Rental Law / VAT / TAX / Levies and Common Area expenses

mreboni New member

7POSTS

9 years ago

My husband has recently relocated to Malta (I will join him shortly), and other than the horribly difficult part of securing housing, he has found Malta to be a lovely and welcoming place.

Now onto to the actual subject of my post......

I have in front of me a Letting Agreement drafted out by a prospective Landlord. It stipulates under 'rent':

i. In consideration of the rights granted by the Lessie by virtue of this deed the Lessee shall pay the Lessor, without demand, deduction or set off, a rent of Euro________ per month and this excluding VAT or any other taxes which may be imposed. The said rent shall be payable in advance every month.
ii. The parties agree that if VAT or any other tax, levy or other imposition, which is or may become hereafter payable to the competent authorities, in connection to rent payable or paid in virtue by this lease agreement , then such additional charge shall be payable by the Lessee in addition to the rent agreed.

iii. The Lessee agrees to pay the Lessor euros 200 per annum to cover the common area expenses. These expenses cover lift and rental related services cleaning and lighting of the common areas. This amount should be paid on signing of this agreement or as agreed by both parties.

iv. Upon signing of this Deed, a security deposit of Euro________ shall be paid by the Lessee to the Lessor. Such sum will be forfeited in favor of the Lessor in the event of any damages done to the premises, furniture or anything contained therein, or any other expense related to the premises, including any breach of the conditions contained in this Deed. Such deposit shall be refunded in part or in full to the Lessee after the premises have been returned to the Lessor, an allowance being made for ordinary wear and tear during the period of the lease, and after all payments due to the lesser would have been settled including payments with regards to electricity, water, gas, cable television, Internet, telephone bills and other bills due. Forfeiture of the security deposit for any valid reason in terms of Law or in terms of this Deed shall be without prejudice to all legal rights in favor of the Lessor for the recovery of arrears of ground rent or damages exceeding the amount of the deposit, including court proceedings.

My question is.......... Is this contract legal? Having lived abroad for so many years, I understand that rental law varies from country to country and am also a Landlord in my own right, so am not completely ignorant to the quirks....but...... I find it very odd that Landlords here are findind it acceptable to charge VAT, Communal Expenses and Tax. In Italy these costs are borne by the Landlord, not the tenant.

Any info provided is highly appreciated

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mreboni New member

7POSTS

9 years ago

Ok, so far Ive managed to find this:

* Tenants are not liable to any taxes on their rented dwellings; it is only the landlord who is subjected to tax, as laid down in article 4(e)of the Income Tax Act (Chapter 123 of the Laws of Malta). The amount generated through the lease or the emphyteusis must in fact be declared in the tax return as income derived from property.

To Note:
The only instance where the law imposes an additional tax on the landlord is that of holiday dwellings rented out to tourists. The
Malta Travel and Tourism Services Act (MTTS) subjects these agreements to a reduced VAT rate of 7%. This mechanism comes
in the case of short lets to Maltese citizens, except where the latter use the place as their principal place of residence.

For reference see: http://www.tenlaw.uni-bremen.de/reports … 102014.pdf

mreboni New member

7POSTS

9 years ago

In short Contracts such as the one above look more like agreements formulated for short term lets (under 6 months) with summer tariffs imposed and for Non Maltese residents which pay VAT as tourists. We are a family with an OUTSTANDING track record of renting, and whilst I understand fully that Landlords should and must protect theirs assets, there is a line where ultimate regulatory power on the landlord's side can come across as tantamount to criminal and frankly this incredible boom that Malta is going through will end with reverting to requisitioning powers and reintroducing forms of security of tenure for tenants, if the landlords continue this way! In layman's terms, legislation being returned to more EU respective laws that protect solely tenants, if something is not done (which in my opinion isn't fair either). Its a bubble fit to burst.

