With effect from 1st January, 2015 the system consisting of both a 12% final withholding tax on the transfer value and 35% tax on the profit or gain was replaced by one final withholding tax of 8% on the value of the property transferred.
The two exceptions on the above-mentioned rule are the following:
- In the case of individuals who do not carry on the business of property trading, the applicable final withholding tax rate shall be 5% on the value of the property transferred if the property is transferred before five years from the date of its acquisition.
- In the case of properties acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had not been given to the Commissioner before the 17th November, 2014, the applicable final withholding tax rate shall be 10% of the value of the property transferred.
Promise of Sales pre-17th November 2014
A transfer of property, not forming part of a project and not made by the owner of an SDA project, made on or after the 1st January 2015 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the Commissioner before the 17th November, 2014, and which is transferred to the same person or persons appearing on the said promise of sale agreement before the 1st January 2016 may be excluded from the Final withholding tax system if the transfer is made not later than twelve years after the date of the acquisition of the property.
In the case of a transfer of property acquired before the 1st January 2004 in respect of which a notice of a promise of sale or transfer relating to that property had been given to the Commissioner before the 17th November, 2014 the applicable final withholding tax rate shall be 12% of the value of the property transferred unless the previous paragraph applies and the transfer is excluded from the Final withholding tax system.
Exemptions under Art. 5A(4) of the ITA
The below exemptions which were applicable before 1st January 2015 are still in force:
- A donation made by a person to his spouse, to his descendant or ascendant in the direct line, or to the spouse of any such descendant or ascendant, or, in the absence of any descendants in the direct line, to his brother or sister or to a descendant of his brother or sister, or to a philanthropic institution approved for the purposes of article 12(1)(e).
- A transfer of property that has been owned and occupied by the transferor as his own residence for a period of at least three consecutive years immediately preceding the date of transfer and provided that the property is disposed of within twelve months of vacating the premises.
- The assignment of property between spouses consequent to a judicial or consensual separation or a divorce.
- The assignment of property that formed part of the community of acquests between the spouses or was otherwise owned in common between them, to one of the spouses on the dissolution of the community, or the partition of such property between the spouses or the surviving spouse and the heirs of the deceased spouse.
- A transfer of property from one company to another forming part of the same group.
- The transfer of property upon the incorporation of a business or a partnership en nom collectif as a going concern into a limited liability company.
- The settlement of property on trust, or the distribution or reversion of property settled on trust, or the transfer of all the property of a trust involving only a change in the trustee of a trust and where there is no change in the beneficiaries or in the beneficial interest.
- A transfer of property by a company to its shareholder or to an individual related to its shareholder in the course of winding up or in the course of a distribution of assets pursuant to a scheme of distribution.