Audit Exemption in Malta 2026: A Complete Guide to LN 139/2025 (S.L. 372.33)

By the EGM Assurance Editorial Team . Last reviewed May 2026 . 18 min read

Until 2025, every company registered in Malta was effectively required to obtain an annual auditor's report - even where the Companies Act granted a size-based exemption, Article 19(4)(a) of the Income Tax Management Act (ITMA) demanded an auditor's report as part of the company's tax records. The two pieces of legislation were out of alignment, and the practical effect was that the tax requirement overrode the Companies Act exemption for almost every Maltese company. Legal Notice 139 of 2025 - the Audit Exemption Rules, 2025, now codified as Subsidiary Legislation 372.33 - changes that position structurally.

The new framework introduces a tiered, rule-by-rule approach to relief. Different rules apply to newly incorporated companies, micro-entities, small groups, and Merchant Shipping Act companies. Each rule has its own eligibility test, its own assurance outcome (full exemption, review engagement, or full audit), its own effective date, and its own practical implications. This guide explains every rule, in technical depth, with worked examples and director-level decision guidance. It reflects the position at May 2026, drawing on primary sources including LN 139/2025 (S.L. 372.33), the MTCA "Guidelines in relation to the Audit Exemption Rules", the Malta Institute of Accountants' Guidance Note on Audit Exemption (Version 1.0, 21 April 2026), the Companies Act and the Merchant Shipping Act.

1. How the framework changed and why it matters

Two pieces of legislation interact to determine whether a Maltese company's accounts must be audited:

• The Companies Act (Cap. 386), specifically Article 185, which has long contained size-based audit exemption provisions for small private companies.

• The Income Tax Management Act (Cap. 372), specifically Article 19(4)(a), which previously required every Maltese company to keep an auditor's report prepared by a Certified Public Auditor as part of its tax records - regardless of whether the Companies Act would have exempted the company.

The pre-2025 position created an effective override: even where the Companies Act would have permitted a small company to dispense with a statutory audit, the ITMA tax requirement forced almost every company to commission one anyway. LN 139/2025 - published as Subsidiary Legislation 372.33 under the ITMA - removes that conflict. Companies that satisfy the conditions in LN 139/2025 are now exempt from the ITMA audit requirement - and, where they also qualify under the Companies Act, can lawfully dispense with the audit altogether.

The Rules also introduce three additional reliefs that did not exist under the prior framework: a startup waiver for newly incorporated companies (Rule 3), a 120% tax deduction for new companies that voluntarily continue to audit (Rule 4), and a tiered review engagement option for companies that breach one but not two of the size thresholds. Rule 10 of LN 139/2025 expressly repeals the previous Audit Report Waiver and Deduction Rules (S.L. 372.29).

Two sets of authoritative practitioner guidance

Two complementary sets of guidance accompany the Rules and should be read together by directors, accountants and auditors:

• MTCA Guidelines - the Malta Tax and Customs Administration has published its "Guidelines in relation to the Audit Exemption Rules". The MTCA Guidelines explain how companies should assess eligibility, define the "review report" as a report issued in accordance with ISRE 2400 (Revised), and provide worked examples covering qualification criteria and group situations. The MTCA Guidelines are non-exhaustive but authoritative for practical application questions.

• MIA Guidance Note - the Malta Institute of Accountants issued its "Guidance Note on the Impact of Subsidiary Legislation 372.33 Audit Exemption Rules on practitioners" (Version 1.0, 21 April 2026). The MIA Guidance Note addresses practitioner-side considerations including restriction-of-use paragraphs for review reports, AML/CFT implications, transition procedures on opening balances under ISA 510 and ISA 710, and detailed FAQs that clarify many of the practical issues that arise in real engagements.

Both documents are subordinate to LN 139/2025 (S.L. 372.33) itself and to the Companies Act, the Income Tax Management Act and the Merchant Shipping Act in the case of inconsistency. They do, however, represent the most authoritative practical reference points currently available.

Effective dates summary

2. Rule 3: The startup audit waiver

Rule 3 provides relief specifically for newly incorporated companies. To qualify, the company must satisfy ALL of the following conditions for the relevant accounting period:

• It must be a newly incorporated company - the waiver applies only to the first two accounting periods after incorporation.

