Property Transfer Tax

The seller, on the other hand is subject to a final withholding tax on the value of the transfer of the immovable property.

Under the current tax regime, which one can say is being phased out, an option to tax a transfer of property rather than at 12%, on capital gains was available — this was achieved through a default application of Article 5A of the Income Tax Act saving for limited circumstances where you can opt out of 5A and apply article 5 of the Income Tax Act.

However, as of the 1st of January 2015, the option of income tax on Capital Gain is being abolished. Now, the income tax act provides for an established final withholding tax which is being lowered from 12% to 8% of the property’s value.*

In the case of a property which was acquired before the 1st of January 2004, the final withholding tax is that of 10% of the property’s value.

While, in the case of a transferor who does not habitually trade in property, and is transferring an immovable property within 5 years from the date of its acquisition, a final withholding tax of 5% of the property’s value is applicable.

Exemptions from tax:

  • donation to spouse/descendants or ascendants
  • donations to philanthropic institution
  • transfer of property owned and occupied by transferor as own residence for a period of at least 3 consecutive years
  • assignment of property between spouses in a separation or divorce
  • assignment of property after termination or dissolution of the community of acquests between spouses
  • partition of property between spouses or partition of property between surviving spouse and the heirs of the deceased spouse
  • transfer from one company to another forming part of the same group
  • transfer of property on the incorporation of a business or partnership en nom collectif as a going concern into a limited liability company
  • the settlement of property on trust
  • a transfer of property by a company to its shareholder in the course of a distribution of assets pursuant to a scheme of distribution.

A property which was acquired by the seller through a donation which was made more than 5 years before the date of the transfer in question — is chargeable at 12% of the excess of the transfer value declared on the deed of transmission causa mortis and the sale price, if any.

If the property is being sold by the donee after the lapse of five years, the cost of acquisition shall be deemed to be the value of the property as declared in the deed of donation;

If the property was acquired through an inheritance prior to the 24th of November 1992, a 7% final withholding tax is charged on the selling price.

Where an asset is transferred from one company to another, and such companies are deemed to be in a group of companies or controlled and owned to the extent of more than 50% by the same shareholders, shall be deemed that no loss or gain has arisen from the transfer.

Is an asset being transferred was used in a business for a period of at least 3 years, and is now being transferred and consequently replaced within 1 year by an asset used solely for a similar purpose in the said business, any capital gains will not be taxed but the cost of acquisition of the new asset will be reduced to the said gain. Rather than an exemption, this is more of a postponement.

* During this transition from one system to another, in case of a transfer of an immovable property (not situated in an SDA) which takes place on or after the 1st of January 2015, following a promise of sale agreement (konvenju) of which the Director General – Inland Revenue received notification through registration by the 17th of November of 2014 (budget date) and the sale agreement is made before the 1st of January 2016, the current opt-out system will still apply.

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