Income Tax Act (Cap. 123), article 4A

4A. When a person - (i) changes his residence and becomes resident in Malta and he was at no time domiciled or resident in Malta prior to such change in residence; or (ii) changes his domicile and becomes domiciled in Malta and he was at no time domiciled or resident in Malta prior to such change in domicile; or S.L. 386.12 (iii) is "a company resulting from the merger" which is registered in Malta as set out in regulation 3(2) of the Cross-border Mergers of Limited Liability Companies Regulations (hereinafter referred to as " Cross-border Mergers Regulations ") and none of the assets owned by the company on the day of the merger was owned by any merging company which is domiciled and, or resident in Malta at any time prior to the date of t he particular merger, and has made an election for the purpose of this paragraph by notice in writing to the Commissioner, all assets which are sit uated outside Malta and which were ac quired by him, or in the case of a company resulting from the merger, by any non-resident merging company, prior to the above-mentioned change in domicile or residence or prior to the entry into force of the merger (each of which shall hereinafter be refe rred to as "occurrence"), shall be deemed, for the purpose of calcu lating any income that would no t have been subject to tax had it arisen before the particular occurrence would have taken place, to be assets acquired on the date of the particular occurrence, at a cost which is proved to the satisfaction of the Commissioner to be the market value which i t had on the date of the said occurrence: Provided that such an election shall not be available unless the particular person exercise s the election by not later than the end of the year of assessment immediately following the basis year in which the occurrence takes place. INCOME TAX [CAP. 123. 19 Capital gains. Added by: XVIII. 1993.4. Renumbered by: XVII. 1994.2. Amended by: XVII. 1994.7; XXII. 1995.2; XX. 1996.4; V . 1998.8; XVII. 1998.70; XI. 2000.4; IX. 2001.23; II. 2004.8; XIII. 2004.51; II. 2006.7; II. 2009.10; I. 2010.12; IV . 2011.8; V . 2012.10; L.N. 218 of 2012; III. 2013.19; XII. 2014.13; XIII. 2015.44; XXI. 2015.28; XV . 2016.13; XVI. 2017.15; XVIII.2021.15; VII.2022.18. 5.(1) (a) Capital gains derived by a person from the transfer of a capital asset shall be charged under article 4(1). Notwithstanding anything contained in any other part of this Act, such gains shall be ascertained as laid down in this article and in such manner as may be prescribed. The capital gains to which the provisions of this article shall apply are: (i) gains or profits arising from any transfer of the ownership or usufruct of any immovable property or the assignment or cession of any rights over such property; (ii) gains or profits arisi ng 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 any other intellectual property; and (iii) gains or profits arising from a transfer of the beneficial interest in a trust in accordance with the provisions of sub-article (19). For the purposes of this subparagraph, "transfer of the beneficial interest in a trust" shall include a transfer of a full or partia l beneficial interest in a trust and any alienation of any such full or partial interest as a resu lt of a disclaimer of such interest or as a result of a person not remaining a beneficiary of such trust; (iv) gains or profits arising from a transfer of securities as provided for in sub-article (9A) and from a transfer of value i n securities as provided for in sub-article (13)( b)(ii); and (v) gains or profits arising from the transfer of the ownership or usufruct of or from the assignment or cession of any rights over any interest in a partnership. For the purposes of this subparagraph "transfer" shall mean: (a) a t r a n s f e r o f a f u l l o r p a r t i a l i n t e r e s t a n d any alienation of any such full or partial interest in a partnership; and (b) a deemed transfer of an interest in the partnership. Where a person acquires or increases a partnership share there is a deemed transfer of an interest in the partnership to that partner from the other partners; (b) In this article - "partnership" means - Cap. 386. Cap. 168. (a) any partnership constituted under the Companies Act or under the Commercial Partnerships Ordinance , being either a commercial partnership en nom collectif or a commercial 20 CAP. 123.] INCOME TAX partnership en commandite the capital of which is not divided into shares; (b) except for the purposes of sub-paragraph (v)( b), any other partnership having a legal personality distinct from that of its members constituted, incorporated or register ed under any other law in force in Malta; (c) any body of persons cons tituted, incorporated or registered outside Malta, and of a nature similar to the aforesaid partnerships; S.L. 386.08 (d) a European Economic Interest Grouping (EEIG) formed pursuant to the provisions of the Companies Act (European Economic Interest Grouping) Regulations ; "partnership share" means th e share to which a person is entitled in the income of the partnership and to assets available for distribution on a winding up of the partnership; Cap. 370. "transfer" includes any assignment, sale, emphyteusis or sub-emphyteusis, partition, donation, settlement of property on trust, distribution and reversion of property settled on trust, sale by instalments, and any alienation under any title including any redemption, liquidation or cancellati o n o f u n i t s o r s h a r e s i n a collective investment scheme as defined in article 2 of the Investment Services Act and maturity or surrender of linked long term policies of insurance, and any occurrence that is deemed to be a transfer in accordance with the provisions of sub-articles (9A) and (13)( b), and for the avoidance of doubt includes any transfer of an asset by a company to its shareholders, or by a commercial partnership en nom collectif o r commercial partnership en commandite the capital of which is not divided into shares to its members, in the course of winding up the company or partnership or in the course of a distribution of assets to its shareholders or partners pursuant to a scheme of distribution, but does not include a transfer causa mortis, or a transfer of property by the trustee of a disability trust or disability foundation to any one or more of the remaining beneficiaries of such trust or foundation or the heirs of the disabled beneficiary upon the death of the disabled beneficiary of such trust or foundation and where such remaining beneficiaries or heirs comprise only persons referred to in sub-article (2)(e)(i); for the purposes of this article, the expressions ''disability trust'' and ''disability foundation'' shall have t he meaning assigned to them in article 12(1)(z); and Cap. 370. "securities" shall mean shares and stocks and such like instrument that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return, units in a co llective investment scheme as defined in article 2 of the Investment Services Act , INCOME TAX [CAP. 123. 