• The annual turnover of the company must not exceed €80,000 (or a pro-rata amount if the accounting period is other than 12 months).

• The sole shareholders of the company must be individuals (i.e. natural persons - a corporate shareholder disqualifies the company).

• Each shareholder must hold educational qualifications recognised by the Malta Qualifications Recognition Information Centre (MQRIC) at MQF Level 3 or higher (broadly equivalent to O-Level standard or above).

• The company must be set up within 3 years from the date on which the relevant qualifications were obtained. This third condition is often overlooked but is explicit in the Rules - the educational qualification must be reasonably contemporaneous with the incorporation.

Where all conditions are met, the company is exempted from the Article 19(4)(a) ITMA requirement to accompany its balance sheet and profit and loss account with an auditor's report - for the first two accounting periods only. From the third accounting period onwards, the company must either qualify for Rule 6 (if its size remains small enough) or revert to the standard audit requirement.

Rule 5 imposes a forfeiture rule: if at any point during the relevant two-year window the company's shareholding structure changes such that not all shareholders continue to meet the conditions - for example, a shareholder gives up their qualifying status, or a corporate body acquires shares - the waiver is lost with immediate effect, and the standard ITMA audit requirement reverts. The position is checked at each balance sheet date.

Worked example - Rule 3 eligibility

A Maltese company is incorporated on 1 March 2025 by two individual shareholders. Both shareholders hold a Bachelor's degree (MQF Level 6) awarded in May 2023. The company's first accounting period ends on 31 December 2025 with turnover of €65,000. All three Rule 3 conditions are satisfied:

• Turnover €65,000 ≤ €80,000 ✓

• Both shareholders are individuals with MQF Level 6 (above the Level 3 threshold) ✓

• The company was set up in March 2025, less than 3 years after the shareholders obtained their qualifications in May 2023 ✓

The company can therefore claim the Rule 3 waiver for accounting periods ended 31 December 2025 and 31 December 2026. If in 2027 the shareholders decide to admit a corporate shareholder, the waiver would have been forfeited for any period during which the corporate shareholder held shares, under Rule 5.

3. Rule 4: The 120% deduction for voluntary audit

Rule 4 sits alongside Rule 3. It addresses companies that meet the Rule 3 conditions (and could therefore claim the waiver) but nonetheless choose to have their accounts audited voluntarily - typically because of bank requirements, prospective investor expectations, or to maintain a continuous audit trail.

Where such a company opts to audit despite being eligible for exemption, it may claim a tax deduction equal to 120% of the audit fee, capped at €700 per accounting period. The relief applies for the same window as Rule 3 - the first two accounting periods. After the second accounting period, the relief no longer applies.

The 120% deduction is meaningful but capped: it is the higher of an additional 20% deduction on the actual audit fee, or the cap. In practical terms:

• Audit fee €500: deduction = €600 (120% of €500), well within cap.

• Audit fee €700: deduction = €840 (120% of €700), within cap - but the cap itself binds at the €700 audit fee point if measured at the actual fee level.

• Audit fee €2,000: deduction = €700 (the cap), with the balance of €1,300 deducted at the standard 100%.

Like Rule 3, Rule 4 is forfeited under Rule 5 if the shareholding structure changes such that the eligibility conditions cease to be met.

4. Rule 6: The micro-entity exemption (the rule most companies will use)

Rule 6 is the most widely applicable rule of LN 139/2025. It applies a tiered approach based on whether the company satisfies the size thresholds set out in Article 185(2) of the Companies Act. The criteria are:

The two-year stability rule (Article 185(3))

Eligibility under Rule 6 is assessed at the company's balance sheet date. Critically, Article 185(3) of the Companies Act requires that a change of category only takes effect when the company exceeds (or ceases to exceed) the relevant thresholds for two consecutive accounting periods. A single year of breaching the thresholds does not move the company out of the micro-entity category - the position must be sustained for two consecutive years before the assurance treatment changes.

The MTCA Guidelines provide worked examples confirming this point. The two-year stability rule prevents companies from being whipsawed between full audit and exemption due to a single year of unusual turnover or balance sheet movement.

