In 2025, Malta introduced new rules (Legal Notice 139 of 2025) under the Income Tax Management Act (Cap. 372), significantly changing when companies are required to have their accounts audited. The rules, which apply to accounting periods starting on or after 1 January 2024 (with some provisions effective 1 January 2025), provide audit waivers or reduced assurance requirements for certain newly formed companies, micro‑entities, small groups, and shipping companies.
Key features include:
- Newly registered companies may avoid a full audit for their first two accounting periods if all shareholders are individuals with at least MQF Level 3 qualifications, the company is incorporated within 3 years of obtaining those qualifications, and turnover does not exceed €80,000 annually (pro rata if less than a full year).
- Even when eligible for the waiver, a company that voluntarily elects an audit can claim a tax deduction of 120 % of audit costs (up to €700 per year) in those first two periods.
- For companies meeting thresholds under Article 185(2) of the Companies Act (i.e. micro‑entities), if two of the three size thresholds are met, only a review report is needed instead of a full audit; if all three thresholds are met, then no audit or review report is required. These thresholds are: turnover ≤ €93,000; assets ≤ €46,600; employees ≤ 2.
- Similar reliefs exist for small groups, parent companies preparing consolidated accounts, and shipping entities under the Merchant Shipping Act.
Advantages
- Cost Savings & Reduced Compliance Burden
Smaller and newly formed companies can avoid the expensive audit process or scale it down to a review, which is less time‑consuming and costly. This is particularly helpful for startups that often face tight cash flow.
- Encouraging Entrepreneurship and Formation of New Businesses
The exemption for new companies provides relief in the early years, which lowers barriers to entry and may encourage more people to start businesses in Malta. The educational‑qualification requirement and turnover cap ensure some filter.
- Simplification of Regulatory Requirements
Aligning the audit obligations under the Income Tax Management Act with those under the Companies Act and Merchant Shipping Act reduces duplication and simplifies compliance.
- Flexibility & Incentives for Transparency
Even when companies are exempt, there is an option to voluntarily audit, with a tax deduction incentive. This encourages those who want extra assurance (e.g. for lenders, investors) to still maintain a higher standard of financial reporting.
Disadvantages / Risks
- Reduced Assurance and Potential Risks of Misstatement
Less oversight may increase the risk of errors, misstatements or fraud in the financial statements. Review reports are less thorough than audits and may fail to detect material misstatements. Stakeholders like banks, investors or business partners might see reduced confidence.
- Qualification Criteria May Be Restrictive
Some newly formed companies may fail to qualify (e.g. shareholders without MQF Level 3 or higher education, or companies incorporated more than three years after obtaining qualifications). This may build a barrier in a different form.
- Immediate Loss of Exemption Upon Shareholding Changes
If shareholding changes such that someone does not meet the education or individual shareholder requirement, the exemption/deduction can be lost immediately. This introduces uncertainty and could have unintended consequences for business plans, especially when bringing in new investors.
- Perception Issues & External Stakeholder Requirements
Even if legally exempt, some lenders or investors may require audited financials. The lack of an audit may reduce credibility. In cross‑border dealings, foreign partners might be unfamiliar with or distrust the review report or exempt status.
- Small Jobs, Big Responsibilities
For micro‑entities with very minimal staff, governance and internal controls might be weaker; even though rules require financial statements, the lack of audit may weaken discipline. There is a chance small entities might neglect proper accounting, which could have tax, legal, or reputational consequences.
Malta’s Audit Exemption Rules 2025 represent a careful balancing act: easing burdens on small and new entities, while still preserving some level of assurance and oversight. For many companies, especially start‑ups and micro‑entities, the benefits in cost savings, compliance simplicity and flexibility are significant. On the other hand, the risks around reduced oversight, potential loss of investor trust, and the need to comply carefully with the eligibility criteria are real and should not be underestimated.
Companies should consider their long term plans, who their stakeholders are (banks, investors, partners), and whether the savings from exemption are worth possibly foregoing the confidence an audit can provide. Where possible, voluntary auditing or opting for higher assurance (even when exempt) may offer a compromise.
Disclaimer
The above does not constitute tax or legal advice and is up to date on the date it was published. Please ensure that you take appropriate advice from tax or legal professionals before making any decisions based on the above.
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