21 and units and such like instruments relating to linked long term business of insurance. (2) For the purpose of ascertaining the gains or profits arising from any transfer of immovable property in terms of sub-article (1)(a)(i) - (a) there shall be deducted in such manner and amount as may be prescribed, the cost of acquisition, the inflation element, any ground-rent paid on the property and for which a deduction is not due to the taxpayer under any other provision of this Act, maintenance, improvements, other expenses that have increased the value of the immovable property since it was acquired and other expenses directly related to the transfer; (b) any transfer of immovable property by means of a deed of exchange shall be considered as if separate deeds of transfer were tak ing place between the parties to the deed; (c) where immovable property is granted on emphyteusis or sub-emphyteusis for a pe riod exceeding fifty years, or extendable to such periods, the following rules shall apply: (i) where the premium exceeds the cost of acquisition in accordance with paragraph ( a) hereof, such excess shall be deemed to be gains or profits; (ii) where the cost of acquisition in accordance with paragraph (a) hereof exceeds the premium such excess shall be deductible from the gains or profits arrived at in accordance with sub- paragraph (iii) hereof; (iii) no account shall be taken of any ground-rent or increase in ground-rent i nvolved in the transfer unless and until such ground-rent or increase in ground-rent is redeemed, or the directum dominium or sub directum dominium , as the case may be, is transferred and in such case the gains or profits shall be deemed to be the price of redemption or sale less any deduction in accordance with sub-paragraph (ii) hereof; (d) (i) a transfer shall not incl ude a contract of partition where no owelty is due to any of the co- partitioners, and upon a transfer of any property by a co-partitioner the cost of acquisition shall be deemed to be the cost of acquisition of the property in question at the time of acquisition by the co-partitioner; (ii) for the purposes of this paragraph only the immovable property held in common and partitioned shall be taken into account, and where money or other movables held in common is assigned to a co-partitioner in consideration 22 CAP. 123.] INCOME TAX for the reduction in the share of immovables assigned to him the partition shall be deemed to be one where an owelty has been paid; (iii) where a person receive s an owelty on a contract of partition he shall be deemed to have made capital gains as is equivalent to as much of the increase in the value of the property between the time of the acquisition by the co-partitioners and the time of partition, so however that tax on capital gains shall only be payable at the time of partition on such part of the capital gains made as is not included in the increase in the value of the property assigned to that co-partitioner between the time of acquisition by the co- partitioner and the partition, and where such co- partitioner transfers the property assigned to him the cost of acquisition shall be deemed to be the cost of acquisition of the immovables when acquired by the co-partitioners before the partition; (iv) where a co-partitioner pays an owelty at the time of the partition, he shall be deemed to have made no capital gain at the time of the partition, and where such co-partitioner transfers any immovable property assigned to him in the partition, the cost of acquisition shall be deemed t o b e s u c h p o r t i o n o f t h e s u m o f t h e c o s t o f acquisition of the co-partitioner’s share of all the immovables partitioned together with the owelty paid on the contract of partition, as is equivalent to the portion of the value of the immovable transferred to the total value of immovables assigned to the co-partitioner in the deed of acquisition; (e) a donation shall be considered as a deemed sale made at the market value of the property at the time of transfer. Provided that no t ax shall be payable where the donation is made by a person to: (i) his spouse, descendants and ascendants in the direct line and their relative spouses, or in the absence of descendants to his brothers or sisters and their descendants, or (ii) philanthropic institutions approved for the purposes of article 12(1)( e); (f) without prejudice to the provisions of article 12(1)( e), where the property refer red to in paragraph ( e) is disposed of by the donee within five years of the donation, the donee shall be charged on the gain ascertained in accordance w ith the provisions of this article by taking into account the cost of acquisition of the property at the time it was acquired by the donor; where the property is sold by the donee after the lapse INCOME TAX [CAP. 123. 23 of five years the cost of acquisition shall be deemed to be the value of the property as declared in the deed of donation; (g) gains and profits relating to a transfer by donation, settlement of property in trust, or distribution or reversion of property settled in trust means the difference in the market value of the property at the time of the donation, settlement, distribution or reversion and the cost of acq uisition of the property at the time of acquisition of the property by the donor, settlor or trustee as the case may be. The relevant instrument pursuant to which the said transfers were effected shall include a declaration of the said market value. (3) For the purpose of ascertaining the gains or profits arising from any transfer of property in terms of sub-article (1)( a)(ii): (a) the acquisition cost of shares acquired before the 25th November, 1992 shall be valued either on the Equity method of share valuation (net asset value) based on the last accounts submitted to the Commissioner by the 18th December, 1992 by taking into account the value of immovable property existing in the said accounts and adjusted in terms of sub-article (2)( a) or on the actual purchase price, whi chever is th e higher; (b) listed shares quoted on a stock exchange on the 25th November, 1992 shall be valued at the price existing on that date; and in the case of shares quoted in foreign currency, the rate of exchange (middle rate of the Central Bank) on that date shall be used; (c) shares acquired after the 25th November, 1992, shall be valued on the cost of acquisition: Provided that with respect to shares acquired under a share option scheme the cost of acquisition shall be established in accordance with such rules as may be made by the Minister responsible for finance: Provided further that where an amount standing to the credit of any of a company’s reserve accounts, other than a capital redemption reserve and profits available for distribution, is applied in paying up to any extent any shares allotted by the company, the cost of acquisition of such shares shall be zero: Provided also that the acquisition cost of shares resulting from a conversion of a partnership into a company as referred to in article 45B sha ll be the cost of acquisition of the interest (representing those shares) held in the partnership that had been converted into the said company; (d) where on a share transfer the rights pertaining to those shares are changed in any way , the transfer value of the shares shall be taken as if no such change has been 24 CAP. 123.] INCOME TAX made; (e) any transfer consisting of an exchange shall be considered as if two separ ate transfers were taking place; and (f) the provisions of sub-article (2)( d), ( e), ( f) and ( g) shall apply mutatis mutandis to this sub-article; (g) in the case of a transfer of shares listed on a stock exchange recognised by the Commissioner for the purpose of this provision not being securities in a collective investment scheme and not being exempt from tax under the provisions of sub-article (6)( b): (i) the transfer value shall in no case exceed the market value of the said shares immediately upon being admitted to listing, and (ii) the cost of acquisition taken into account shall be the cost of acquisition of the original shares: For the purpose of this paragraph "original shares" shall have the same meaning assigned in sub-article (6)(b). (3A) For the purpose of ascertaining the gains or profits arisi ng from any transfer of property in terms of sub-article (1)( a)(v): (a) the acquisition cost in each of the circumstances mentioned in this paragraph shall, subject to any adjustments that may be pr escribed, be determined as follows: (i) the acquisition cost of an interest acquired from an existing partner shall be the actual purchase price; (ii) the acquisition cost o f an interest acquired causa mortis shall be the lower of the value declared in a deed of transfer causa mortis and the price which that interest would have fetched had it been sold on the open market on the date of that acquisition; (iii) the acquisition cost of an interest acquired by way of a capital contribution made to the partnership shall be the amount or value of such contribution; (iv) the acquisition cost of an interest re sulting from a conversion of a company into a partnership as referred to in article 45A shall be the cost of acquisition of the shares (representing that interest) held in the company that had been converted into the said partnership: Provided that where the said shares consist of shares whose return is limited to a fixed rate of return the acquisition cost shall be taken to be zero; and (b) any transfer consisting of an exchange shall be INCOME TAX [CAP. 123. 