Rule 6 outcomes - three tiers

Tier 1: Three of three criteria not exceeded - full audit exemption

If the company does not exceed any of the three thresholds, it qualifies under Rule 6(1)(b) for full exemption from the Article 19(4)(a) ITMA audit requirement. No auditor's report is required for tax purposes, and no review report is required either. The company's financial statements still need to be prepared (under GAPSME or IFRS), submitted to the Malta Business Registry, and accompanied by a corporate tax return filed with the MTCA - but neither requires assurance from an external auditor.

Tier 2: Two of three criteria not exceeded - review report option

If the company does not exceed two of the three thresholds (i.e. it exceeds exactly one threshold), it qualifies under Rule 6(1)(a). The ITMA audit requirement is satisfied if the company prepares a review report instead of a full audit report. The MTCA Guidelines confirm explicitly that the review must be conducted under International Standard on Review Engagements 2400 (Revised) - "Engagements to Review Historical Financial Statements."

A review engagement provides limited assurance - the reviewer's conclusion is that nothing has come to their attention to suggest the financial statements are materially misstated. This is a weaker assurance level than the reasonable assurance provided by a full audit opinion. The review engagement primarily involves inquiry and analytical procedures, with very limited substantive testing. It is faster and less expensive than a full audit, though it carries less weight with banks, lenders, regulators and counterparties who may specifically require an audit opinion.

Tier 3: Fewer than two criteria not exceeded - full audit required

A company that does not satisfy at least two of the three thresholds remains subject to the full statutory audit requirement. This includes any company with both a balance sheet total above €46,600 AND turnover above €93,000 - in practice, the majority of trading companies.

Worked example - Rule 6 tiers across consecutive years

A Maltese trading company has the following position across three accounting periods:

For the 2025 accounting period (the first period in which Rule 6 applies), the company meets the two-year stability test (2024 and 2025 both within all thresholds) and qualifies for the Tier 1 full exemption under Rule 6(1)(b).

For the 2026 accounting period, the company exceeds the turnover threshold for the first time. Under the two-year stability rule, the company does NOT immediately move into Tier 2 - it must exceed the threshold for two consecutive years before the category changes. The 2026 financial statements can still be prepared under Tier 1 (full exemption), provided the company met all three thresholds in 2025 (which it did). If turnover continues above €93,000 into 2027, the company will then move into Tier 2 from 2027 (review report required) - unless balance sheet or employees also exceed, in which case Tier 3 applies.

5. Rule 7: Small group consolidation exemption

For parent companies preparing consolidated accounts, Rule 7 extends Rule 6 treatment to the parent - but only if both of the following are satisfied:

• The individual parent entity itself meets the micro-entity thresholds in Article 185(2).

• The group as a whole qualifies as a "small group" under Article 185(5) of the Companies Act.

A group qualifies as small if, on a consolidated basis at the parent's financial year-end, it does not exceed two out of three of the following thresholds for two consecutive financial years:

Either basis (net or gross) can be used as long as it is applied consistently. "Net" refers to figures after intra-group eliminations; "gross" refers to figures before consolidation adjustments and provides a practical alternative where full consolidation workings have not been performed.

In practice, Rule 7 means a small parent that itself qualifies as a micro-entity at individual level can dispense with both the parent-level audit AND the consolidated audit - provided the group as a whole is also small. Most Maltese holding companies with one or two small subsidiaries will qualify for Rule 7 alongside Rule 6.

6. Rule 8: Merchant Shipping Act companies

Rule 8 provides a sector-specific exemption for companies registered under the Merchant Shipping Act (Cap. 234) that fall within the thresholds of Regulation 64 of the Merchant Shipping (Shipping Organisations - Private Companies) Regulations. These thresholds are materially higher than the micro-entity thresholds, reflecting the asset-intensive nature of shipping operations:

Companies registered in Malta under the Merchant Shipping Act that do not exceed two of these three thresholds are exempt from having their accounts audited. This applies to companies preparing standalone accounts as well as small groups that qualify as small under Regulation 64. Rule 8 has been effective from accounting periods commencing on or after 1 January 2024 - earlier than the broader Rule 6 micro-entity exemption.

