable tax and duty payable on the type of property chosen and that regulating the transfer of immovable property. Throughout the years, the Maltese government has taken the initiative to lower the duty payable on UCAs and other similar properties, with the intention of preserving Malta’s heritage. It is also recommended to refer to the applicable provisions within the Immovable Property (Acquisition by Non-residents) Act, Chapter 246 of the Laws of Malta, which stipulate the necessary conditions that are to be fulfilled by foreign investors acquiring property in Malta.

Additionally, an investor should also proceed with consulting a notary who will proceed to file the necessary form (Form E) to the land registry and carry out all the relevant searches on the property specifically to determine whether a property is in a Registration Area. Such investor will also have the right to know whether the property has never been registered before, or, if it has been registered, whether the property is subject to a hypothec, privileges and/or cautions registered at the land registry, and/or any other known fact that may negatively influence the investor’s decision to acquire the real estate. This is regulated under the Land Registration Act, Chapter 296 of the Laws of Malta.

Maltese law stipulates that every person shall be liable for the damage that occurs through that person’s own fault. Thus, where a property buyer is not aware of any soil or environmental pollution and has not committed any contributory acts, then such person is exempt from any ensuing responsibility. The same cannot be said for the seller who in bad faith sells the property without disclosing the pollution present.

The Environment Protection Act, Chapter 549 of the Laws of Malta, does, however, provide that every person and entity, whether public or private, has the duty to protect the environment and to assist in the taking of preventative measures to avoid damages or remedial measures which can remediate any damage that may have been caused. However, it should be noted that such duty is not enforceable before a court of law.

In addition, the Prevention and Remedying of Environment Regulation, Subsidiary legislation 549.97 of the Laws of Malta provides that where environmental damage is caused by pollution, it will be essential to establish a causal link between the damage and the activities of individual operators. Whether the buyer had anything to do with the damage is ancillary, as they will nevertheless have an obligation to inform the relevant authority of the situation, take all practical steps to control and prevent further environmental damage and take all necessary remedial measures, at their own cost. In any case, the competent authority will have the right to initiate cost recovery proceedings against either the buyer who acquired the property, or otherwise a third party, possibly being the seller of the property who would have caused the damage, in relation to any measures taken within five years from the date on which those measures were completed or the liable person was identified.

The Development Planning Act, Chapter 552 of the Laws of Malta provides the applicable rules relating to sustainable land planning and development management in Malta. It outlines the functions of the planning authority, which is responsible for the administration and enforcement of the policies regulating land use and planning. Buyers are advised to consult and engage a warranted architect who can provide professional guidance on the permitted use of a specific land and determine whether the intended project complies with the applicable zoning and planning laws.

The Government Lands Act, Chapter 573 of the Laws of Malta, regulates the mechanism for land acquisition by the government and the procedures that follow in relation to such acquisition. The government can choose to take over any private property:

• by the absolute purchase of the property;
• for the possession and use of the property for a period of not more than ten years; or
• by acquiring part of a land by absolute purchase and part of it by possession and use.

The applicable procedure is as follows.

