Guidelines in relation to the Audit Exemption Rules, 2025
These rules, which have been introduced through Legal Notice 139 of 2025, aim to ease certain compliance obligations and offer targeted relief to newly established companies that meet specific criteria.
Application:
These rules apply to accounting periods commencing on, or after 1st January 2024, with the exception of Rule 6, which becomes effective for accounting periods commencing on, or after 1st January 2025.
- Audit exemption for newly registered companies – Rule 3
In the event that the below conditions are satisfied, newly registered companies can benefit from an audit exemption for their first two accounting periods:
- The company’s sole shareholders are individuals,
- These individuals are in possession of educational qualifications at MQF level 3, or higher, as recognised by the Malta Qualifications Recognition Information Centre,
- The company was set up within 3 years of the shareholders obtaining the above-mentioned qualifications, and
- The company’s annual turnover does not exceed €80,000, or a pro rata amount for accounting periods shorter than 12 months.
Provided that the above requirements are met, the company is not required to obtain the auditor’s report referred to in Article 19(4)(a) of the Income Tax Management Act.
- Tax deduction for Voluntary Audit – Rule 4
Where companies are eligible for the above-mentioned exemption, but do not avail themselves of the audit report waiver, a tax deduction of 120% of the audit fee can be claimed, up to €700 for each accounting period. This deduction shall apply for the first 2 accounting periods of qualifying companies.
- Disqualification due to change in shareholding – Rule 5
Provided that there is a change in the shareholding of the company and as a result of which the shareholders shall not all be individuals who have attained the educational qualifications as referred to in Rule 3, the exemption (Rule 3) and the deduction (Rule 4) shall cease to apply immediately.
- Exemptions associated with the Companies Act – Rule 6
As from 1st January 2025, companies that meet the requirements under article 185(2) of the Companies Act (Cap. 386) are treated as follows for audit purposes:
- Companies that satisfy 2 of the 3 criteria are required to submit a review report instead of a full audit.
- Companies that satisfy all 3 criteria are not required to submit an audit or review report.
These exemptions shall also apply to companies preparing consolidated accounts, as long as the group continues to qualify as a small group in accordance of article 185(5) of the Companies Act.
- Companies registered under the Merchant Shipping Act – Rule 7
Companies registered under the Merchant Shipping Act (Cap. 234) that benefit from the exemption under regulation 64 of the Merchant Shipping (Shipping Organisations – Private Companies) Regulations are considered to have satisfied their audit obligations under the Income Tax Management Act, even in the case where no audit is carried out.
This applies to small groups preparing consolidated accounts as well.
- Eligibility for Rule 6,7 and 9:
The eligibility under Rule 6 and 7 is assessed based on the company’s position at the balance sheet date, in line with article 185(3) of the Companies Act.
In the event of non-registered companies, Rule 9 states that eligibility for audit exemption is determined by reference to the activities carried out in Malta.
- Repeal of Earlier Rules – Rule 10:
The Audit Report Waiver and Deduction Rules (S.L. 372.29) have been repealed. Actions taken under the previous rules remain valid.
Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, financial or professional advice. While every effort has been made to ensure accuracy, the writer assumes no liability for any errors or omissions. Readers are encouraged to seek professional advice before making any business or financial decisions based on this content.