25 considered as if two separ ate transfers were taking place; and (c) the provisions of sub-article (2)( d), (e), and ( f) and shall apply mutatis mutandis to this sub-article. (4) The provisions of sub-article (2)( d) shall apply mutatis mutandis where the assets partitioned include both assets under sub-article (1)( a)(i) and (ii). (5) The provisions of sub-article (1)( a)(i) shall not apply to gains or profits relating to t ransfer of immovable property: (a) where a copy of the relevant deed of transfer dated prior to the 25th November, 1992 or of the relevant promise to transfer or acquire also dated prior to the 25th November, 1992, made in favour of the transferee, has been duly registered with the Inland Revenue Department by the 1st December, 1992 and a certificate to that effect h a s b e e n i s s u e d b y t h e Commissioner or, in the case of a deed of transfer, the deed has been duly enrolled in the Public Registry by the 1st December, 1992; (b) where the Commissioner is satisfied that the property or undivided part of the property has been owned and occupied for a period of at least three years as the transferor’s own residence immediately preceding the date of transfer and provided that the property is disposed of within twelv e months of vacating the premises; (c) for the purposes of paragraph ( b) "own residence" means the principal residence owned by the taxpayer or his spouse being a dwelling house which has been the owner’s only or main residence, including land, transferred through the same deed with the principal residence, which the owner has for his own occupation and enjoyment with that residence as its garden or grounds consisting of an area which, regard being had to the size and character of the dwelling house, is required for the reasonable enjoyment of it as a residence. A garage attach ed to or underlying a house or a block of flats, or a garage of not more than seventy square metres situated within five hundred metres of the dwelling house, and transferred through the same deed with the principal residence shall be deemed to be included as part of the residence. The period of residence includes the physical occupation of the premises and any absences from Malta such as on account of foreign employment, holiday or study as well as any absences due to illness, or car e in a hospital or home for the elderly, provided that the premises in question are not being used or employed for any other purpose during such absence. Any part of the house, garden or grounds which is used exclusively for commercial purposes for any time within two years of the transfer, or which is not required 26 CAP. 123.] INCOME TAX for the reasonable enjoyment of it as a residence shall not be considered as "own residence" and this part shall be apportioned on the basis of the area occupied for this purpose as a proportion of the whole area of the relative dwelling house, garden or grounds: Cap. 88. (d) where the property was taken over by Government and in respect of which a declaration by the President of Malta has been issued in terms of the Land Acquisition (Public Purposes) Ordinance before the 25th November, 1992; (e) where the property is assigned between spouses consequent to a judicial or consensual separation or a divorce; (f) where the property formed part of the community of acquests between the spouses or was otherwise owned in common between them and is assigned to one of the spouses on the dissolution of the community or is partitioned between the spouses, or the surviving spouse and the heirs of the deceased spouse; (g) where the property is assigned on emphyteusis for fifty years or less. (6) The provisions of sub-article (1)( a)(ii) shall not apply to gains or profits relating to: (a)( deleted by Act II. 2009.10. ); (b) transfer of shares listed, or in consequence of a listing, on a stock exchange recognised by the Commissioner for the purpose of this provision not being securities in a collective investment scheme; (c) transfer of securities listed on a stock exchange recognised by the Commissioner for the purpose of this provision being securities in a collective investment scheme held in a prescribed fund as defined in article 41A( b); (d) transfer of units and such like instruments relating to linked long term business of insurance where the benefits are wholly deter mined by reference to the value of, or income from, securities to which either paragraph (b) or ( c) applies; (e) property transferred in the circumstances listed in sub- article (5)( e) and ( f). (6A) The provisions of sub-article (1)( a)(v) shall not apply to gains or profits relating to property transferred in the circumstance s referred to in sub-article (5)( e) and (f). (7) Where a person is entitled to capital allowances under article 14(1)( f) and (j) in respect of a capital asset which is sold at a price exceeding its cost of acqui sition and any improvements ma de thereto, the cost of acquisition shall be computed on the cost of acquisition and the cost of any improvement made thereto. INCOME TAX [CAP. 123. 27 (8) Where an asset referred to in sub-article (1)( a) used in a business for a period of at least three years is transferred an d replaced within one year by an asset used solely for a similar purpose in the business, any capital gains realised on the tran sfer shall not be taxed but the cost of acquisition of the new asset shall be reduced by the said gain. Whe n the asset is disposed of with out replacement, the income, whether chargeable under this article or under article 4(1)( a), shall take into account the transfer price and the cost of acquisition reduced as aforesaid: Provided that, unless otherwise authorised by the Commissioner, provisional tax as provided in article 43(1)( b) of that Act shall be payable on any tran sfer to which this sub-article applies: Provided further that if the capital gain exceeds the cost of acquisition of the replacement p roperty any excess is to be tax able in the year in which the replacemen t property was acquired and the cost of acquisition of the replacement property to be taken into acc ount on a subsequent transfer will be zero. (9) (i) Where an asset is tran sferred from one company to another company and such companies are: (a) deemed to be a group of companies for the purposes of article 16, or (b) controlled and beneficially owned directly or indirectly to the extent of more than fifty per cent by the same shareholders, it shall be deemed that no loss or gain has arisen from the transfer. In ascertaining the income, whether chargeable under this article or under article 4(1)(a), where such an asset is subsequently transferred by a