Fionn Banned

165POSTS

9 years ago

Non-Maltese workers or self-employed individuals may NO LONGER be subject to the imposition of 7% (seven per cent) value added tax (VAT) on the rent payable for leased accommodation.

In this regard, please see:

5th February, 2016 - ACT No. XII of 2016 - AN ACT to amend the Malta Travel and Tourism Services Act, Cap. 409.

2. In article 2 of the principal Act, for the definition "tourist" there shall be substituted the following: " "tourist" means any person who is travelling to and staying in places outside his usual environment for not more than one consecutive year for leisure, business and other personal purpose OTHER THAN BY TAKING UP EMPLOYMENT OR TO ESTABLISH A BUSINESS in the place visited.".

Source: http://justiceservices.gov.mt/DownloadD … 05&l=1

Johanna MacRae Active member

50POSTS

9 years ago

Unfortunately, the only legislation that regulates the long let rental market is the Maltese Civil Code. This is very generic.

There is no equivalent for example to the UK Landlord and Tenant Act. This would make any tenant unfair contract invalid. Here the rental contract rules. So if you agree to the terms of the contract then you are tied to these.

Having said that, a rental contract must contain the following information. If it does not it is invalid:

1. the address of the property to be leased
2. the agreed use for the property being let
3. the period for which the property would be let
4. whether the lease might be extended and in what manner
5. the amount of rent to be paid and the manner in which such payment would have to be made.

You are absolutely correct - rental contracts tend to be very tenant unfair. We have swung from a totally landlord-unfair situation to a totally tenant-unfair situation.

I am, however, gobsmacked that your rental contract stipulates that you are to pay your landlord's income tax on his rental income. Does he understand that he would then have to pay 15% of the sum of your rent AND the tax you paid? (Because the tax you paid on his behalf would be considered HIS rental income!) Unfortunately, there is a mentality in Malta which is against the payment of ANY income tax whatsoever.

Also the 7% VAT is only meant to be applied on holiday lets, not long lets. Until recently, the Malta Travel and Tourism Services Act classed a tourist as somebody who lived in Malta for up to a year. This clashed with EU freedom of movement. As you can imagine, this caused a huge confusion and tenants were subjected to 7% VAT on their rent when they first arrived even if they were EU citizens entitled to treatment equivalent to locals from DAY ONE of their residence in Malta. Today, this is no longer the case. Any landlord asking for a tenant to pay 7% VAT on the rent hasn't caught up with the change in the definition of 'tourist'.

I, personally, wouldn't sign that particular contract. I would negotiate the terms of the contract to be more tenant fair or walk away.

My group is working on this desperate situation. But progress could be slow.

Johanna MacRae
Malta Tenant Support

Sam4321 Contributor

135POSTS

9 years ago

I don't see 'any other taxes' as meaning the landlord's income tax. I'd take that to mean any future property taxes that might come in, so won't have already been considered in that contract. You can't pay someone's personal tax.

mreboni New member

7POSTS

9 years ago

Johanna MacRae, I have seen your other posts, and they were what prompted me to do research to find the truth, as was your blog. Thank you for working so hard to see these injustices fixed and for sharing them online to keep people informed. Keep up the good work! I truly hope some kind of rental regulation gets put in place to protect both landlord and tenant fairly. The law should be clear and concise, for all to understand; for as we know, ignorance is not an excuse.

I tend to be very fastidious in my approach to understand and learn how to protect my family, but I fear so many renters in Malta neither have the patience or the time to be so fussy, and as a result they dive headlong into what could prove legally disastrous to them in the long run. You are right....once you sign.....that's it!

mreboni New member

7POSTS

9 years ago

Sam 4321,

"this excluding VAT or any other taxes which may be imposed"

is a TAD ambiguous...... sorry...but what other 'taxes' would a tenant hypothetically pay? The fact that I found this.... highlights that Landlords are actively doing this and getting away with it.

