Malta: Audit Requirements

03 March 2020

Under Maltese Law, the foundation is a legal entity, the creation of which is set in motion by the founder and confirmed by the Registrar of Legal Persons.

The financial statements of all the companies, irrespective of their size, incorporated in Malta or have its management and control in Malta need to be audited by a local person who must hold a warrant to act as accountant under the Accountancy Profession Act and is issued with an auditing practicing certificate by the Accountancy Board. To audit banks or companies engaged in the business of insurance, an auditor requires further authorisation from the Regulatory Authority.

Certain persons are disqualified from appointment as auditor of a company, e.g. officers or employees of that company, persons employed by an officer or employee of that company etc. Most companies today appoint firms of accountants as auditors and, in addition, frequently look to them for other services, especially in the fields of taxation and other financial matters, subject to normal professional independence rules.

Companies must appoint auditors at each annual general meeting to hold office until the next general meeting. The first auditors of the company are usually appointed by the directors, but thereafter the auditors are appointed by the company in general meeting. If no auditor is appointed at an annual general meeting, the court may be requested to make such an appointment by any of the directors or shareholders. The directors may fill any casual vacancy.

Auditing standards

The Companies Act requires that the report of the auditor should be drawn up in accordance with the International Standards on Auditing. When matters come to the auditors’ attention that prevent an unqualified opinion, they must set out clearly the reasons why they are unable to give an unqualified opinion.

Responsibilities of the auditor

The auditors of a company also have responsibilities under the Companies Act to report to the company’s shareholders if, in their opinion:

  • the information given in the directors’ report is not consistent with the financial statements
  • adequate accounting records have not been kept, or that returns adequate for their audit have not been received from branches they did not visit
  • the financial statements are not in agreement with the accounting records and returns
  • they have not received all the information and explanations they require for their audit, and
  • certain disclosures of directors’ remuneration specified by law are not made in the financial statements, giving the required particulars in their report.
  • Is taxed at 35%
  • Distributable profits are allocated in the same manner applicable to companies
  • Distribution of the allocated profits is treated as distribution of dividends to shareholders who will then be eligible to receive the refunds of tax paid in Malta as if they were shareholder of a Maltese company. This may give rise to an effective tax rate of 5%.

Consolidated financial statements

Maltese Companies Act requires the directors of a parent company that owns one or more subsidiaries to prepare consolidated financial statements of the group on an annual basis provided that it is classified as a small group as defined in GAPSME and no consolidation is required.

The group thresholds are as follows:


In order to meet the thresholds noted above, one would need to meet, on a consolidated basis, two of the 3 criteria mentioned above.  In case that the group fails within the definition of ‘Medium sized Group’, the directors have an option to consolidate using GAPSME as opposed to IFRS as adopted by the EU.

The rules of consolidation under the Maltese Law does include, following the publication of LN 289 of 2015, a number of exemptions of non consolidation. A summary of these exemptions are set out below:

Exemption 1: Size of the Group

A group qualifies as a small group in relation to an accounting period if it does not exceed the limits of two of the three following criteria:

  • Aggregate balance sheet total: less than or equal to €4 m net/4.8 m gross
  • Total revenue: less than or equal to €8 m net/9.6 m gross
  • Aggregate number of employees: less than or equal to 50

If the conditions are not met for two consecutive periods, then consolidated financial statements will have to be prepared at the level of the Maltese Parent Company.

Exemption 2: When the results of the Maltese Group are consolidated further upE

No consolidation is required at Malta level if the results of the Maltese Group (i.e. the results of the Maltese parent company and all of its subsidiary undertakings) are included in the consolidated results prepared at a higher level. This exemption is subject to:

  • the results of the Malta Group are included in consolidated accounts for a larger group drawn up to the same date, or to an earlier date in the same accounting period, by a parent company formed and registered under the law of a Member State or an EEA State;
  • the consolidated accounts and the director’s report thereon are drawn up in a manner equivalent to that required by this Act and have been subject to an audit;
  • the Maltese parent company discloses in its individual accounts that it is exempt from the obligation to prepare and deliver consolidated accounts;
  • the Maltese parent company states, in its individual accounts, the name of the parent undertaking which draws up the consolidated accounts referred to above;
  • the Maltese parent company delivers to the Registrar within the period allowed for delivering its individual accounts, copies of the consolidated accounts referred to above including the directors’ report and the auditors’ report on those consolidated accounts; and

In case any document comprised in the financial statements delivered is in a language other than English, certified translation of it into English is required.

Exemption 3: Temporary Structure

A subsidiary undertaking may be excluded from consolidation where the interest of the parent company is held exclusively with a view to subsequent resale and the undertaking has not previously been included in consolidated accounts prepared by the parent company.

Contact Rudolph Psaila to find out more.

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