• If the Lands Authority (the “Authority”) considers it desirable that any land should be examined to determine its possible acquisition for public purpose, it may make a declaration to be signed by the Chairperson of the Board of Governors of the Lands Authority to that effect. Following this, it shall then be lawful for the Lands Authority, or any person authorised by it, to enter and survey the land and to do all other acts necessary to determine whether the land is adapted for such purpose.
• If the land is deemed to be appropriate for public purpose, the Chairperson shall draw up and sign a declaration to that effect, which shall then be published in the Government Gazette and at least once in two daily or Sunday local newspapers. Such declaration shall contain well-defined detail to allow anyone to identify the land being acquired, the public purpose for which it is being required, the amount of compensation which the Authority is willing to pay, together with a site plan of the land and a valuation drawn up in terms of the Government Lands Act.
• If the acquisition of the land is for possession and use, then the relevant declaration shall indicate the number of years that the Authority intends to keep the land, provided that such number does not exceed ten years. Acquisition rent shall be payable to the person entitled to receive or to let and receive the rental on lease of the land affected, or the tutor, curator, administrator, procurator or other representative of the person so entitled.
• The Authority shall not later than 14 days following the publication of the declaration, provided that this is physically possible to carry out, attach a copy of the declaration of the site plan upon or near the land which is being acquired. This notice shall also be shown on the notice board of the office of the local council and of the police station in the locality where the land is situated.
• If the land being acquired is occupied by any person, the Lands Authority shall by means of a judicial act presented in the register of the Arbitration Board, forward a copy of the declaration and the plan to those persons occupying the land.
• Any person interested in the land being acquired may contest the public purpose of the said declaration and demand its cancellation before the Arbitration Board by means of an application filed in the registry of the said Board within 50 days from the publication of the said declaration. Once the application is served on the Lands Authority, the latter shall have the right to submit a reply within 20 days from the notification. The Arbitration Board shall set down the application for hearing without delay, and, after listening to the witnesses and the submissions of the parties, it shall pass judgment within the shortest time possible but not any later than two months from the closing date within which the Lands Authority had to file its reply.
• Any party aggrieved by the decision given by the Arbitration Board may appeal before the Court of Appeal in its superior jurisdiction by means of an application filed within 20 days from the date of such decision. The Court of Appeal shall set down the cause for hearing at a date not later than two months from the date of application. After listening to the parties’ oral submission, the court shall pass judgment on the merits within the shortest time period, which must not be longer than six months from the day that the appeal application was filed and the parties duly notified.

The respective parties must make reference to the legal provisions regulating the tax payable on the purchase and sale of property in Malta, specifically the Income Tax Act, Chapter 123 of the Laws of Malta and the Duty on Documents and Transfers Act, Chapter 364 of the Laws of Malta. The seller is required to pay capital transfer taxes on the transfer of any property, whereas the buyer must pay the stamp duty. The tax and stamp duty are, however, dependent on a number of facts such as the relationship of the parties, whether the property is subject to transfer exemptions and whether or not the transfer is subject to any incentive measures issued by the government at the time of the transfer. In Malta, the standard rate of stamp duty to be paid by the buyer is 5% whereas the capital gains tax to be paid by the seller is 8%. The parties must pay 20% (out of the aforementioned 5%) stamp duty upon the signing of the “Promise of Sale Agreement”, with the balance payable on completion of the final deed of purchase. The rate of 5% stamp duty represents the total tax due and is ultimately equivalent to 1% of the final price.

Once a promise of sale is signed, it must be presented to the Capital Transfer Duty Section at the office of the Commissioner for Revenue within 21 days. Here, a provisional duty of 1% is paid by the purchaser based on the market price or transfer as per the contract, whichever is the higher. Once payment is received, a receipt for provisional stamp duty will be issued to the taxpayer confirming the above.

Here, it is necessary to mention that non-residents wishing to acquire immovable property in Malta may only do so after having acquired an Acquisition of Immovable Property Permit (the “AIP Permit”), whereby applicants would need to submit the relevant application together with a copy of the promise of sale of the immovable property intended to be purchased. In the case of a dwelling house, such applicant must primarily fulfil a number of conditions, as follows:

• property must be solely used as residence by the applicant and their family;
• acquisition must be effected within six months from the date of issue of the AIP Permit, save the granting of any extension as may be applied for;
• a certified copy of such deed must reach the office of the Commissioner for Revenue within three months from publication of the deed; and
• the immovable property may not be sold in part, or otherwise converted into more than one dwelling house.

Similar conditions shall apply where the property being acquired is either a garage or other adjoining property, or else a plot of land.

As stated in 2.10 Taxes Applicable to a Transaction, foreign investors may acquire real estate in Malta only by means of an AIP Permit, which shall require applicants to fulfil a number of requirements.

Acquisition of commercial real estate can be financed either by means of a direct payment by the purchaser from his own assets, by means of a bank loan or otherwise through a consortium. If the purchaser chooses to obtain a bank loan, the purchasers would be required to place the estate as collateral in the event of non-payment of the loan and would be subject to a hypothec or a privilege. Alternatively, if the purchaser chooses to proceed with setting up a consortium, the purchaser will need to determine, together with the other members, the applicable terms and conditions, including but not limited to, the financial contribution to be given by each member.

