Unravelling Malta’s introduction of the Audit Exemption Rules

Unravelling Malta’s introduction of the Audit Exemption Rules 

Recent legislative changes have introduced Malta’s Audit Exemption Rules (the “Rules”), which acts as a major development for small and newly formed companies. The new rules are designed to ease the compliance burden for smaller entities, making Malta an even more attractive jurisdiction for startups and micro-businesses.

Yet, while these changes bring flexibility, it is important to understand what they mean in practice — and why, for many companies, an audit can remain a valuable tool, even when it is no longer strictly mandatory.

What Has Changed

Following the introduction of the Rules (issued under the Income Tax Management Act (Chapter 372, Laws of Malta) by way of Legal Notice 139 of 2025), certain companies that meet defined thresholds will no longer be required to have a statutory audit of their annual financial statements.

Upcoming requirements for 2025

More specifically, the reform introduces a tiered approach, in defining the type of entity and the required assurance level to ensure compliance. Rule 6 of Legal Notice 139 of 2025 of the Income Tax Management Act (“ITMA”), which is effective from 1 January 2025, outlines the pertinent criteria.

A small entity shall be defined using the criteria set out in Article 185(2) of the Companies Act, 1995 (Chapter 386, Laws of Malta), shown as follows:

Articles 6(1)(a) and 6(1)(b) emanating from Legal Notice 139 of 2025 of the ITMA, provide clarity on the expectations on the level of assurance required, factoring in the small entity criteria.

An important consideration, pronounced in Article 185 (3) of the Companies Act, is that other than in the case of the first year of operations, the conditions must be satisfied for two (2) consecutive periods.

A parent company may also avail, of the exemptions noted in Rule 6 of the ITMA, if it has met the criteria as follows:

Currently in Effect

Newly incorporated companies may be exempt from audit for their first two accounting periods, subject to satisfying specific criteria regarding size and ownership.

Delving into the details published in Rules 3, 4 and 5 of Legal Notice 139 of 2025 of the ITMA, which are effective as from 1 January 2024:

• Companies whose annual turnover does not exceed €80,000,
• Its sole shareholders are individuals in possession of an MQF Level 3 qualification accredited by the Malta Qualifications Recognition Information Centre (“MQRIC”), and
• The company has been incorporated within three years from the date of obtaining such qualification.

The entity would not require an auditor’s report for the first two consecutive financial periods.

Companies satisfying the criteria set out in Rule 3, may still opt for an audit and as an incentive may take a 120% tax deduction on the relevant audit costs, which are capped at €700 per accounting period.

Caution must be applied. If there is a change in the shareholding structure, or if shareholders no longer meet the criteria, the company will immediately lose its audit exemption and associated tax deduction benefit.

Malta Shipping Companies

The Rules have also been tailored to address industry specific needs, specifically those companies registered under the Merchant Shipping Act. Similar to the criteria set in Rule 6, a separate set of thresholds set out in Rule 7 emanating from Regulation 64 of the Merchant Shipping Act (Chapter 234, Laws of Malta) have been provided as follows:

Similarly, a parent company may also avail, of the exemptions noted in Rule 7 of the ITMA, if it has met the criteria as follows:

The Rationale Behind the Change

The new regime recognises that the administrative cost of a full audit can be disproportionate for very small or early-stage businesses. By allowing simplified assurance — or, in some cases, none at all — Malta aims to encourage entrepreneurship, reduce red tape, and align more closely with EU small-entity frameworks.

What Has Not Changed

Even under the new rules, companies are still required to:

• Maintain proper accounting records,
• Prepare financial statements that give a true and fair view, and
• File these statements with the Malta Business Registry (MBR).

In other words, the exemption affects assurance — not accountability. Directors remain fully responsible for the accuracy and completeness of the financial information submitted.

Final Thoughts

The Audit Exemption Rules mark a progressive step toward simplifying Malta’s corporate compliance landscape. They strike a balance between encouraging business growth and maintaining public trust in financial reporting.

That said, the absence of an audit requirement should not be seen as the absence of the actual need to carry it out. Each company’s circumstances are different, and a careful assessment — ideally with professional guidance — can help determine the level of assurance that best supports long-term goals.

How AE Can Help

Navigating these rules can be complex. At AE Business Advisors, we guide clients through:

• Determining eligibility for exemptions
• Understanding thresholds for small entities, groups, and shipping companies
• Choosing the appropriate level of assurance

If you want to understand how these rules may affect your company, or need tailored guidance, reach out to our team. We’re here to help you navigate the changes confidently.