GAPSME vs IFRS in Malta 2026: Thresholds, Differences & When IFRS is Mandatory | EGM Assurance
2026 guide to Malta's accounting frameworks. GAPSME small entity: balance sheet €4m, turnover €8m, 50 employees (2 of 3). Medium: €20m/€40m/250. Key differences including goodwill, leases, investment property and consolidation rules.
GAPSME vs IFRS in Malta: Thresholds, Key Differences and When IFRS is Mandatory (2026)
By the EGM Assurance Editorial Team · Last reviewed April 2026 · 13 min read
Malta has two principal financial reporting frameworks for companies: GAPSME (General Accounting Principles for Small and Medium-sized Entities) and IFRS as adopted by the EU. Which applies depends on a company’s size, its public interest status and any election made by its board. For the majority of Maltese private companies, GAPSME is the default and carries a materially lower disclosure and preparation burden.
This guide reflects the position as at April 2026. The GAPSME framework is established under L.N. 289 of 2015 (the Accountancy Profession (General Accounting Principles for Small and Medium-sized Entities) Regulations) under the Accountancy Profession Act (Cap. 281). Where the Companies Act (Cap. 386) sets different thresholds for specific purposes such as directors’ report obligations or sustainability reporting requirements, those are noted separately.
1. The two frameworks
GAPSME
GAPSME was introduced by Legal Notice 289 of 2015, transposing the EU Accounting Directive (2013/34/EU) into Maltese law. It has been the default accounting framework for small and medium-sized companies in Malta for financial periods beginning on or after 1 January 2016. GAPSME is developed and maintained by the Malta Institute of Accountants (MIA) and applies to companies qualifying under the size criteria below.
GAPSME is not the same as the IASB’s IFRS for SMEs. IFRS for SMEs is a separate, standalone standard issued by the IASB. In Malta, companies use GAPSME or full IFRS as adopted by the EU — IFRS for SMEs is not part of the Maltese financial reporting framework.
IFRS as adopted by the EU
IFRS as issued by the IASB and endorsed by the European Commission is the more comprehensive framework. It is mandatory for public interest entities and for large companies in Malta, and is available by board resolution to any entity that qualifies for GAPSME but wishes to apply a more internationally comparable standard.
2. Size categories and thresholds
Under the GAPSME Regulations, a company’s category — small, medium or large — is determined by reference to three criteria at the balance sheet date. An entity qualifies as small or medium if it satisfies at least two of the three criteria in the applicable category. The current GAPSME thresholds are:
Category | Balance sheet total | Net turnover | Average employees |
|---|---|---|---|
Small | ≤ EUR 4,000,000 | ≤ EUR 8,000,000 | ≤ 50 |
Medium | ≤ EUR 20,000,000 | ≤ EUR 40,000,000 | ≤ 250 |
Large / PIE | Exceeds medium on 2 of 3 criteria | — | — |
Public interest entities (PIEs) — including companies whose securities are admitted to trading on a regulated market, credit institutions and insurance undertakings — are always classified as large regardless of their balance sheet size.
The two-year stability rule
A company does not change size category on the basis of a single year’s figures. The GAPSME Regulations apply a two-year stability rule: a company must exceed (or fall below) the relevant thresholds at the balance sheet date for two consecutive financial years before it is required to move to a different category. For example:
A small company that exceeds the small thresholds in year 1 but not year 2 remains in the small category.
A small company that exceeds the small thresholds in both year 1 and year 2 must move to the medium category from year 3.
A medium company falling below the medium thresholds in two consecutive years may revert to the small category from year 3.
The same two-year rule applies when a medium company exceeds the medium thresholds and must move to the large category (triggering IFRS). Directors should monitor threshold compliance annually, not only in the year a threshold is first breached.
3. When IFRS is mandatory
IFRS is required — not merely available by election — in the following circumstances:
The company is a public interest entity (PIE), regardless of size.
The company has exceeded the medium-entity thresholds on at least two of three criteria at the balance sheet date for two consecutive financial years.