Generally, security in the form of hypothecs and privileges are created to ensure the repayment of borrowed funds. A general hypothec may be created in favour of the borrower over the buyer’s property or that of a third-party guarantor, both present and future, provided that the property is not sold. Alternatively, a special hypothec can be created over one or more specific properties of the purchaser or a third party, which hypothec will continue to attach to such properties irrespective of who shall have possession of the property and irrespective of whether it is sold.

The parties may even choose to create a privilege which will ensure that the lender has a right of preference over all the other creditors of the purchaser, should there be others. The difference between a general and a special privilege will determine the ranking of the lender.

Currently, there are no restrictions on the granting of security over real estate to foreign lenders. The same applies in relation to repayments being made to a foreign lender under a security document or loan agreement.

Securities in the form of privileges and hypothecs are ineffectual unless registered in the Public Registry within two months by a notary public, the cost being the registration fee paid to the public registry together with a service fee. Once such security is preserved, the enforcement of the securities can only be done through court proceedings to obtain a court judgment recognising the debt. Any costs in this regard are computed by the court registrar, who then issues a taxed bill of costs.

It is essential that an entity giving security over its real estate assets be duly recognised as possessing full ownership of the property over which it is providing security. Given that it is an entity, it is also important to demonstrate that it has been incorporated as legally required under Maltese law, clearly showing its assets and liabilities.

If a borrower defaults in its repayment obligation, the procedure normally followed is that the lender will call upon the debtor by means of a judicial letter to be filed and presented in the court registry and to be notified to the borrower/debtor. Should the latter remain in default, the lender has the option to apply to court to have the pending debt recognised by means of a judgment and subsequently to execute it. Once given, the court judgment shall constitute an executive title granting the lender the right to issue the necessary executive warrants available under Maltese law.

It is important to keep in mind that the ranking of the lender shall depend on the other creditors of the borrower. If there are creditors competing on the same property, the court will have to establish a ranking. In general, financial institutions providing loans for the acquisition of real estate are seen to rank first.

The time required to successfully enforce and realise real property security is highly dependent on various factors such as the type of security being enforced and, if applicable, the applicable timeframe if property is to be sold by judicial sale by auction.

No ongoing restrictions on a lender’s ability to foreclose or realise collateral in real estate lending have been implemented since the pandemic.

With respect to privileges, the priority of the debt is made in accordance with the nature of each privilege, whereas, for hypothecs, priority and subsequent payment of debt is made according to the order of registration.

Lender holding/enforcing security over real estate subject to pollution must essentially refer to the Crimes Against the Environment Act, Chapter 522 of the Laws of Malta. Environmental liability will ensue depending on the type of action that has been committed and therefore lenders should take cognisance of involuntary offences stipulated under the aforementioned law. In this regard, lenders must ensure that they do not commit an unlawful offence against the environment through imprudence or negligence upon taking possession of a property. Such lenders shall be required to act with the diligence and prudence of a bonus paterfamilias and take all necessary measures to ensure that the land is not polluted any further, or that unlawful acts or damage are not committed.

Where a borrower becomes insolvent and its assets are placed under liquidation, the lender shall be included in the ranking of creditors. The type of security interest will determine the lender’s ranking amongst the other creditors, especially because privileged securities take priority over unprivileged securities.

The only transfer to be paid is that as explained within 2.10 Taxes Applicable to a Transaction.

The Development Planning Act, Chapter 552 of the Laws of Malta, establishes an Executive Council which has monitoring and enforcement powers in relation to planning and zoning areas across Malta. These powers give the Executive Council, or any person authorised by it, the right of entry to any premises to ascertain whether an illegal development has taken or is taking place, and a general right to do anything that verifies such illegal development.

The Council is also responsible with monitoring all activities falling within the remit of the Development Planning Act such as licences, permits and certificates issued by the Authority, to ensure that all development activities are carried out in terms of the necessary legal requirements, and may for such purpose request and obtain the assistance of the police force, and that of any governmental authority scrutinising such activities.

If the Executive Council becomes aware that a development is being executed without having the necessary permit/licence or that any condition subject to which the permission was granted is not being complied with, it shall have the right to issue a stop notice to any such person carrying out such development. Further action may also be taken by the Executive Council should the development not be discontinued or stopped within the stipulated time period specified within the enforcement notice. The general public can also choose to file a report to the Planning Authority, informing it of any suspected illegal developments.