company to another company which does not fall within the provisions of paragraphs ( a) or (b), or to another person, as the case may be, the base cost and the date of acquisition of the asset that would be considered shall be the original cost and the date when it was acquired before the transfer from the first company, being the company within the group, took place: Provided that the Minister may by rules prescribe conditions for the relief envisaged in this sub-article that are different from those provided for in this paragraph, and those rules shall apply to transfers that are made after such date as may be prescribed. (ii) Where an asset falling under the circumstances referred to in paragraph (i) is in the form of immovable property which is transferred by a company to another company that falls within the provisions of sub- paragraphs ( a) and ( b) of the said paragraph, or of rules prescribed in accordance with the said paragraph, or where the said immovable property is subsequently transferred to another company which does not fall within the said provisions, or to another person, as the 28 CAP. 123.] INCOME TAX case may be, the notary publishing the relative deed of transfer shall attach to the said deed a notice made in such manner and containing such details as may be prescribed by the Minister. (iii) Where the asset referred to in paragraph (i) consists of immovable property situated in Malta or shares in a property company, the provisions of this sub-article shall only apply where the in dividual direct or indirect beneficial owners of the companies referred to in paragraph (i) are the same and each such individual holds, directly or indirect ly, substantially the same percentage interest in the nominal share capital and voting rights in each of the said companies. For the purpose of this paragraph the proviso to the definition of ''property company'' in article 2(1) shall not apply: Provided that for the purpose of this paragraph an individual is deemed to hold substantially the same percentage interest in the nominal share capital and voting rights in each of the said companies where the difference between the percentage interest held in each company does not ex ceed twenty percent: Provided further that where an individual holds, directly or indirectly, less than twenty percent of the nominal share capital and voting rights in only one of the said companies, such individual shall, for the purpose of this paragraph, not be taken into account in determining whether the i ndividual direct or indirect beneficial owners of the sai d companies ar e the same: Provided also that if more than one individual holds, directly or indirectly, less than twenty percent of the nominal share capital and voting rights in only one of the said companies, the previous proviso shall not apply where together such individuals hold, directly or indirectly, twenty percent or more of the nominal share capital and voting rights in that company: Provided also that the whole of this paragraph shall not apply, where the companies r eferred to in paragraph (i) are directly or indirectly o wned as to eighty percent or more by a company whose securities are listed on a stock exchange recognised by the Commissioner for the purpose of this provision. (iv) Where an asset, qualifying for tax relief under this article, is transferred from one company to another company and the company ac quiring the asset issues shares in exchange for the a cquired asset, whether to the transferring company or to any other person, the cost of acquisition of the said shares shall, for the purpose of calculating the gains or profits derived from the subsequent transfer of the said shares, be reduced (but not below zero) by an amount determined by deducting from the transfer value of the asset its cost INCOME TAX [CAP. 123. 29 of acquisition to the transferring company: Provided that this paragraph shall not apply where the said asset is charged to tax under the provisions of sub- article (9A) of this ar ticle or arti cle 5A(12A). (9A) (a) If a company ("the chargeable company") holds shares in a company, which had been acquired from another company, and such acquisition was exempt from tax under sub-article (9), this sub-article shall apply if the chargeable company ceases to be a member of the original group bef ore the lapse of six years from the date of the said acquisiti on. References in this sub- article to a company ceasing to be a member of a group do not apply to cases where a company ceases to be a member of the original group by being wound up or dissolved or in consequence of another member of the original group being wound up or dissolved: Provided that where a company ceases to be a member of the original group by being wound up or dissolved, for the purpose of determining whether the chargeable company ceases to be a member of the original group under paragraph ( b), such company shall be deemed to have remained in existence. (b) The chargeable company shall cease to be a member of the original group, if suc h company and the company from which it had acquired the shares referred to in paragraph (a) no longer satisfy the provisions of sub- article (9)(i) and (iii) and such determination shall be made by reference to the same individuals referred to in paragraph (iii) of the said sub-article taken into account in determining whether the two companies referred to in this paragraph satisfied the provisions of sub-article (9)(i) and (iii) on the date of the acquisition referred to in paragraph ( a): Provided that where the acquisition referred to in paragraph ( a) took place before the 1st January 2010, sub-article (9)(iii) shall be disregarded for the purpose of determining whether a company ceases to be a member of a group: Provided further that where the chargeable company ceases to be a member of the original group, solely as a result of a change in the di rect or indirect individual shareholders of the company from which it had acquired the shares referred to in paragraph ( a), the chargeable company shall, for the purpose of this paragraph, not be treated as ceasing to be a member of the original group as a result of such change, so however that for the purpose of determining whether the chargeable company ceases to be a member of the original group it shall be deemed that such change had not taken place and such det ermination shall be made by reference to the same individuals referred to in sub- 30 CAP. 123.] INCOME TAX article (9)(iii) taken into account in determining whether the chargeable company and the company from which it had acquired the shares satisfied the provisions of sub-article (9)(i) and (iii) on the date of the acquisition referr ed to in paragraph ( a). (c) For the purpose of this sub-article the term "original group" shall mean the two companies referred to in paragraph (b), and the individual direct or indirect beneficial owners of the said companies who were taken into account in de termining whether the provisions of sub-article (9)(i) and (iii) had been satisfied on the date of the acquisition referred to in paragraph ( a): Provided that where the tw o companies referred to in this paragraph are directly or indirectly owned as to eighty percent or more by a company whose securities are listed on a stock exchange recognised by the Commissioner for the purpose of this provision the term "original group" shall mean the two companies referred to above and the company whose securities are listed on the said stock exchange as existing on the date of the acquisition refe rred to in the paragraph ( a): Provided further that wher e an individual acquires shares in terms of a donation exempt from tax under the provisions of sub-article (2)(e), or a transfer causa mortis , s u c h