The company is licensed by the MFSA and the applicable regulatory framework specifies IFRS (for example, certain investment funds and regulated financial entities).
A shareholder holding 20% or more of the outstanding shares formally requests that the company apply full IFRS as adopted by the EU.
In practice, the vast majority of Maltese private limited companies remain below the medium thresholds and apply GAPSME. IFRS is most commonly encountered at Maltese banks, large insurance companies, investment funds and entities with international capital market activity.
4. Electing IFRS when GAPSME would apply
A company that qualifies for GAPSME may elect to apply IFRS instead by passing a board resolution. Common reasons:
The group parent requires IFRS accounts from all subsidiaries for consolidation purposes — this is the most frequent trigger.
International investors, banks or development finance institutions require IFRS accounts for credit assessment or covenant monitoring.
The company is involved in M&A or due diligence where counterparties specifically request IFRS accounts.
Significant lease obligations exist and EBITDA presentation under IFRS 16 (capitalising operating leases) is more favourable for covenant or valuation purposes.
Revenue arrangements involve complex multi-element contracts where IFRS 15’s five-step model better reflects the economic substance.
Once elected, IFRS should be applied consistently. Switching back to GAPSME requires a further board resolution and careful consideration of the comparative period restatement impact on users.
5. Key differences between GAPSME and IFRS in practice
The following areas are where GAPSME and IFRS diverge most commonly for Maltese companies. Each difference has practical consequences for the balance sheet, profit or loss and the information available to users:
Area | Under GAPSME | Under IFRS |
|---|---|---|
Goodwill (business combinations) | Amortised over its useful life. If the useful life cannot be reliably estimated, amortised over a maximum of 10 years. Impairment assessed when indicators arise. | NOT amortised under IFRS 3. Tested for impairment at least annually (IAS 36), regardless of indicators. Impairment losses cannot be reversed. |
Leases (lessee) | Operating leases expensed as incurred (off balance sheet). Finance leases recognised as asset and liability on balance sheet. | Almost all leases recognised on balance sheet as right-of-use assets and corresponding lease liabilities under IFRS 16. The operating/finance lease distinction is eliminated for lessees. |
Investment property | Can be measured using the cost model (cost less accumulated depreciation less impairment) or the fair value model (fair value at balance sheet date, changes through profit or loss). Entity must apply the chosen model consistently to all investment property. | Same policy choice under IAS 40: cost model or fair value model, with fair value changes recognised in profit or loss. Even under the cost model, IAS 40 requires fair value to be disclosed in the notes. |
Revenue recognition | Simpler accruals-based approach: revenue recognised when earned and measurable. | Five-step performance obligation model under IFRS 15. Variable consideration, contract modifications and allocation across multiple elements require detailed analysis. |
Financial instruments | Simplified approach: most instruments at cost or amortised cost. Impairment triggered by objective evidence of a loss event. | IFRS 9: classification across amortised cost, FVOCI and FVTPL based on business model and cash flow characteristics. Expected Credit Loss (ECL) model — forward-looking, requiring earlier recognition of credit losses. |
Impairment of assets | Assets tested for impairment when indicators of impairment exist. Reversal of previously recognised impairment losses is permitted (except for goodwill, where once amortised the charge is not reversed). | IAS 36 requires annual impairment testing for goodwill and intangible assets with indefinite useful lives, regardless of indicators. Impairment testing for other assets triggered by indicators. |
Related party disclosures (within groups) | Transactions between members of a group where the relevant subsidiaries are wholly-owned may be exempt from disclosure. | No group exemption under IAS 24. All material related party transactions must be disclosed, including intra-group transactions. |
Statement of cash flows | Not required for small entities. Required for medium entities. | Required for all entities (IAS 7). |
Statement of changes in equity | Not required for small entities. Required for medium entities. | Required for all entities. |
Directors’ report | Small entities are exempt. Medium entities prepare a directors’ report covering: business review, principal risks, post-balance sheet events and expected future developments. | Directors’ report required for reporting entities. Large entities now subject to mandatory CSRD sustainability reporting in the directors’ report under L.N. 39 of 2026. |
Disclosures generally | Significantly reduced for small entities; incremental for medium. Key exemptions include related party disclosures within wholly-owned groups, and certain comparative information in notes. | Full disclosure suite required. No size-based exemptions. Segment reporting, EPS (for listed entities), extensive note disclosures on judgements, estimates and sensitivities. |
The goodwill treatment is the most commercially significant difference for companies involved in acquisitions. Under GAPSME, goodwill amortisation reduces profit annually — and therefore distributable reserves — over the useful life of the goodwill (max 10 years where not reliably estimable). Under IFRS, no annual charge reduces profit unless impairment is identified. This affects EBITDA, earnings per share and dividend capacity differently across the two frameworks and should be modelled explicitly before choosing a reporting framework for an acquisition vehicle. |
|---|
6. Consolidation rules
Whether a group must prepare consolidated financial statements, and under which framework, is determined at the group level rather than the individual entity level.