The Development Planning Act, Chapter 552 of the Laws of Malta has set up a Design Advisory Committee responsible for making recommendations and providing the Planning Board with professional and expert advice required in respect of development applications filed for Urban Conservation Areas (UCAs) and other major projects. All recommendations shall be made accessible to the general public.

In addition, the Planning Authority can issue plans, policies and guidelines which can regulate the design, appearance and methodology of construction that will be followed in the development projects.

The development and designated use of real estate in Malta is regulated by the Planning Authority. The Development Planning (Use Classes) Order, Subsidiary legislation 552.15 stipulates the various designated uses of real estate. One may also refer to the Development Planning Act together with any subsidiary legislation, including any policies and procedures issued by the Planning Authority.

Any person wishing to develop a real estate project is required to apply for a permit to the Planning Board, issued under the Development Planning Act, which board shall determine whether to grant or refuse such permit.

Any interested person may make representations on the environmental and planning issues relevant to the proposed development. The Planning Board shall then be required to determine whether to grant the permit subject to specific conditions or for a specific period of time or otherwise choose to refuse it, provided that it gives specific reasons. If the applicant considers that the conditions imposed are unreasonable, they may request the Planning Board to reconsider its position, without affecting their right of appeal.

If the Planning Board imposes conditions which are considered unreasonable, or has refused to reconsider its position, the applicant shall have the right to lodge an appeal before the Environment and Planning Review Tribunal. An interested third party shall also have the right to lodge an appeal against such decision taken by the Planning Board or the Planning Commission. The Tribunal shall have the power to confirm, alter or revoke such decision and may give all directions as it deems necessary according to the circumstances.

It is possible to enter into an agreement with governmental authorities to ensure the provision of the necessary utilities required in a project.

Please refer to the restrictions imposed by the Executive Council as outlined in 4.1 Legislative and Governmental Controls Applicable to Strategic Planning and Zoning.

The different types of entities that are available to investors include limited liability companies, commercial partnerships and trusts.

Limited Liability Companies

Limited liability companies (LLCs) are those companies whose shareholders have limited liability and therefore their own personal assets shall not be liable to financial risk should the company encounter financial difficulties. Hence, a shareholder’s liability is limited to only the amount invested within the company. As a rule, LLCs must have a minimum of two shareholders and a maximum of 50 shareholders, which can be either natural or legal persons. Such companies must have at least one individual director. The directors shall be responsible for the management of the company, its administration and ensuring that all acts are done in the best interests of the company and its shareholders.

Commercial Partnerships

Partnerships en commandite have two types of partners: general partners who have unlimited liability, managing the partnership; and limited partners who have limited liability, having no connection with the partnership’s management. Alternatively, in partnerships en nom collectif, all partners have unlimited liability for the partnerships’ debts and liabilities, and therefore all partners take part in the partnership’s management.

Trusts

Lastly, a trust is created by a settlor who transfers assets to the trustee. The settlor can be either an individual or a company and can be either a Maltese resident or non-resident. A trustee is a person or a company who holds and administers assets for the benefit of a third party. In Malta, a person or a company acting as a trustee must be licensed by the Malta Financial Services Authority (MFSA) and must fulfil a number of requirements. The beneficiary of the trust can be either an individual or a company and can be a resident or non-resident of Malta.

The real estate investment trust (REIT) is a relatively new concept that is being introduced to the Maltese market. Currently, the government is undertaking consultation on the possibility of offering fiscal incentives which can induce such investment.

Small investors will have the opportunity to invest in company shares whose portfolio consists of rented immovable property and which company will be bound to distribute at least 85% of its dividends to its shareholders on an annual basis. In terms of the tax applicable, rental incomes will not be taxed and instead the dividends to be granted to shareholders will be taxed at a 15% rate. Given that such investment vehicle is still in its initial stages, it remains to be seen how this will develop within the market and whether it will be a useful form of investment.

The only entity subject to a minimum share capital is the limited liability company, which must have a minimum authorised share capital of EUR1,164.69.

Limited Liability Companies

A limited liability company must be registered with the Registrar of Companies and must have a Memorandum and Articles of Association, which lay down the company’s purpose, its share capital and internal rules. It must have at least one director responsible for the company’s management and must act in the company’s best interests in accordance with the Companies Act, Chapter 386 of the Laws of Malta.

