The short answer to this question is that under Maltese law, all companies are required to prepare a set of audited financial statements, the full answer, however, is slightly more complicated.

The primary objective of an audit engagement is for an opinion to be expressed on the presented financial statements of a company reflecting the results of a particular period. This opinion is presented in the form of an auditor’s report which is addressed to the shareholders of the company.

An audit engagement is a statutory requirement for most companies where the approval of the annual accounts must be executed within 7 months from the company’s year-end in the case of a public company and within 10 months from the company’s year-end in the case of a private company (Article 182 of the Companies Act). These annual accounts are to be submitted to the Malta Business Registry by not later than 42 days after the 7-month/10-month approval period in order to avoid any late submission fees. Therefore, for a private company whose financial year end is 31 December, the audit report must be approved by not later than 31 October of the following year, and the audited financial statements must be submitted to the Malta Business Registry by not later than 12 December.

For newly incorporated companies, the first-year accounts should cover a period of not less than 6 months and not more than 18 months from the date of incorporation as stated in Article 164 of the Companies Act.  Therefore, for companies incorporated between January and June, their financial year-end would be 31 December, and hence the 7- or 10-month approval period applies (depending on whether they are a public or private company as explained above). If a company is incorporated between July and December, the reporting period would be between 12 and 18 months and as per Article 185 of the Companies Act, the approval date of these accounts must not exceed 22 months from date of incorporation.

The statutory requirement of a company to have its annual accounts audited is derived from the Companies Act (Cap 386) and the Income Tax Management Act (Cap 372):

Companies Act (Cap 386)

Article 167 of the Companies Act states that the Directors of all companies registered in Malta are responsible for the preparation of annual financial statements which are then audited, approved, and signed. Article 185 lays out the criteria which a private company must satisfy to be exempted from the requirements to present an auditor’s report on the annual accounts. This exemption applies if, on the company’s balance sheet date, two of the below limits are not exceeded:

• Balance sheet total: €46,600;
• Turnover: €93,000
• Average number of employees; 2.

Furthermore, Subsidiary legislation 386.20 lays out the following criteria which companies must satisfy in order to be exempt from the statutory audit requirement for the first two accounting periods:

• Company’s annual turnover does not exceed €80,000 (pro-rata amount if the accounting period is not of 12 months);
• Company’s shareholders are qualifying shareholders*;
• An application to be submitted to the Registrar within six months from the relevant accounting period end.

*A qualifying shareholder is defined in the S.L. 386.20 as an individual who has completed his/her educational studies at least at MQF Level 3 or equivalent and who has completed such studies not earlier than three years from the date of registration of the Company.

Income Tax Management Act (Cap 372)

Article 19(4)(a) of the Income Tax Management Act (Cap 372) refers to Articles 167, 168, and 169 of the Companies Act, when stating that proper and sufficient records are required to be kept for income tax purposes. The article states that this requirement overrules any exemptions made by the Companies Act or any other law. Furthermore, for the income tax return to be filed, audited financial statements are required for all companies.

As a result, all companies in Malta are required to prepare audited annual financial statements as the requirement imposed by the Income Tax Management Act for audited financial statements to be prepared for the purposes of the income tax return, overrides the exemptions provided by the Companies Act.