Important: Merchant Shipping is binary, not tiered

The MIA Guidance Note clarifies an important practical point: Merchant Shipping Act companies do NOT have access to a review report option. The treatment is binary - either the company qualifies for full audit exemption (where it does not exceed at least two of the three thresholds), or the full statutory audit applies. There is no intermediate tier as exists under Rule 6 for Companies Act companies. Where a Merchant Shipping Act company is a parent entity and meets the criteria for exemption, the exemption continues to apply as long as the group continues to meet the definition of a small group under Regulation 64.

7. Rule 9: Non-resident companies

Rule 9 addresses non-resident companies operating in Malta through a permanent establishment or branch. Eligibility for the audit exemption is determined by reference to the activities carried out in Malta only - not by reference to the company's worldwide turnover or balance sheet.

This is significant for international groups: a non-resident company with a Malta branch may qualify for Rule 6 (or Rule 8 for shipping operations) if its Malta-attributable activities fall within the relevant thresholds, even where its worldwide figures would not. The test is applied on a Malta-source basis, which aligns with how non-resident companies are taxed in Malta generally.

8. What still applies even where audit is exempted

A common misconception is that an audit-exempted company has no annual statutory or tax obligations. That is incorrect. Even with full exemption from audit, the following obligations continue:

• Financial statements must still be prepared in accordance with GAPSME or IFRS - the MIA Guidance Note explicitly confirms that the applicable accounting framework is not impacted by whether an audit or review is required. Directors retain full responsibility for the accuracy and completeness of the financial statements.

• Financial statements must still be filed with the Malta Business Registry within the statutory deadlines (10 months from year-end for the AGM, plus 42 days for MBR filing).

• A tax computation must still be performed, and the corporate income tax return must still be filed with the MTCA within 9 months (paper) or 10 months (electronic) of year-end.

• Accounting records must still be maintained in accordance with the Companies Act - sufficient to disclose the financial position of the company with reasonable accuracy at any time.

• Beneficial ownership obligations, annual returns, statutory registers, FSS and SSC compliance, VAT obligations and any sector-specific licensing all continue unchanged.

Filing position: what goes to MBR vs MTCA

The MIA Guidance Note clarifies the practical filing position:

• Where a full audit is required because the Article 185(2) thresholds are exceeded - companies continue to file the audit report with the MBR as before.

• Where an audit or review report is not required by MTCA but is voluntarily commissioned to satisfy other stakeholders (banks, suppliers, investors) - the company is not obliged to file that report with the MBR. Filing is not a statutory requirement in this case.

• Where a review report is required for MTCA purposes (Tier 2 - Rule 6(1)(a)) - the review report does not need to be filed with the MBR provided that a declaration via forms DD3/DD4 is made and submitted. The MIA is in continuing discussion with MBR on the content, format and use of these forms.

Restriction of use on review reports for MTCA purposes

Where a review engagement is undertaken solely for MTCA purposes and the resulting practitioner's report is not intended for general use, the MIA recommends including a restriction of use paragraph in the practitioner's report. This is consistent with Exhibit 6.2-3A of the IFAC Guide to Review Engagements (December 2013), which illustrates the use of an "Other Matter" or "Restriction of Use" paragraph. Such a paragraph clearly communicates that the report is prepared for a specific purpose and intended only for specified users, mitigating the risk of inappropriate reliance by third parties for whom the report was not prepared.

Commercial expectations remain unchanged

Banks, regulators, lenders and counterparties may also continue to require audited or reviewed financial statements regardless of the statutory exemption - particularly for facility renewals, due diligence on commercial transactions, licensing applications, and minority shareholder protection. The MIA Guidance Note treats this on an opt-out basis: if business partners request audited or reviewed financial statements as a condition of continuing the relationship, the company will need to prepare them - but, importantly, the report does not need to be filed with the MTCA or MBR if it is not statutorily required. The exemption removes a legal filing requirement; it does not eliminate commercial expectations.

9. The director's decision: should you actually take the exemption?

Eligibility for an exemption is one question. Whether to actually use it is a separate, commercial judgement that directors must make on the facts of each company. The framework below sets out the considerations that typically drive the decision.