An LLC must have at least one shareholder who owns the company’s share capital. It must hold an annual general meeting (AGM) once a year where the company’s shareholders are able to receive and approve the company’s financial statements and appoint directors to their position. Shareholders shall also have the right to vote on other important matters.

The company is required to maintain proper accounting records and prepare financial statements. These must be audited unless the company benefits from the applicable exemption. The company must register its annual return with the Registrar of Companies, providing the Registrar with updated information on its directors, shareholders and share capital.

Commercial Partnerships

It is essential for a partnership to be registered with the Registrar of Companies, which registration must include the names and addresses of the partners, their partnership agreement and the share capital of the partnership. Such partnership agreement must outline the terms and conditions, including the rights and duties of the respective partners, the purpose of the partnership and the share of profits and losses amongst the partners.

Trusts

A trust requires a trust deed that sets out the terms and conditions of the trust, including the purpose of the trust, its beneficiaries, and the duties and powers of the trustee. A person or a company must be appointed to act in the position of a trustee. A trustee is bound by a fiduciary duty to act in the best interests of the beneficiary by exercising the care, skill and diligence required in the management of the trust property and shall comply with the terms set out in the trust deed and applicable provisions, particularly those contained in the Civil Code, Chapter 16 of the Laws of Malta.

The trust must have beneficiaries who are identified and have a vested interest in the trust property being administered. It is important that the trust property is kept distinct from the personal assets of the trustee. In fulfilling his duties, the trustee must keep proper accounting records and prepare annual financial statements.

The annual maintenance costs and accounting compliance costs depend on various factors such as the type and value of assets that are held by the entity, and the type of activities the entity is involved in.

The Maltese Civil Code regulates different types of institutes that would allow a person to use a property, or a part thereof, without obtaining full ownership. The main ones are as follows:

• lease;
• emphyteusis;
• usufruct;
• servitudes;
• easements;
• use; and
• commodatum.

Details of these rights are outlined at 2.1 Categories of Property Rights.

Maltese law provides that any property which is not used for residential purposes can be identified as commercial property and therefore shall be subject to a commercial lease. This therefore includes properties utilised as a store, properties used for the sale of art or trade, or, simply, a property from which a business can be carried out. It should be noted that, by way of an exception, a property leased to a musical, philanthropic, sporting or political party, and which is utilised as a club, is not deemed to be a commercial property, even where such property generates business.

Apart from the above, the law only distinguishes between those commercial leases entered into pre-1995 and those entered into post-2010: this is to determine the amount of rent payable by the tenant. In terms of any other commercial leases that may be entered into following 2010, the law does not differentiate between different types of commercial leases.

Commercial lease terms are freely negotiable and are regulated by the applicable provisions regulating leases within the Civil Code. Currently, there is no ongoing regulation of lease terms that has been enacted due to the coronavirus pandemic.

The typical terms found in commercial lease agreements depend on various factors related to the property subject to the lease, particularly the type of property, the intended purpose of the property and especially the sector in which the lessee operates, amongst other factors.

The variation of rent throughout the period of the commercial lease is determined between the parties during negotiations of the lease agreement. This is not regulated by law unless the commercial lease in question refers to one entered into pre-1995 and is considered as a protected lease until the year 2028.

Any change or increase in the rent payable must be agreed between the parties and included within the lease agreement unless the parties are open to entering into an addendum to the lease agreement. In any case, such change or increase is not regulated by law.

The VAT payable on rent for commercial leases is 18%.

It is normal practice for the parties to a lease agreement to agree to payment of a deposit by the lessee and also the requirement of an adequate insurance policy, which will cover damage that may be caused to the property during the course of the lease.

Expenses relating to the maintenance and repair of areas within the property are shared amongst co-tenants. Each tenant has the right to compel others to pay for the proper upkeep of the property and the necessary preservation thereof.

Expenses relating to utilities and telecommunications serving the property are to be shared between the different tenants of the property, in the same manner as maintenance expenses.