* Tenants are not liable to any taxes on their rented dwellings; it is only the landlord who is subjected to tax, as laid down in article 4(e)of the Income Tax Act (Chapter 123 of the Laws of Malta). The amount generated through the lease or the emphyteusis must in fact be declared in the tax return as income derived from property.

To Note:
The only instance where the law imposes an additional tax on the landlord is that of holiday dwellings rented out to tourists. The Malta Travel and Tourism Services Act (MTTS) subjects these agreements to a reduced VAT rate of 7%. This mechanism comes in the case of short lets to Maltese citizens, except where the latter use the place as their principal place of residence.

When a tenant goes into an agreement it is valid for the duration of the contract based on the moment its signed, (for a long let it's 6 months to a year) and shouldn't penalize you for "what may come up later"........ that's not ethical at all!

Plus Johanna states it correctly; "Any landlord asking for a tenant to pay 7% VAT on the rent hasn't caught up with the change in the definition of 'tourist'." Why do unsuspecting prospective tenants have to pay the price for individuals that are required to know what they are talking about, being too lazy to be up to date?

As the contract stands, I won't sign it, and frankly find it shocking that so many tenants enable landlords to continue this practice by signing contracts like these.....and then moan about them.

Sam4321 Contributor

135POSTS

9 years ago

I have no idea what other taxes a tenant hypothetically would pay and neither would the landlord, but that wording seems standard and would cover the landlords back for any future taxes if things change. Melita have the same wording on their contracts.

It does not say you are to pay the landlords income tax, that's something separate.

Toon Cyprus Expert

10235POSTS

9 years ago

#10

id say this is one landlord who is a little tricky clever and very aware of the tax situation in Malta and is hedging his bets - if caught out and then subject to taxes for which he is liable under the governments recent requirement for all rented properties to be registered with the tax authorities. my opinion for what its worth is that the will allow him to pass any taxes on to you

bottomline - contracts are more or less worthless - not many contracts here are enforcable in law most are at best unfair

mreboni New member

7POSTS

9 years ago

#11

Toon, I agree with you. Contracts may not be worth the paper they are printed on, but if a tenant wants to protest through legal means it'll end up costing them a pretty bundle in fees not to mention the long waiting times. Better not to sign a shoddy contract in the first place.

mreboni New member

7POSTS

9 years ago

#12

Sam4321, you should read a past thread on here:

https://www.expat.com/forum/viewtopic.p … 82#3066714

you'll see that it's practiced by landlords and ignorance of the law allows them to get away with it.

It's fraud...plain and simple. Plus do you honestly think these landlords file these taxes?

That hard earned money tends to line their pockets.

lucy67 New member

9POSTS

9 years ago

#13

Well vat in Malta is always paid by the customer and the sale of the landlord is the actual amount excluding vat - but there is no vat if a person is working in Malta or has lived in Malta over a year, and he is not a tourist.
Regarding the common parts - it is common that the landlord will ask for the common parts to be recovered by the tenant - depending on the contract.
Taxes are paid by the landlord on the actual rent.
Hope that this helps you with your query

Toon Cyprus Expert

10235POSTS

9 years ago

#14

you are assuming the LL is declaring........

lucy67 New member

9POSTS

9 years ago

#15

There are a lot of landlords that are declaring. Yes like anything else there will be some that they do not - but you could not put all in one basket. Since the new tax law of the 15% has been issued a lot of people are now declaring. I would be happy if the government would give out a report on the increase of declaring the rents. Besides, now if caught, they have to pay at 35% - so I do believe that more landlords are declaring. Vat is payable for short lets, or tourist accommodation till today.

Sam4321 Contributor

135POSTS

9 years ago

#16

I still say the part to do with tax is standard. If you felt uncomfortable, you could always ask for clarification of which taxes and ask for it to be included in the contract. Though, to me, it's standard wording when a tax doesn't yet have a name (like vat is named). If there's no tax payable, which there isn't, at least at the moment, you won't be liable for any.

You can't ask someone to pay your personal income tax, I don't read it like that at all.