Reasons to take the exemption

• Genuine cost savings on annual audit fees - particularly material for dormant companies, small holding companies with few transactions, or family-owned trading companies with no external stakeholders.

• Reduced compliance burden - less time spent by management preparing for and supporting an audit. The Rule 6(1)(b) full exemption is genuinely simpler than coordinating a full audit.

• No external assurance dependency - where the company has no external lender, no minority shareholders, no commercial counterparties relying on audited statements, the audit produces no commercial value beyond the legal requirement.

Reasons to keep the audit (or take the review option)

• Bank and lender requirements: most Maltese banks require audited financial statements for credit facility renewals and new applications. A review report may or may not satisfy bank requirements depending on the institution and the facility.

• Fiscal unit considerations: companies forming part of a fiscal unit may need audited accounts for tax consolidation purposes. Specific MTCA guidance may apply.

• Future audit costs: if exemption is taken for a year and the company subsequently grows above the thresholds, the resumption audit will cost more than usual - the auditor must obtain comfort on the prior-year comparatives that were never audited.

• Investor or transactional readiness: companies anticipating a sale, capital raise or major transaction within a few years are typically expected by buyers and investors to have a continuous audit trail.

• Credibility with counterparties: audited financials give a level of credibility with suppliers, landlords, key customers and prospective business partners that can matter in negotiations.

• Director protection: audited financial statements provide a contemporaneous third-party check on the directors' financial reporting responsibilities. Where the company is later subject to scrutiny (regulatory, tax, litigation, insolvency), the existence of audited accounts is protective.

10. Frequently asked questions

Does the audit exemption apply automatically or do I need to elect into it?

Eligibility is automatic if the company satisfies the conditions - no formal election is required for any of the Rules. However, the directors' decision to actually take the exemption (rather than continue with a voluntary audit) is a commercial decision that should be documented in board minutes. Where the exemption is taken, the financial statements should make this clear to readers - typically by reference to the relevant Rule of LN 139/2025 in the notes.

How does the two-year stability rule actually work?

Article 185(3) of the Companies Act, applied through Rule 6 of LN 139/2025, requires the company's position to be sustained for two consecutive accounting periods before the assurance treatment changes. Practical example: if a company in Year 1 satisfies all three micro-entity thresholds (Tier 1 exemption), but in Year 2 exceeds the turnover threshold for the first time, Year 2 is still treated as Tier 1 - because the breach has not yet been sustained for two consecutive years. Only if turnover continues above €93,000 into Year 3 does the company move into Tier 2 from Year 3 onwards. The MTCA Guidelines contain worked examples illustrating these scenarios.

What's the difference between Rule 3 and Rule 6?

Rule 3 is a startup-specific waiver available only in the first two accounting periods of a newly incorporated company, with strict eligibility criteria (turnover cap of €80,000, individual shareholders only, MQF Level 3+ qualifications obtained within 3 years before incorporation). Rule 6 is the general micro-entity exemption available to any qualifying company - not just new ones - based on the Companies Act Article 185(2) thresholds (balance sheet €46,600, turnover €93,000, employees 2). A new company may qualify under both rules simultaneously; an established company can only qualify under Rule 6.

What is the third condition of Rule 3 - the 3-year qualification rule?

Rule 3 requires the company to be set up within 3 years of the date the relevant shareholders obtained their qualifications. This is to ensure the waiver targets genuinely fresh entrepreneurial activity rather than long-established individuals using new corporate vehicles to access the waiver. If shareholders' qualifications date from more than 3 years before incorporation, Rule 3 is not available - even if the other conditions (turnover, MQF level) are met. The company would then need to look to Rule 6 if its size is small enough.

What exactly does the review engagement under ISRE 2400 involve?

A review engagement is significantly less extensive than a full audit. The reviewer performs primarily inquiries of management and analytical procedures - examining the relationships between financial information items, industry data and prior-period figures. The reviewer does not test internal controls, observe inventory counts, send external confirmations or perform the substantive transaction testing that a full audit involves. The review concludes with a statement that nothing has come to the reviewer's attention to suggest the statements are materially misstated - a weaker form of assurance than an unqualified audit opinion. The standard is ISRE 2400 (Revised) issued by the IAASB, applied internationally.