The payment of an insurance policy depends on the agreement entered between the parties. This matter is not regulated by any legal provision but rather is determined freely and contractually as to who shall bear the burden of paying the insurance. The Private Residential Leases Act, Chapter 604, does acknowledge that the clauses within a lease contract may impose the payment of insurance on the contents of the tenement. However, it states that any other clauses included within such agreement requiring additional payment other than rent, the deposit, insurance and other ancillary contributions shall not have effect.

The possibility of tenants recovering rent payments due to business interruption during the pandemic greatly depended on their insurance policy and whether such situation of force majeure was covered by the policy.

The landlord can choose to impose restrictions on the tenant’s use of property as it deems necessary, provided that it is regulated within the lease agreement. In any lease agreement, the permitted use of the property leased has to be included within a specific clause to that effect and regulated in accordance with the applicable legal provisions imposed on real estate that determine the use of property in line with its location.

The Civil Code provides that, should the lessee use the property leased for any purpose other than that agreed upon by the parties, or as presumed according to circumstances where such purpose has not been specifically stated in the contract, or in any manner that may prejudice the lessor, the lessor may demand the dissolution of the lease agreement.

The tenant is bound to make use of the property as a bonus paterfamilias and to restore the property to the condition in which it was received. The tenant has the right to alter or improve the real estate by carrying out all necessary repairs other than those considered as structural repairs. In doing so, the tenant must ensure that all works carried out are done in accordance with good workmanship; otherwise, the landlord shall have the right to refer the matter to the Rent Regulation Board, demanding that all repairs carried out shall be made at the tenant’s expense.

It should be highlighted that the lessee may not in any case carry out such alterations during the continuance of the lease without the lessor’s consent and shall not be entitled to claim the value of any improvements made without having such consent.

The lessee may choose to remove such improvements, restoring the property to its original condition, provided that, in regard to any improvements existing at the time of the termination of the lease, if the lessee can show that they can obtain some profit from taking them away and provided that the landlord does not want to keep them and pay to the lessee a sum equal to the profit to be obtained by taking them away, the latter would obtain.

The lessee shall also be liable to remediate any damage or deterioration that may have occurred during the lessee’s enjoyment of the property, either through their own acts or those of any others residing in the property, unless they can prove that such deterioration or damage occurred without any fault on their part.

It is worth keeping in mind that, although it is the lessor who is bound to make good any urgent repairs that may arise, it shall nevertheless be lawful for the lessee, without the necessity of resorting to any form of proceedings, to carry out such repairs at the lessor’s expense and also to retain rent on account of any serious prejudice which may have been caused through the omission or delay of the lessor to carry out such repairs.

The Private Residential Leases Act, Chapter 604 of the Laws of Malta establishes specific provisions on what can and cannot be included within a lease agreement. In fact, there are a number of clauses that dictate this, and if prohibited clauses are included then the lease agreement may be declared null and without effect.

Such restrictions mainly relate to lease duration, payment of expenses, changes and increases in rent payable, and are generally intended to protect the lessee’s rights. In respect of leases other than residential leases, the provisions contained within the Civil Code regulate the terms included within lease agreements.

If the tenant becomes insolvent, the landlord shall have the right to demand dissolution of the lease agreement.

Parties to a lease agreement normally agree that the lessee is to pay a deposit upon the signing of the lease agreement, to be kept by the landlord and used to cover any extraneous expenses which may arise such as property damage. This, however, provides the landlord with only a limited form of security and therefore the parties can agree to other types of security such as the payment of an insurance policy.

The parties may also agree to security by suretyship provided that the contract of lease shall not extend to obligations resulting from the renewal of the lease, if this is the case, or the continued occupation of the property unless the surety has expressly bound themself for the whole time until the lessee vacates the property subject to the lease.

The amount and form of the security agreed to must, however, fulfil certain requirements, which will depend on the financial situation of the lessee.

In the case of commercial lease agreements, it may very well be the case that the shareholders in a limited liability company offer a personal guarantee other than their assets in the company, given that they would only have limited liability.

Unless the parties to a contract have included a clause within the agreement granting the tenant the right to extend its lease, then it must vacate the property immediately at the end of the lease and return possession of the property to the landlord.

The tenant’s right to assign its leasehold interest is to be agreed to and regulated by the parties within the lease agreement. Such assignment may include either the entire property or a part of it. The law does not restrict the tenant’s right to do so unless this is something prohibited by the landlord within the lease agreement.