i n d i v i d u a l s h a l l b e d e e m e d f o r a l l t h e purposes of this sub-article to have held such shares from the date such shares were previously acquired in an acquisition preceding the date of the donation or the transfer causa mortis . (d) When the chargeable company ceases to be a member of the group it shall be treated for all the purposes of this article as if, immediately after its acquisition of the shares referred to in paragraph (a), it had transferred and im mediately re-acquired the shares at that time. (e) The base cost and the date of acquisition of the shares that is taken into account for the purpose of determining any gain or loss shall be the original cost and the date when the shares had previously last been acquired by a company by means of a transfer that did not qualify for an exemption in terms of sub-article (9) or by means of an allotment, which ever is the later. (f) (i) For the purpose of ascertaining the gains or profits arising under this sub-article, the acquisition cost of shares acquired before the 25th November, 1992 shall be valued either on the Equity method of share valuation (net asset value) based on the last accounts submitted to the Commissioner by the 18th December, 1992 or on the actual purchase price, whichever is the higher. INCOME TAX [CAP. 123. 31 (ii) Shares acquired on or after the 25th November 1992, shall be valued on the cost of acquisition: Provided that where an amount standing to the credit of any of a company’s reserve accounts other than a capital redemption reserve and profits available for distribution, is applied in paying up to any extent any shares allotted by the company, the cost of acquisition of such shares shall be zero. (g) Any gain or loss on the transfer referred to in paragraph ( d) shall be treated as accruing to the chargeable company immediately before the company ceases to be a member of the group in accordance with paragraph ( b). (h) For the purpose of paragraph ( a) the term "shares in a company" shall mean shares in a company which, on the date of the acquisition referred to in the said paragraph owned, directly or indirectly, any immovable property situated in Malta or any real rights thereon and the said property or any part thereof is still, directly or indirectly, owned by such company on the date it ceases to be a member of the group in accordance with the provisions of paragraph (b). For the purpose of this paragraph a company is treated as indirectly owning immovable property if it holds, directly or indirectly, shares or other interests in any entity or person, which owns immovable property situated in Malta or any real rights thereon where five percent or more of the total value of the said shares or other interests so held is attributable to such immovable property or rights. (i) Where in accordance with paragraph ( d) the chargeable company is treated as having transferred and immediately reacquired the shares, and a chargeable gain or a cap ital loss accrues to the chargeable company on the deemed transfer, the chargeable gain or capital loss accruing on the deemed transfer shall be treated as accruing not to the chargeable company but to a related company ("company A") if - (i) at the time of accrual, company A was incorporated in Malta, and (ii) a joint election under this paragraph is made by the chargeable company and company A to treat the chargeable gain or cap ital loss as accruing to company A, and (iii) such joint election is made by notice given to the Commissioner not later than twelve months after the end of the accounting period of the chargeable company or company A (whichever is the earlier) in which the time of accrual fell, and 32 CAP. 123.] INCOME TAX Cap. 372. (iv) provisional tax payable in accordance with article 43 of the Income Tax Management Act , is paid by company A at a rate of thirty-five percent of the market value of the shares deemed transferred within the period prescribed in the said article. For the purpose of this para graph company A is related to the chargeable company if both companies form a group for the purposes of sub-article (9) at the time of accrual and "time of accrual" means the time at which, by virtue of paragraph ( d), the gain or loss is treated as accruing to the chargeable company. (10) ( a) A capital loss shall be computed in the same manner as a capital gain. (b) Any loss resulting from the transactions falling under sub-article (1) shall not be set off against other income for the year of assessment but shall be carried forward and set off against capital gains in respect of subsequent years of assessment until the full loss is absorbed. (c) Bad debts incurred in relat ion to the said transactions proved to the satisfaction of the Commissioner to have become bad during the year immediately preceding the year of assessment, notwithstanding that such bad debts were due and payable prior to the commencement of the said year, shall be allowed as a deduction against the capital gains in the year in which they were incurred and if th ere are no gains for that year shall be carried forward and set off against future gains: Provided that all sums recove red in respect of amounts previously allowed as bad debts shall be treated as gains for t he purposes of this article and charged accordingly for the year i n which they are recovered. (11) The gains or profits from an y transaction chargeable under paragraph of article 4(1)( a) shall not be chargeable again as capital gains in relation to the same transaction under this article. (12) ( a) The market value of an asset shall be the price which that asset would fetch if sold on the open market at the time of transfer; (b) where the market value of an asset is required to be determined by the Commissioner he may seek the opinion or assistance of any appraiser, architect or other valuer; and (c) the person making the appraisement or valuation on behalf of the Commissioner shall for the purpose of carrying out the task so entrusted to him be deemed to be a person serving in the Department of the Commissioner and as having an official duty under this Act. INCOME TAX [CAP. 123. 33 (13) ( a) Where a person transfers an asset which, at the time of acquisition, formed an undivided part of a larger asset (hereinafter in this paragra ph referred to as "the whole asset"), the deductions allowable in ascertaining the gain arising from that transfer shall be equivalent to such proportion of the cost of acquisition of the whole asset and of the other deductions that would be due in terms of this article had that person transferred the whole asset, as the consideration for the transfer bears at the time of the transfer to the market value of the whole asset. (b) (i) A reduction of the share capital of a company shall be deemed to be a transfer of such proportion of the holding of the owner as is equal to the proportion of the reduction of the c a p i t a l o f t h e c o m p a n y a n d s h a l l c o n s t i t u t e a gain or loss for the purpose of this article in the year in which such reduction is effected: Provided that where there is a proportionate reduction in the shareholding of all the shareholders, such that the proportion of the shareholding of each shareholder with respect to number, type, class, voting rights and value of shares is equal before and after the reduction is effected, it shall be deemed that no loss or gain has arisen from the transfer. (ii) Where the market val ue of shares held by a person ("the transferor") in a company has been reduced as a result of a change in the issued share capital of such company, or a change in voting rights attached to such shares, and such value passes into other shares in or rights over the company held by any other person ("the