Do Maltese banks accept review-engagement reports?

Some banks do, for some purposes; others require a full audit. Banks often accept review reports for smaller credit lines, internal facility reviews or where the company's borrowing position is well established. For larger facilities, new applications, or where the bank's credit committee requires more comfort, a full audit may be specifically required. The practical recommendation is to confirm acceptance with your bank before moving from audit to review - a switch made in expectation of acceptance that subsequently fails is more costly than continuing the audit.

Can a company that previously had an audit move to the exemption?

Yes. A company that satisfies the criteria for two consecutive accounting periods can choose to take the exemption from the next accounting period, even where it has historically audited its accounts. Board approval and documentation of the decision is recommended. The transition itself does not trigger any specific filing or notification obligation - the next set of accounts simply does not include an auditor's report (Rule 6(1)(b)) or includes a review report instead (Rule 6(1)(a)).

If I take the exemption, do I still need to file with the MBR?

Yes. The audit exemption removes the requirement to have an auditor's report; it does not remove any other statutory obligation. Financial statements must still be prepared (in GAPSME or IFRS), approved by the directors at the AGM within 10 months of year-end (7 months for public companies), and filed with the Malta Business Registry within a further 42 days. The corporate tax return must still be filed with the MTCA. Annual returns, beneficial ownership filings and other compliance obligations are unaffected.

Can a holding company take the exemption?

A pure holding company can qualify provided it meets the size thresholds at individual level (Rule 6) and - where it prepares consolidated accounts - the group also qualifies as a small group under Article 185(5) (Rule 7). However, many holding companies have a balance sheet larger than €46,600 simply due to the value of their participations, which can take them above the threshold. In practice, most active Maltese holding companies will not qualify for the full Tier 1 exemption - but may qualify for the Tier 2 review report option, or for the Rule 7 group exemption.

What happens if I outgrow the thresholds?

If the company exceeds the thresholds in two consecutive accounting periods, it loses micro-entity status and must move to the appropriate higher tier (Tier 2 review report, or Tier 3 full audit). The auditor coming in will need to obtain comfort on prior-year comparatives that were never audited - typically requiring more extensive procedures than a continuing audit. Companies approaching the thresholds should plan their transition and consider whether voluntary audit through the growth period is more cost-effective than the resumption audit later.

Does Rule 7 mean I don't need to consolidate at all?

Rule 7 exempts the consolidated audit, not consolidation itself. Under Article 185(5) of the Companies Act, qualifying small groups are exempt from preparing consolidated accounts at all - but each individual member of the group still prepares its own standalone financial statements. Rule 7 then exempts the audit of those standalone statements provided the parent and group both qualify. The interaction is: Companies Act exempts consolidation; LN 139/2025 Rule 7 exempts audit of standalone parent accounts.

If my company is part of a fiscal unit, does the audit exemption apply?

No. The MIA Guidance Note is explicit on this point: Rule 11 of S.L. 123.189 (the Consolidated Group (Income Tax) Rules) remains unaffected by the introduction of S.L. 372.33. Where directors elect to form a fiscal unit, the audit requirement for the fiscal unit remains in force regardless of whether the individual entities within the unit would otherwise qualify for an audit exemption. The audit obligation is tied to the fiscal unit itself - it is not waived by exemptions applicable to its constituent companies. Directors of fiscal-unit members should generally maintain audited financial statements for the constituent companies as well, to support the fiscal unit audit.

Does the audit exemption apply to trusts, foundations or cooperatives?

No. The Rules apply only to companies registered under the Companies Act (Cap. 386) and the Merchant Shipping Act (Cap. 234). Trusts, foundations and cooperatives are registered under different legislation and therefore fall outside the scope of the audit exemption rules. The audit obligations applicable to those entities are governed by their respective acts and remain unchanged.

If I take the review report option, am I still subject to AML/CFT obligations?

