In terms of Article 5 of the Income Tax Act, Chapter 123 of the Laws of Malta, capital gains derived by a person from a transfer of a capital asset, insofar as they are gains of an income nature.
As a general rule, capital gains shall apply on:
- Gains or profits arising from any transfer of the ownership or usufruct of any immovable property or usufruct of any immovable property or the assignnment or cession of any rights over such property;
- Gains or profits arising from the transfer of the ownership or usufruct of or from the assignment or cession of any rights over any securities, business, goodwill, business permits, copyright, patents, trademarks and trade-names; and
- Gains or profits arising from the transfer of the beneficial interest in a Trust;
- Gains or profits arising from a transfer of securities.
The ascertainment of the gains or profits arising from any transfer of immovable property is determined by means of the Capital Gains Rules (S.L. 123.27) which is calculated by compiling the cost of acquisition, inflation, any ground rent, any permissibile deductions, maintenance etc;
Interestingly, a transfer includes any assignment, sale, emphytheusis, partition, donation, settlement of property on trust, distribution and reversion of property settled on Trust etc; The intention of the legislator was thereto to include not only outright transfer or sale, but also other circumstances where a capital asset may be transferred, other than a direct transfer, e.g. a dilution of share capital through a fresh allotment of ordinary shares or a partition of an immovable property.
Donation shall be deemed to constitute a sale. However, no tax is payable where a donation is made to the spouse, descendant or ascendants of the transferor, nor to any philanthropic institutions.
Whilst capital gains are taxable only if such gains are of a capital nature, Article 5A of the Income Tax Act prescribes that, unless otherwise exempt, such as in the case of the transfer of an immovable used as the own residence of the transferor for a minimum of three (3) years from date of acquisition, capital gains shall always be chargeable pursuant to any immvoable property situated in Malta.