transferee"), the transferor shall be deemed to have made a transfer of such value so reduced to the transferee. Any gains or profits shall be calculated by taking into account the difference between the market value of the shares held immediately before and after the said change: Provided that this paragraph shall not apply where the change in the issued share capital or change in voting rights does not produce any change in the individu al direct or indirect beneficial owners of the said company and in the proportion in the value of the said company represented by the shares owned beneficially directly or indirectly by each such individual: Provided further that this paragraph shall not apply where the change in the issued share capital consists of an allotment of shares in a company as a result of an exchange of shares on a restructuring of holdings exempt from tax 34 CAP. 123.] INCOME TAX under the provisions of sub-article (14): Provided also that this paragraph shall not apply where the said company is a company whose securities are listed on a stock exchange recognised by the Commissioner for the purpose of this provision: Provided also that this paragraph shall not apply where the transfer of value is made by the transferor to a person referred to in sub-article (2)( e)(i): Provided also that this paragraph shall not apply where the said company is not a "property company" and it can be shown to the satisfaction of the Commissioner that the said change is effected for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes is avoidance of liability to tax. For the purpose of this paragraph the proviso to the definition of ''property company" in article 2(1) shall not apply. (c) On any subsequent transfer of the shares referred to in paragraph ( b)(i), the cost of acquisition shall be deemed to be the residual part of the cost of acquisition not taken into account on the reduction of capital. (14) Where a transfer involvi ng the exchange of shares on restructuring of holding upon mergers, demergers, divisions, amalgamations and reorganisation takes place it shall be deemed that no loss or gain has arisen from such transfer and the cost of acquisition upon a subsequent trans fer of the original shares o r the new shares shall be deemed to be the cost of acquisition of the original shares. For the purposes of this sub-article - "original shares" means shares held before and involved in the restructuring, and "new shares" means, in relatio n to any original shares, the shares in the company which, as a result of the restructuring, represent the original shares: Provided that the provisions of this sub-article shall only apply in such manner and in such circumstances as may be prescribed by the Minister: Cap. 386. Provided further that the first proviso hereof shall not apply to divisions and mergers where t he draft terms of the said divi sions and mergers had been forwarded to the Registrar of Companies fo r registration in terms of the provisions of the Companies Act on or prior to the 24th November, 2003 and the Registrar had publishe d the relevant statement in the Go vernment Gazette in terms of th e said Act on or prior to the 31st December, 2003, provided that a copy of the relative publication is attached to the relative de ed. INCOME TAX [CAP. 123. 35 (15) Where a business or a partnership en nom collectif , as a going concern is incorporated into a limited liability company, which is beneficially owned to the extent of not less than seve nty- five per cent by the same person who owned the business or the partnership en nom collectif and there is a transfer of assets it shall be deemed that no loss or gain has arisen from the transfer. Provided that where such assets a re subsequently transferred by the company, the base cost and date of acquisition of the assets th at would be considered, whether chargeable under this article or u nder article 4(1)( a), shall be the original cost and the date when it was acquired before the fir st transfer took place: Provided further that this article shall apply only where an individual or a partnership en nom collectif transfers to a company a business as a going concern, t ogether with the whole assets o f the business, or together with the whole of those assets other than cash, and the business is so transferred wholly in exchange for share s issued by the company to the per son transferring the business: Provided also that for the purpose of computing any chargeable gain accruing on the disposal of the said shares, th e cost of acquisition taken into account sha ll be reduced by any chargeab le gain that would have resulted on the transfer of the said business h ad this sub-article and articl e 5A not been applied. Cap. 364. (16) For the purposes of this article the value of the usufruct and of the nuda proprietas shall be computed in accordance with the provisions set out in the Duty on Documents and Transfers Act . (17) The Minister may make ru les making provision for the purpose of removing the effect of any scheme made for the purpo se of avoiding, reducing or postponing any tax due under this arti cle, and in addition the Minister may make rules providing that any transfer of any right referred to in sub-article (1) shall only be valid if it is made by agreement in writing and if payment of such po rtion of the provisional tax on the cap ital gains due thereon is made as may be prescribed and if the said agreement is registered in su ch manner as may be prescribed with such authority as may be prescribed. Settlement of property. (18) On the settlement of property on trust, where the trust is established or evidenced by means of a written instrument it sh all be deemed, for the purposes of this article that - (a) no transfer had taken place where the sole settlor is also the sole beneficiary of such trust; (b) such property had been donated directly by the settlor of such trust to the beneficiaries that are persons other than the settlor himself: Provided that - (i) the relevant trust instrument specifically provides that the beneficiaries have an irrevocable vested right to receive all the property settled in trust as specified in the said written instrument; and (ii) the relevant trust instrument specifically 36 CAP. 123.] INCOME TAX provides that the beneficiaries are, in relation to each settlor, persons ref erred to in sub-article (2)( e)(i), whether they are in existence or not at the time of such settlement, or are persons referred to in paragraph ( e)(ii) of the said sub- article in each case, such persons being either alone or with the settlor himself; and (iii) the beneficiaries include persons who are in existence at the time of the settlement of such property on trust; (c) no loss or gain had arisen: Provided that - (i) the relevant trust in strument specifically provides that the beneficiaries of such trust comprise only persons referred to in sub-article (2)( e)(i), whether they are in existence or not at the time of such settlement, in relation to each settlor and may also include the said settlor himself; and (ii) the beneficiaries of suc h trust include at the time of such settlement a person who by reason of an interdiction, incapacitation, or of a physical or mental impairment, or by reason of an irregular or dissolute lifestyle is substantially limited in his ability to administer or manage the property settled in trust, or include at the time of such settlement a person who by reason of a physical or mental impairment is or may become unable t o f u l l y p r o v i d e f o r h i s o w n m a i n t e n a n c e , a n d where the trustee of such trust provides the Commissioner with the necessary evidence proving such interdi ction, incapacitation, impairment or inability in the form of medical certificates, court orders or any other relevant documents which the Commissioner may deem necessary; and (iii) the beneficiaries of such trust include persons who are in existence at the time of the settlement of such property. Transfers of beneficial interest. (19) ( a) For the purposes of the provisions of sub-article (1)( a)(iii), gains or profits shall be deemed to arise on the date of the execution of a written instrument (hereinafter in this sub-article referred to as "transfer instrument") whereby there is a transfer of the beneficial interest in a trust which includes taxable trust property. For the purposes of this sub-article "taxable trust property" means property referred to in sub-article (1)( a): Provided that this phrase includes only such property, the transfer of which, had i t been carried out directly by the relevant beneficiary, would have given rise to INCOME TAX [CAP. 123. 