Yes - from the practitioner's side. The MIA Guidance Note confirms that a review engagement is an "assurance engagement" performed by a holder of a practising certificate, and is therefore a "relevant activity" under the Prevention of Money Laundering and Funding of Terrorism Regulations and FIAU Implementing Procedures Part II. Practitioners performing review engagements have continuing AML/CFT obligations including Customer Due Diligence and ongoing monitoring. If a company no longer requires either an audit or a review (Tier 1 full exemption under Rule 6(1)(b)), the practitioner-side AML obligation ends with the engagement - but the company's broader AML obligations (where it is itself a subject person under other relevant activity criteria) continue independently.

If I commission an audit voluntarily, do I need to give it to the MBR?

No - not as a statutory matter. The MIA Guidance Note confirms that where an audit or review report is not required by the MTCA but is voluntarily commissioned for other stakeholders (banks, investors, suppliers), the company is not obliged to file that report with the MBR. Filing is a statutory requirement only where the MBR explicitly requires it (e.g. where the company is above the Article 185(2) thresholds). The audit exemption is therefore opt-out in nature: a company that qualifies but voluntarily audits is treated identically (for filing purposes) to a company that does not qualify.

What if a company moves from no audit to audit - how are opening balances handled?

The MIA Guidance Note addresses this transition in detail through ISA 510 (Initial Audit Engagements - Opening Balances). When a company moves from "no audit" status (under Rule 6(1)(b) full exemption) to a required audit (because thresholds have been exceeded for two consecutive years), the auditor must obtain reasonable assurance over the opening balances. This typically requires more extensive procedures than a continuing audit - analytical procedures, substantive testing of inventory/receivables/payables, cut-off testing, and where prior periods were unaudited, an 'Other Matter' paragraph in the audit report under ISA 710 stating that the comparative financial information is unaudited. The practical implication: the first audit on resumption is typically more costly and more extensive than a continuing audit, and this should be factored into the cost-benefit analysis when deciding to take the exemption.

What about moving from a review to an audit?

Where a company has been on the Tier 2 review report option (Rule 6(1)(a)) and subsequently moves to a full audit, the auditor still needs to bring opening balance assurance up to audit standards. A review provides limited assurance - the auditor must perform additional procedures (bank/debtor confirmations, more rigorous cut-off, verification of material prior-year assets and liabilities) to achieve the reasonable assurance an audit requires. The auditor's report includes an 'Other Matter' paragraph stating that the comparative financial information was subject to a review engagement and is therefore not audited. The transition from review to audit is generally less costly than from no-assurance to audit, but additional procedures are still required.

Related guides from EGM Assurance

• Statutory Audit in Malta: 2026 Guide for SMEs

• Audit Preparation Checklist for Malta Companies

• GAPSME vs IFRS in Malta: Which Framework Applies

• Audit Fees in Malta: What Drives Cost and How to Get Value

• Choosing an Auditor in Malta: A Director's Guide

• Going Concern in Malta: A Director's Guide

Authoritative references

• Legal Notice 139 of 2025 - Audit Exemption Rules (S.L. 372.33)

• MTCA Guidelines in relation to the Audit Exemption Rules

• MIA Guidance Note on the Impact of S.L. 372.33 Audit Exemption Rules on Practitioners (Version 1.0, 21 April 2026)

• Income Tax Management Act (Cap. 372) - Article 19(4)

• Companies Act (Cap. 386) - Article 185 (size thresholds and two-year stability rule)

• Merchant Shipping Act (Cap. 234) - Regulation 64

• Consolidated Group (Income Tax) Rules (S.L. 123.189) - fiscal unit audit requirements

• International Standard on Review Engagements 2400 (Revised) - IAASB

• IFAC Guide to Review Engagements (December 2013) - small and medium-sized practice resource

• ISA 510 (Initial Audit Engagements - Opening Balances) and ISA 710 (Comparative Information) - IAASB

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This article is prepared by EGM Assurance for general informational purposes and reflects the legal and regulatory position in Malta as at May 2026, including LN 139/2025 (S.L. 372.33), the MTCA Guidelines, and the MIA Guidance Note Version 1.0 of 21 April 2026. It does not constitute legal, tax or professional advice. Always confirm current obligations with a qualified professional before acting.