Legal Notice 139 of 2025 introduced exemptions from the requirement of having an audit report for certain small companies as part of the records of a company pursuant to the Income Tax Management Act (‘ITMA’).
Article 19(4)(a) of the ITMA previously required all companies registered in Malta to prepare a balance sheet and profit and loss account as part of their records, accompanied by an auditor’s report prepared by a certified public auditor.
As from 1 January 2024, newly incorporated companies may opt for a waiver from the requirement in Article 19(4) of the ITMA to accompany their balance sheet and profit and loss account with an auditor’s report for the first two accounting periods if:
(i) The annual turnover of the company does not exceed €80,000 (or a pro-rata amount if the duration of the relevant accounting period is other than 12 months);
(ii) The sole shareholders of the company are individuals in possession of educational qualifications recognized at MQF level 3 or higher; and
(iii) The company is set up within 3 years from obtaining the said qualifications.
Qualifying Companies which opt not to avail of such waiver may claim a tax deduction of 120% of the costs incurred for such auditor’s report for the first two accounting periods, up to a maximum deduction of €700 per accounting period.
Both the audit report waiver and the deduction will no longer apply if the company’s shareholding changes such that not all shareholders are individuals who meet the required educational qualification criteria.
When qualifying for this exemption, one should also consider whether they also benefit from the Companies Act exemption.
In terms of Article 185(2) of the Companies Act, private companies which do not exceed at least two of the following three thresholds are exempt from the audit requirements under the Companies Act:
(i) Balance sheet total: €46,600;
(ii) Turnover: €93,000;
(iii) Average number of employees during the accounting period: 2.
Legal Notice 139 of 2025 also exempts such companies from the tax obligations of having their accounts audited. The Rules provide that if two out of the three criteria above are not exceeded, the Company will be considered to have satisfied the audit report requirement for income tax purposes upon the preparation of a ‘review report’. As per the guidance issued by the Malta Tax and Customs Administration, the ‘review report’ refers to a report prepared pursuant to a review engagement in accordance with the provisions of International Standard on Review Engagements 2400 (ISRE 2400) (Revised).
Should a company not exceed all three criteria above, it would be exempt from the obligation to have its accounts audited and will not need to prepare a review report.
This exemption also applies to companies that are required to prepare consolidated accounts in accordance with the Companies Act, provided the group in which the company forms part qualifies as a small group in terms of Article 185(5) of the Companies Act, meaning it is a group which comprises parent and subsidiary undertakings to be included in a consolidation and which, on a consolidated basis, do not exceed at least two of the following three thresholds on the balance sheet of the parent company:
(i) Aggregate balance sheet total: €4,000,000 net or €4,800,000 gross;
(ii) Aggregate turnover: €8,000,000 net or €9,600,000 gross;
(iii) Aggregate number of employees: 50.
This exemption applies from accounting periods commencing on or after 1 January 2025.
Companies registered in Malta under the Merchant Shipping Act are exempt from having their accounts audited provided that they do not exceed the limits of two of the following three criteria:
(i) Balance sheet total: €6 million;
(ii) Turnover: €12 million;
(iii) Average number of employees during the accounting period: 50.
This also applies to companies which are required to prepare consolidated accounts in terms of the Companies Act, provided that the group of companies constitutes a small group in terms of Regulation 64 of the Merchant Shipping (Shipping Organisations – Private Companies) Regulations.
This exemption applies from accounting periods commencing on or after 1 January 2024.
Should you require any further information in this respect, please do not hesitate to contact the undersigned or your KPMG contact.