37 gains or profits chargeable to tax in accordance with the provisions of this Act. (b) The gain or profit arising from the transfer of the beneficial interest in a trust which has taxable trust property shall be equal to the consideration for the said beneficial interest as declared in the relevant transfer instrument. No deductions shall be allowable against the consideration payable to the transferor. (c) The gain or profit that is determined in accordance with paragraph ( b) shall be taxable a t the rate specified in article 56(6). No relief, r eduction, credit or set-off of any kind shall be made in respect of such tax. Cap. 16. (d) In addition to the requirements laid down in Sub-Title VII of Title VI of Part II of Book Second of the Civil Code, any person transferring the beneficial interest in a trust which includes taxable trust property shall, within forty-five days of the date on which the transfer instrument was executed, provide the trustee of such trust with an authenticated copy of the said transfer instrument and shall require the trustee to collect an amount of tax equal to the tax determined in accordance with the provisions of paragraph ( c) for onward payment to the Commissioner. (e) The tax so collected by the trustee from the transferor in accordance with the pr ovisions of paragraph ( d) shall be a debt due from the trustee to the Commissioner payable by not later than the fourteenth day following the end of the month in which the trustee had collected the tax. Together with this payment, the trustee shall provide the Commissioner with - (i) an account of the gains or profits together with a list of all the assets mak ing up the taxable trust property on the date the transfer instrument was executed on such form as may be prescribed; (ii) an authenticated copy of the relevant transfer instrument; and ( i i i ) a c o p y o f t h e l a s t f i n a n c i a l s t a t e m e n t s o f t h e trust. (f) The trustee of the relevant trust shall, by not later than fifteen days from the date when he receives acknowledgement from the Commissioner of receipt of the tax and documents referred to in paragraph (e), furnish the parties to the transfer instrument with a certificate evidencing that the tax has been paid and that his obligations under paragraph (e) have been fulfilled. Cap. 16. (g) Notwithstanding the provisions of Sub-Title VII of Title VI of Part II of Book Second of the Civil Code , any transfer of a beneficial interest in a trust which includes taxable trust proper ty shall not take place and 38 CAP. 123.] INCOME TAX shall not have any effects for the purposes of any law unless the said transfer is made by means of a transfer instrument and unless the transferor and the trustee have fulfilled their obligations in accordance with the provisions of paragraphs ( d) and ( e). Cap. 372. (h) Subject to the provisions of article 10A of the Income Tax Management Act , the person transferring the beneficial interest in a trust which includes taxable trust property shall not be obliged to disclose the existence of such gains or profits in any return made pursuant to the provisions of the Income Tax Acts and no further tax shall be payable on such gains or profits. (i) The provisions of this article shall not apply - (i) where the Commissioner is satisfied that an irrevocable disclaimer of a beneficial interest was not effected with the sole or main purpose of avoiding, reducing or postponing liability to tax and where he has, at his discretion, ordered in writing that the provisions of this article are not applicable to such a disclaimer; (ii) to any transfer of beneficial interest in a trust where the trustee holds property solely for the purpose of a designated commercial transaction as defined in su b-article (24). Transfers of property in the administration of trusts. (20) ( a) Where, in the administration of a trust, the trustee transfers property of such trust, gains shall be ascertained in accordance w ith the provisions of this article and the cost of acquisition shall be determined in accordance with the provisions of paragraphs (b) and ( c). (b) In the case where such property had been settled in trust in any of the circum stances described in sub- articles (18) and (24) where the settlor is also a beneficiary of the trust, the cost of acquisition shall be equal to the cost of acquisition of such property at the time it was originally acquired by the settlor of such trust. Where the property had been settled in the circumstances described in sub-article (18)( a) or sub- article (24)( a), it shall be deemed for the purposes of this article that the settlor has directly transferred such property. (c) Subject to the provisions of paragraph ( b), the cost of acquisition shall be the cost of acquisition at the time when such property was first acquired as t rust property of that trust whether by way of settlement or otherwise. Distribution of property settled on trust. (21) ( a) For the purposes of this art icle, property is distributed to beneficiaries of a trust when the trustee transfers property of a trust to any beneficiary of such trust provided that such transfer does not constitute a reversion of property settled on trust as defined in sub- article (22)(a). INCOME TAX [CAP. 123. 39 (b) Where property which had been settled on trust is distributed to the beneficiar ies it shall be deemed that for the purpose of this article - (i) no transfer took place in the case where such property had been settled in the circumstances described in sub-article (18)(b) provided that the property was distributed to beneficiaries which were not settlors of the trust; (ii) property distributed to persons referred to in sub-article (2)( e)(i) in relation to the settlor, was donated directly by the settlor to such beneficiaries where such property had been settled in the circumstances described in sub- article (18)( c); (iii) notwithstanding the relevant deeming provisions of sub-article (18), such property was donated directly by the original settlor of that property to such beneficiaries where such property had been settled in the circumstances described in sub- article (18)(b) and ( c) and was subsequently distributed to a beneficiary that was also a settlor of such trust: Provided that the said beneficiary is a person referred to in sub-article (2)( e)(i) in relation to t h e s a i d o r i g i n a l s e t t l o r w h o h a d o w n e d s u c h property prior to its settlement in trust. (c) The provisions of sub-article (20) shall apply mutatis mutandis in the circumstances of a distribution of property as they apply to the transfer of property in the administration of a property of a trust. Reversion of property to settlor. (22) ( a) For the purpose of this articl e, property settled on trust reverts where there is a transfer to a person who is the settlor of a trust (even where