Until recently, the Maltese Income Tax Management Act (ITMA) required all companies—regardless of size—to file audited financial statements. Legal Notice, issued on 15 July 2025, marks a significant regulatory shift. Under this Legal Notice, start-ups, small businesses, small group companies, and small merchant shipping organisations may now be exempt from audit requirements for their first two accounting periods, provided they satisfy the “small company” criteria.
This development aims to reduce the financial and administrative burden previously faced by micro and small enterprises—an important step in reducing the significant burden that certain entities carried in the past.
According to the Legal Notice, to qualify for a complete exemption from audit for two consecutive years, a company must not exceed any of the following thresholds:
- Balance sheet total: €46,600
- Net turnover: €93,000
- Average number of employees: 2
If all three thresholds are met, the company may submit unaudited financial statements.
On the other hand, if a company meets only one of the above criteria, the requirement of a statutory audit remains.
However, if it meets only two of the three criteria, the company must prepare financial statements accompanied by a limited review report in accordance with the International Standard on Review Engagements (ISRE) 2400 (Revised). Under ISRE 2400, a practitioner performs a limited assurance engagement. The objective is to provide a moderate level of assurance that the financial statements are free from material misstatement, offering stakeholders a degree of confidence while significantly reducing the time and cost associated with a full audit.
Similar exemptions apply to companies registered under the Merchant Shipping Act (Cap. 234). To qualify, the company must remain within the following limits (as per Regulation 64 of the Merchant Shipping Regulations):
- Balance sheet total: ≤ €6,000,000
- Net turnover: ≤ €12,000,000
- Average employees: ≤ 50
Importantly, even if a company qualifies for exemption, it may opt to undergo a full audit voluntarily. In such cases, the entity can claim a tax deduction of 120% of the audit costs, capped at €700 per accounting period. This incentive acknowledges the value that an independent audit adds—enhancing credibility with investors, financial institutions, and regulators.
While the new audit exemption significantly lightens the regulatory load on small entities, companies should base their decision on more than just eligibility. Factors such as stakeholder expectations, financing requirements, and internal governance quality should be carefully weighed before foregoing a statutory audit. Ultimately, the introduction of the ISRE 2400 review option provides a balanced framework—allowing smaller businesses to enjoy compliance relief while maintaining a degree of financial assurance and accountability.
DANIEL CAMILLERI 1st Floor, Suite 3, Central Business Centre, Mdina Road, Zebbug 9015 MALTA Email : Daniel@cg.com.mt Ritianne@cg.com.mt Website : http://cg.com.mt/