Update in relation to an amendment to Paragraph 3 of Schedule Five voted by the Plenary of the Parliament on 8 June, 2023 and was published in the official gazette of the Republic on 16 June, 2023

Date: 19 June, 2023

A. What the amendment is all about

1. With the amendment of Paragraph 3 of Schedule Five, the conditions for the imposition of the reduced rate of 5% in relation to the supply or construction of either a residential house or an apartment, have been differentiated as follows:

(a) There is a twofold limitation of square meters buildable coefficient (hereinafter ‘sqm’) for both the construction and the purchase of a property to be used as a permanent place of residence:

(i) The first limitation concerns the variation of allowable square meters and
(ii) the second the variation concerns the allowable values of purchase or construction

B. People with disabilities

When the applicant falls under the definition of a person with a disability (see Appendix I), the reduced rate is applied for the first 190 sqm of the residence, regardless of the total buildable area of the residence.

The amendment does not refer to value but the Commissioner may determine the value per square meter by a notification following a decision by the Council of Ministers

C. Transitional provisions

The transitional provisions in relation to the above amendments are provided for in the new Article 63 (See Appendix II)

The above-mentioned amendments will not apply to real estate deliveries for which

(a) planning permission from the competent authority was obtained before 31 October 2023 or

(b) the application to secure a planning permit has been submitted to the competent authority by 31 October, 2023 and for which the duly completed declaration provided for in the third sub-paragraph of Table C of Schedule Five is submitted within three (3) years from entry into force of the said law (16/6/2023 – publication in the official gazette of the Republic)

Comment: If planning permission is secured or applied for by 31/10/23, the declaration with the required details and information must be duly submitted to the Tax Department for review and approval by 16/6/26

D. Right to acquire a residence before the expiration of 10 years

Previously: The eligible person, had to pay back the full amount he benefited to be eligible to re- claim the reduced rate for another residence.

After the amendment: If he interrupts his stay in the residence that he benefited from with the reduced rate in order to acquire another residence, he will be able to do so if he returns the part of the benefit that concerns the remaining time to complete the 10 years (tenth sub-paragraph) regardless of whether the application was submitted before or after 31/10/23 (New Article 63 – See Appendix II).

E. Correction in relation to the transfer of beneficial ownership of residence from a parent to an adult child

Previously: The parent would not have to refund the corresponding VAT if he transferred the residence to an adult child who is not a beneficiary at the time of the transfer.

After the amendment: The parent does not have to refund the corresponding VAT if he transfers to an adult child who is a beneficiary at the time of the transfer.

C. Examples

The below indicative examples are based on a methodology that the Tax Department intends to apply. If the intended methodology changes, you will be notified accordingly.

Example 1: When the value is greater than the second threshold

The contract is for the purchase of property of 130sqm for a value of €480,000. Under this example, the sqm are equal to first threshold (130) but the value is above the second threshold

In this case the reduced rate does not apply

Example 2: Sqm are outside the second threshold and value within the first threshold

The contract is for the purchase of property of 200sqm for a value of €350,000. In this example, the value threshold is met but the sqm threshold is not met.

In this case the reduced rate does not apply

Example 3: Both parameters are outside the lower and upper thresholds

The contract concerns the purchase of a house/apartment worth €500,000 with 200 sqm. In this example neither the lower nor the upper thresholds of the two parameters are met.

The reduced rate does not apply

Example 4: Both the square meters of buildable area and value fall within the specified limits of 130sqm and €350,000 value

The contract is for the purchase of property of 130sqm for a value of €300,000. Consequently, both lower thresholds are satisfied

Example 5: Sqm are within the lower threshold but the value is greater than the lower threshold but lower than the second threshold

The contract concerns the purchase of a house/apartment worth €400,000 with 130 sqm. Therefore, only one of the two lower bounds is satisfied but the upper bound is satisfied with respect to the value

Proposed method of calculation as intended to be applied by the TD

First step: The square fraction is calculated
Second step: Multiply the fraction by the lower threshold value
Step Three: The resulted amount is subtracted from the contract value to arrive at the standard rate amount

First step: 130/130 = 1
Second step: 1 X 350,000 – €350,000
Third step: €400,000 – 350,000 = €50,000

Example 6: The sqm as well as the value is in excess of the lower thresholds but lower than upper thresholds

The contract concerns the purchase of a house/apartment worth €400,000 with 150 sqm. Therefore, both sqm and value are above the lower thresholds but both below the upper thresholds

Proposed method of calculation as intended to be applied by the TD

First step: The square fraction is calculated
Second step: Multiply the fraction by the lower threshold value
Step Three: The resulted amount is subtracted from the contract value to arrive at the standard rate amount

First step: 130/150 = 0.87
Second step: 0.87 X 350,000 – €304,500
Third step: €400,000 – €304,500= €95,500

Example 7: Sqm are lower of the lower threshold and the value equal to the upper threshold

The contract is for the purchase of a property of 120sqm for a value of 475,000
Under this example Sqm are below to first threshold (130) and the value is also above the first threshold (350,000) but below the second threshold (475,000)

Proposed method of calculation as intended to be applied by the TD

First step: The square fraction is calculated
Second step: Multiply the fraction by the lower threshold value
Step Three: The resulted amount is subtracted from the contract value to arrive at the standard rate amount

First step: 120/120 = 1
Second step: 1 X 350,000 = €350,000
Third step: €475,000 – €350,000 = €125,000

Example 8: Both sqm and value equal to upper threshold

The contract is for the purchase of a property of 190sqm for a value of 475,000
Under this example Sqm are equal to the second threshold (190) and the value is also equal to the second threshold (475,000)

Proposed method of calculation as intended to be applied by the TD

First step: The square fraction is calculated
Second step: Multiply the fraction by the lower threshold value
Step Three: The resulted amount is subtracted from the contract value to arrive at the standard rate amount

First step: 130/190 = 0.6842
Second step: 0.6842X 350,000 = €239,470
Third step: €475,000 – €239,400 = €235,530

Appendix I

Definition of disable person

“person with a disability” means a person who has long-term physical, mental, intellectual or sensory impairments which, in their interaction with various barriers, may prevent their full and effective participation in society on an equal basis with others and who is certified as a person with severe or total disability by the Disability Assessment System or has been approved as a recipient of public assistance as a disabled person based on the provisions of the Public Assistance and Services Law, until certified as a person with severe or total long-term physical and/or and mental and/or intellectual and/or sensory disability by the Disability Assessment System, if called for certification or a person certified by the Disability Assessment System as a person with a moderate mental disability;”

Appendix II

New Article 63

63. The provisions of the Value Added Tax (Amendment) Law of 2023 do not apply to buildings for which planning permission has been secured by the competent authority or an application for planning permission has been submitted to the competent authority by 31 October 2023 and for which a duly completed declaration provided for in the fourth subparagraph of Table C, within three (3) years from the date of entry into force of said law.”.