such person is a beneficiary of that same tru st) of property which had, immediately before its settlement into such trust, been owned by that same settlor. (b) Where property which had been settled in trust in the circumstances described in sub-article (18) reverts back to the settlor, notwithstanding the relevant deeming provisions of sub-article (18) , it shall be deemed for the purposes of this article that such property had never been settled into such trust. Cap. 331. (c) Where property had been settled into trust in circumstances other than those described in paragraph (b), and where such property reverts back to the settlor for the reasons referred to in article 16 of the Trusts and Trustees Act , it shall be deemed for the purpose of this article that no loss or gain had arisen in the event of such reversion. (d) The provisions of sub-article (20) shall apply mutatis 40 CAP. 123.] INCOME TAX mutandis in the circumstances of a reversion of property settled on trust as they apply to the transfer of property in the admi nistration of a property of a trust. Subsequent transfers by settlors or beneficiaries. (23) In the case of a subsequent transfer of property by a settl or or beneficiary, as the case may be - (a) where such property had re verted to such settlor; or (b) where such property was distributed to the beneficiaries, and where - (i) such distribution was deemed, in accordance with the provisions of this article, to be a direct donation from the settlor of the trust to the said beneficiaries of such trust; and (ii) such property is transferred by such beneficiaries within the period of time referred to in sub-article (2)( f) f r o m t h e d a t e o f s u c h deemed donation; capital gains shall be ascertain ed in accordance with the provi sions of this article by taking into account the cost of acquisition of such property at the time it was orig inally acquired by the settlor of the trust before the relevant settlement. Transfers involving changes in trustees and particular commercial reasons. (24) ( a) No transfer of the property shall be deemed to have taken place - (i) on the settlement of property consisting of shares in one company when the settlor who owned the said shares prior to the settlement thereof on trust is also the sole beneficiary of the trust; (ii) on the settlement of property consisting of shares in one company when the settlement is made by more than one settlor, and the said settlors are the only beneficiaries of the trust, and the beneficiaries are entitled to benefit in accordance with the terms of the trust in the same proportion as they would have done as settlors; (iii) on the reversion to the settlors of the shares referred to in subparagraphs (i) and (ii) in the same proportion which the settlors would have been entitled to when the property was owned by them as settlors immediately prior to the settlement; (iv) upon the transfer of shares in one company purchased by a trustee with money settled in trust by a settlor for the purpose of acquiring, purchasing or subscribing to such shares, when the said transfer is made to the sole beneficiary of the trust who is also the original settlor; INCOME TAX [CAP. 123. 41 Cap. 331. and in each case, the trustee is a person authorised or not required to be so authorised to act as a trustee in terms of articles 43 and 43A of the Trusts and Trustees Act. (b) No transfer of the property of a trust shall be deemed to have taken place where the trustee of such trust transfers all the property of such trust, which transfer involves only a change in the trustee of such trust and there is no change in the beneficiaries or in the beneficial interest. (c) No loss or gain shall be deemed to have arisen where property is settled into a trust and where the trustee holds such property for the purpose of designated commercial transactions o r where such property so settled reverts to the settlor. Where such property is transferred by the trustee of such trust to its beneficiaries (or to any per son through a judicial sale or otherwise), the cost of acquisition shall be the cost at which the settlor of such trust had acquired the said property. In such a case, the provisions of sub-article (10) can be availed of by the settlor in the same manner as if the transfer of the property by the trustee had been made directly by the settlor himself. Where s u c h p r o p e r t y i s n o t s o t r a n s f e r r e d b u t r e v e r t s t o t h e settlor, or where the settlor waives his right to a reversion of the property, and there is a subsequent transfer of such property , the cost of acquisition shall be the cost at which the settlor had acquired the said property prior to its settlement into the said trust. Subject to the approval of the Commissioner, the provisions of this paragraph shall also be applicable where a property is settled into a trust for the purpose of a commercial transaction not being a designated commercial transaction. For the purposes of this paragraph, "designated commercial transactions" means the custody of investment instruments, the establishment or holding of real or personal security interests (including hypothecs, privileges, pledges and guarantees), and any other commercial transaction which may be prescribed, while "commercial transaction" shall have the meaning assigned to it in article 2 of the Trusts and Trustees Act . Transfers of shares involving fiduciary relationships. Cap. 331. (25) ( a) Where a person that is authorised or not required to be so authorised to act as a trustee in terms of articles 43 and 43A of the Trusts and Trustees Act holds in its own name shares in a company on behalf of the beneficial owner of such shares, and wh ere such person transfers or otherwise disposes of the beneficial ownership of such shares to a third party, such a transaction shall be deemed to constitute a tra nsfer of shares for the purposes of this article. 42 CAP. 123.] INCOME TAX Cap. 331. (b) Where a change in the registered holder of shares in a company does not involve a change in the beneficial ownership thereof, such chan ge shall not be deemed to constitute a transfer of shares for the purposes of this article provided that the registered holder of such shares remains a person auth orised or not required to be so authorised to act as a trustee in terms of articles 43 and 43A of the Trusts and Trustees Act . Cap. 331. (c) For the purposes of this sub -article "beneficial owner" means a person who is the real owner of, or who is otherwise beneficially entitled to, the shares which are subscribed or held on his behalf and in his interest by a person authorised or not required to be so authorised to act as a trustee in terms of articles 43 and 43A of the Trusts and Trustees Act and "beneficial ownership" shall be construed accordingly. (d) When the shares referred to in this sub-article are transferred either by the trustee to a person other than the settlor or by the settlor to a third party after the shares have reverted to the settlor, the acquisition cost shall be deemed to be the cost of acquisition of the shares by the settlor when the shares were originally purchased or subscribed by the settlor prior to the shares being settled into the trust. Power to make rules. (26) The Minister may make regul ations determining the method of calculation of capital gains i n relation to transfers involv ing trusts and to prescribe any matter that may be prescribed in re lation to such transfers. Property transfers. Added by: II. 2006.8. Amended by: II. 2007.4; IV . 2007.8; II. 2009.11; I. 2010.13; IV . 2011.9; V . 2012.11; L.N. 218 of 2012; III. 2013.20; XII. 2014.14; XIII. 2015.45; XV . 2016.14; XVI. 2017.16. VII.2018.16; VII.2019.17; VIII.2020.14; VII.2022.19; XIII.2024.9; IX.2025.11.