A number of events may lead to the dissolution of a lease:

• expiration of the term of the lease agreed to;
• the occurrence of a resolutive condition expressly included within the lease agreement;
• if either of the parties fails to perform their obligations – in any such case, the party who is aggrieved by the non-performance of such obligations shall have the right to demand the other party perform its obligations if this is possible, or to demand dissolution of the contract and payment of damages for non-performance of such obligations; or
• if, during the lease period, the property is totally destroyed due to a fortuitous event, which will lead to the lease being terminated ipso jure.

The Private Residential Leases Act, Chapter 604 of the Laws of Malta requires the lessor to a residential lease to register the lease agreement within ten days from the commencement of the lease. If such registration is made at a later date, the registration shall be subject to an additional administration fee, which, as provided by the Housing Authority, is EUR120. The law stipulates that, where the contract is not registered, the agreement shall be null and void. The lessee does, however, have the option to register the lease contract themself, and this at the lessor’s expense. Other forms of lease agreements do not need to be registered in any manner.

If a tenant remains in default of paying rent, the landlord may evict them from the property. The landlord may proceed judicially against the tenant by sending them a judicial letter requesting payment and filing an application to the Rent Regulation Board, demanding that the court orders the tenant’s eviction. This process can take months or even longer, especially if there is an ongoing court dispute.

Unless the termination rights of a third party are regulated by the lease agreement, the only situation where such a lease agreement may be terminated by a third party would be if the latter is the government of Malta. This may occur if the government determines that the property in question is necessary for a public purpose, subject to certain conditions stipulated under the Government Lands Act, Chapter 573 of the Laws of Malta. The government has the obligation to provide compensation to the property owner; however, it is not similarly obliged to do so in respect of tenants. This process may, however, take several months to finalise.

There are currently no limitations on the damages that may be incurred by a tenant acting in breach of or terminating their lease, and this is normally determined by the parties within the lease contract. With respect to security deposits, the parties may agree that the tenant deposit a sum of money at the beginning of the lease, which can be withheld if the tenant fails to perform any of their obligations or acts in breach of their lease conditions. Alternatively, the parties may agree that rent paid by the tenant is to be paid for a fixed term and prior to the commencement of such term, thereby protecting the landlord against default in payment of rent.

The most common structures used to price construction projects are bills of quantities, where a fixed price will generally be issued to the client beforehand. If there are significant changes to the costs due, which not attributable in any manner to breaches caused by the contractor, the contracts entered into between the parties would normally include a clause that would regulate such price change.

Responsibility for the design and construction of the project is normally assigned by means of the contract of works entered by the parties, and this to the extent provided by law. All parties must ensure that the execution of works on a building are in accordance with the best industry practices and standards that also include the respect and protection of the environment and the immediate surroundings, its users and the public in general. Each party shall necessarily bear responsibility for their own work: for instance, in every construction project there shall be a “responsible architect” who will assume responsibility for the execution of the project in its entirety. This, of course, does not exclude the liability of the contractor and the builder.

Currently, new amendments have been introduced by means of Subsidiary legislation 623.06 on the Avoidance of Damage to Third Party Property Regulations requiring that a construction site be covered by a valid insurance policy against any loss, damage, injury or death that may be sustained by third parties consequent to any act or omission done by the construction works undertaken by clients, contractors and any subcontractors or employees engaged. The extent of cover of the insurance policy shall be determined by the insurance contract based on a valid assessment of the risks involved.

Warranties, indemnifications, limitations of liability and waivers of certain types of damages may all be used as tools to manage construction risk on a project, to the extent permitted by law. As explained in 7.2. Assigning Responsibility for the Design and Construction of a Project, construction projects have to be covered by a valid insurance policy whereby such policy is required to cover a third-party liability limit of not less than EUR750,000 for any loss, damage, injury or death that may be suffered by a third party due to the actions or omissions of the persons involved and responsible for the construction project in question.

Contractual parties for the construction of works may choose to include a clause granting the owner monetary compensation should works not be completed by a stipulated date. Such compensation may take the form of daily penalties which are imposed on the contractor once works have not been completed at a predetermined date.

It is common for owners to seek personal guarantees and performance bonds as a form of guarantee for the contractor’s performance of the works on a construction project.

