The Audit Exemption Rules (L.N. 139 of 2025) (the “Audit Exemption Rules” or “Rules”), published on the 15th of July 2025, introduce a regulatory framework that eases compliance costs for certain categories of companies in Malta by reducing or eliminating statutory audit requirements. These exemptions apply differently depending on the type of company, with the Regulations distinguishing between: (i) newly incorporated start-ups owned by recently qualified individuals; (ii) exemptions for certain small companies as defined under the Companies Act, Chapter 386 of the Laws of Malta (“Companies Act”) and (iii) private shipping organisations regulated under the Merchant Shipping (Shipping Organisations – Private Companies) Regulations, S.L/234.42 (“Merchant Shipping Regulations”). Each set of rules sets out specific financial thresholds and conditions that determine whether a company may substitute a full audit with a limited review or dispense with the audit entirely, ensuring that audit relief is appropriately targeted at smaller entities while maintaining adequate safeguards against misuse.
Exemptions for New Companies (Rule 3 and 4)
Newly registered companies having all its sole shareholders who are individuals who have recently obtained educational qualifications (MQF level 3 or higher) can benefit from reduced audit obligations for their first two accounting periods. If their turnover does not exceed €80,000 in any one of the said financial years, they will be exempt from the audit requirement entirely; alternatively, they may voluntarily opt to carry out a financial audit and claim a 120% tax deduction of the audit fee, capped at €700 per annum. This relief applies only if the company is set up within three years of the shareholders obtaining their qualifications. This benefit will be excluded immediately if the shareholding changes so that not all shareholders hold the required educational qualifications.
These exemptions are effective from accounting periods commencing on or after 1st January 2024.
Exemptions for Small Companies under the Companies Act (Rule 6)
Rule 6 applies the criteria established under Article 185(2) of the Companies Act to determine whether a company qualifies for the benefits contemplated under the Rules. Article 185(2) of the Companies Act prescribes the thresholds applicable to private companies which, as at their balance sheet date, do not exceed at least two of the following three limits:
- A balance sheet total of €46,600;
- net turnover of €93,000; and
- an average of two employees during the accounting period.
Companies that meet only two of these three criteria are required to submit a review report instead of a full statutory audit report, whereas companies that meet all three thresholds are exempt from the submission of both a review and audit reports.
The same provisions apply to group companies preparing consolidated accounts, provided they qualify as a “small group” under Article 185(5). In such cases, the applicable thresholds are:
- an aggregate balance sheet total of €4,000,000 net or €4,800,000 gross;
- an aggregate turnover of €8,000,000 net or €9,600,000 gross; and
- an aggregate of 50 employees.
Accordingly, if group companies satisfy only two of these three conditions, a review report must be submitted in lieu of a full audit report; however, if all three thresholds are met, neither a review nor an audit report is required. The exemption under Article 185(5), only applies if the entire group qualifies as a small group, preventing large groups from fragmenting into “small” subsidiaries to claim exemption.
Rule 6 of the Audit Exemption Rules is effective from accounting periods commencing on or after 1st January 2025.
Exemptions for Private Shipping Organisations qualifying as “Small Companies”. (Rule 7)
Rule 7 applies the audit exemption provisions to private shipping organisations within the framework of Regulation 64 of the Merchant Shipping Regulations. Under Regulation 64 of the Merchant Shipping Regulations, a private shipping organisation is deemed to be a “Small Company” if it does not exceed two of the following three thresholds:
- a balance sheet total of €6,000,000,
- a turnover of €12,000,000 and
- an average number of employees of 50 during the accounting period.
Companies which satisfy these criteria are not required to file the directors’ report and the auditor’s report when filing their financial statements with the Malta Business Registry. The same treatment is extended to groups which qualify as a “small group”, provided that, on a consolidated bases, the group does not exceed two out of the following three thresholds:
- an aggregate balance sheet total: €6,000,000 net or €7,200,000 gross;
- an aggregate turnover: €12,000,000 net or €14,400,000 gross; and
- an aggregate number of employees of 50 during the accounting period.
Rule 7 of the Audit Exemption Rules is effective from accounting periods commencing or after 1st January 2024.
Determining Eligibility
As at the balance sheet date, a company is required to determine whether it exceeds, or ceases to exceed, two of the three prescribed thresholds. Any such change does not immediately alter the company’s classification, such as its eligibility for small company status. Rather, the change becomes effective only if the position is maintained for two consecutive accounting periods.
Conclusion
The Audit Exemption Rules are designed to alleviate the financial and administrative burden of statutory audit compliance for qualifying Maltese companies. By reducing, or in certain cases eliminating, the requirement to undergo a full statutory audit, the Rules provide support to smaller entities and new businesses, mitigating the disproportionate regulatory procedural obligations that could otherwise be disproportionate and potentially unaffordable.
The information provided in this Insight does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only. This Insight may not constitute the most up-to-date legal information and you are advised to seek updated advice.
