The 2025 Audit Exemption Rules in Malta, introduced through Legal Notice 139 of 2025, provide new guidelines that simplify audit obligations for startups and small companies. These rules aim to simplify compliance obligations and reducing burdens, particularly for newly established companies that meet specific eligibility criteria. The new rules apply to those accounting periods commencing on or after the 1st of January 2024, with the exception of Rule 6, which comes into effect for accounting periods commencing on or after 1st January 2025.
OVERVIEW OF THE 2025 AUDIT EXEMPTION FRAMEWORK IN MALTA
The Audit Exemption Rules focus on:
- Startups owned by recent qualifying education
- Small and micro entities with limited turnover, assets, and employees
- Shipping companies under the Merchant Shipping Act
- Simplified audit and review obligations
- Disqualification and repeal of previous rules
AUDIT REPORT WAIVER
This Rule introduces an Audit Report Waiver for newly registered companies, subject to a set of defined conditions. The waiver applies for the first two accounting periods if the company is solely owned by individuals with educational qualifications recognised by the Malta Qualifications Recognition Information Centre at MQF Level 3 or higher. Furthermore, the company must be established within three years of obtaining such qualifications.
This waiver is only applicable for those companies whose annual turnover does not exceeding €80,000, or pro-rata for shorter periods. Where these conditions are met, the company would not be obliged to obtain the auditor’s report required under Article 19(4)(a) of the Income Tax Management Act.
DEDUCTION
Rule 4 applies to a company which would not avail itself of the audit report waiver under Rule 3, but which would nonetheless meet the same eligibility criteria. Such companies are entitled to deduct 120% of the cost of the Audit Report against their income, capped at €700 per accounting period.
DISQUALIFICATIONS
This rule serves as a safeguard against the misuse of the provisions under Rules 3 and 4. The exemptions and benefits under these rules are lost with immediate effect if there is a change in the company’s shareholding structure such that not all shareholders continue to meet the eligibility criteria.
EXEMPTIONS FROM THE COMPANIES ACT
Rule 6 allows for exemptions aligned with Article 185(2) of the Companies Act. Companies that qualify for exemptions under such article may be exempt from the certain requirements imposed under Article 19(4)(a) of the Income Tax Management Act:
- Companies satisfying two of the three thresholds are required to submit a review report instead of a full audit; and
- Companies which meet all the three thresholds are not obliged to submit an audit or review report.
To qualify as a micro entity as per Article 185(2) of the Companies Act, a company must not exceed two of the three thresholds:
- balance sheet total: forty-six thousand six hundred euro (46,600);
- turnover: ninety-three thousand euro (93,000);
- average number of employees during the accounting period: two (2);
This also applies to companies which prepare consolidated accounts, provided the group qualifies as a small group in terms of Article 185(5) of the Companies Act.
EXEMPTIONS UNDER THE MERCHANT SHIPPING ACT
For companies registered under the Merchant Shipping Act, similar rules as to those under Rule 6 apply. Companies benefitting from Regulation 64 of the Merchant Shipping (Shipping Organisations – Private Companies) Regulations are deemed to have satisfied the audit requirements under Article 19(4)(a) of the Income Tax Management Act. Again, this Rule is applicable for small groups preparing consolidated accounts under the Companies Act.
The thresholds for Companies registered under the Merchant Shipping Act are higher:
- balance sheet total: six million euro (6,000,000);
- turnover: twelve million euro (12,000,000);
- and provided further that the aggregate balance sheet total and aggregate turnover mentioned in sub-article(5) of article 185 of the Companies Act shall be read as follows:
- aggregate balance sheet total: six million euro (6,000,000) net or seven million and two hundred thousand euro (7,200,000) gross;
- aggregate turnover: twelve million euro (12,000,000) net or fourteen million and four hundred thousand euro(14,400,000) gross:
ELIGIBILITY BASED ON BALANCE SHEET DATES
A company’s eligibility under Rules 6 and 7 is determined based on its balance sheet date, following the criteria under Article 185(3) of the Companies Act which goes as follows:
“Where on its balance sheet date other than its first balance sheet date, a company exceeds or ceases to exceed the limits of two of the three criteria indicated in sub-articles (1) and (2), that fact shall affect the application of the derogation provided for in those sub-articles only if it occurs in two consecutive accounting periods”.
NON-RESIDENT COMPANIES
When it comes to non-resident companies, eligibility for audit exemption is determined by reference to activities which are carried out in Malta.
REPEAL OF PREVIOUS RULES
Rule 10 repeals the Audit Report Waiver and Deduction Rules (S.L. 372. 29), with an exception to its validity in terms of actions which were undertaken when the rules were still in force.
In essence, the 2025 Audit Exemption Rules offer relief to new businesses which are starting up, easing compliance while still securing oversight. Audit obligations are aligned with the company’s size and structure, promoting entrepreneurship and reducing burdens.
SUMMARY: KEY BENEFITS OF THE 2025 AUDIT EXEMPTION RULES IN MALTA
- Startups may benefit from audit waivers or enhanced deductions.
- Micro entities may be exempt from both audits and review reports.
- Shipping companies have higher thresholds and easier compliance.
FAQs
1. Who qualifies for Audit Exemption in Malta from 2025?
Companies meeting the criteria under the 2025 Audit Exemption Rules can qualify for audit exemption. This includes startup companies owned solely by individuals with educational qualifications, small entities as under the Companies Act, and certain companies registered under the Merchant Shipping Act.
2. Are new companies in Malta exempt from Audit?
New Companies are exempt from presenting an auditor’s report for the first two accounting periods provided that it is a company solely owned by individuals with qualifications of MQF Level 3 or higher, the company would have been established within three years of obtaining such qualifications, and the annual turnover cannot exceed €80,000.
3. What is MQF Level 3 in Malta?
MQF stands for Malta Qualification Framework, where a Level 3 is considered to be an exam of O’Level Standard.
4. Can an Audit Exemption Status be lost?
An exemption can be lost if there is a change in the framework of the company such that eligibility criteria is no longer met. In this case, the exemption is lost with immediate effect.
5. Are there exemption thresholds for micro entities?
To qualify as a micro-entity, a company must not exceed two of the three criteria:
- Total Assets: 46,600EUR
- Turnover: 93,000EUR
- Average Number of Employees: 2
Those who meet all three thresholds are exempt from both audit and review reports, while those who only meet two would need to present a review report.
Original image by Jakub Zerdzicki on Unsplash