The Civil Code, Chapter 16 of the Laws of Malta provides that architects, contractors, masons and other workmen are deemed to have a privileged credit for the debt that is due to them in respect of the works and expenses furnished by them. This privilege extends over the property that has been constructed or repairs and must be registered for it to have effect. The privilege can be reduced or totally cancelled by means of a public deed, provided that the creditor has given their consent, or otherwise by means of a judgment delivered by the competent court.

On completion of the construction works, the client (ie, the person for whom the works have been carried out) shall submit to the Chief Executive Officer of the Building and Construction Authority, within two weeks from the completion of the works, a certificate of completion of the construction works as approved by the responsible architect. The certificate shall then be published on the Authority’s website by the Chief Executive Officer, and the responsible architect shall have two weeks to notify all the owners and occupiers of the properties, for which a condition report on the property shall have been drawn up and submitted together with the details of the certificate regarding the project completion.

Malta is accorded a derogation in terms of Article 387 of the EU Sixth Recast VAT Directive (VAT Directive 2006/112/EC) to continue to exempt, the supply before first occupation of a building, or parts thereof, or of the land on which it stands and the supply of building land. This is transposed in item 1(2), Part 2 of the Fifth Schedule to the VAT Act (Chapter 406 of the Laws of Malta). Therefore, a transfer of immovable property in Malta is in principle either outside the scope of VAT or exempt without credit, according to the specific circumstances.

The acquisition of immovable property situated in Malta would be subject to stamp duty in Malta in terms of the Duty on Documents and Transfers Act. In principle, a provisional duty is levied at 1% by the notary on the promise of sale contract. The final levy of stamp duty is then levied by the notary on the transfer deed, with the default rate being 5%.

The government of Malta does provide for special schemes for the mitigation of stamp duty on the acquisition of immovable property, including special rebates for purchases in urban conservation areas or vacant buildings. This is only to the extent that such an acquisition by the foreign investor would not require an AIP permit. The requirement of this special permit in Malta for non-residents needs to be evaluated in terms of the specific circumstances of each individual case.

Malta does not have municipal taxes and only levies direct and indirect taxation at a national level.

A foreign tax-resident lessor accruing or deriving rental income on immovable property situated in Malta can for the most part elect to be subject to either:

• a final withholding tax of 15% on the gross rental income in terms of Article 31D of the Income Tax Act; or
• the default tax provisions (Article 4 of the Income Tax Act) on the net rental income in terms of the applicable progressive rates for individuals or the statutory corporate income tax which is currently fixed at 35%.

In terms of the final withholding tax regime, there are no exemptions. However, the law does allow abatements for long residential leases. Similarly, in terms of the default regime, there are certain allowances (eg, maintenance allowance).

A foreign tax-resident alienator accruing or deriving income from the alienation of immovable property situated in Malta, not being a project, can elect to be subject to either of the following:

• property transfer tax (namely a final withholding tax) on the gross proceeds in terms of Article 5A of the Income Tax Act; or
• in terms of the default capital gains provisions (Article 5 of the Income Tax Act) on the net proceeds.

On the one hand, property transfer tax is levied by the notary on the deed of transfer. The default tax rate for the property transfer tax is 8% but special rates, limited deductions and exemptions may apply.

On the other hand, unless exempted, in terms of the capital gains tax regime, a 7% non-refundable provisional tax is levied on the gross proceeds by the notary on the deed of transfer. Thereafter, in the year of assessment, tax on the capital gains is levied in terms of the applicable progressive rates for individuals or the statutory corporate income tax which is currently fixed at 35%. This tax on capital gains allows for a wider set of tax deductions, which are stipulated in the law.

A foreign investor must evaluate which tax regime would be the most beneficial according to the specific circumstances, keeping in mind that turnover taxes (eg, property transfer tax) might limit the right for a double tax relief in their residence jurisdiction.

The ownership of immovable property may result in a higher effective tax leakage in certain circumstances and therefore each case needs to be seen within its proper context. However, Malta does not levy capital taxes and ownership of immovable property is encouraged. Subject to certain limitations, Malta does allow for capital allowances deductions for an industrial building or structure against trading income which is being produced through that qualifying industrial building or structure. This may be subject to balancing adjustments once such an immovable property is disposed of.