Small group: exemption from consolidation
All parent companies are required to prepare consolidated financial statements under the Companies Act by default. An exemption is available for groups that qualify as “small”. For a group to be considered small and exempt, it must — for two consecutive reporting periods — not exceed two of the following three thresholds on a consolidated basis:
Criterion | Net (after consolidation adjustments) | Gross (before consolidation adjustments) |
|---|---|---|
Aggregate balance sheet total | ≤ EUR 4,000,000 | ≤ EUR 4,800,000 |
Aggregate net turnover | ≤ EUR 8,000,000 | ≤ EUR 9,600,000 |
Average number of employees | ≤ 50 | ≤ 50 |
The “net” figures are calculated after standard consolidation adjustments — principally the elimination of intra-group sales, loans and balances. The “gross” figures are the same monetary thresholds applied to the raw aggregate of each entity's figures without those eliminations. A group that has not yet prepared full consolidation workings can use the gross figures as a preliminary check: if it passes the gross test, it passes the net test. A group satisfying either basis on two of three criteria for two consecutive years qualifies for the exemption from preparing consolidated financial statements altogether.
These small-group thresholds (€4m / €8m / 50) determine whether a group must consolidate at all. They are a different, lower set of thresholds from those that determine which framework a group that does consolidate must use. The two tiers work as follows: Tier 1 — Does the group need to consolidate? If the group does not exceed two of: €4m balance sheet / €8m turnover / 50 employees (net basis, or €4.8m / €9.6m gross) — no consolidated financial statements are required at all. Tier 2 — If consolidation is required, which framework? If the group exceeds Tier 1 thresholds but remains within the medium thresholds (€20m / €40m / 250), it may consolidate under GAPSME or IFRS by election. If it exceeds the medium thresholds, IFRS is mandatory. |
|---|
Framework for consolidated statements: the two-tier structure
Once it is established that a group must prepare consolidated financial statements (i.e. it exceeds the small-group thresholds above), the choice of reporting framework depends on the group's own size:
Group size on consolidated basis | Consolidation required? | Framework |
|---|---|---|
Does not exceed 2 of 3: €4m balance sheet / €8m turnover / 50 employees (net); or €4.8m / €9.6m / 50 (gross) | No — exempt from consolidation entirely (small group exemption, Article 185(5)) | N/A — no consolidated statements required |
Exceeds small-group thresholds but does not exceed medium thresholds (€20m / €40m / 250 on 2 of 3 criteria) | Yes | GAPSME or IFRS — board's election |
Exceeds medium thresholds (€20m / €40m / 250) on 2 of 3 criteria for 2 consecutive years | Yes | IFRS mandatory |
The two-year stability rule applies at the group level in the same way as at the individual entity level: a group must exceed or fall below the relevant thresholds for two consecutive reporting periods before its obligations change.
The fiscal unit regime for Malta income tax consolidation operates entirely separately from these Companies Act consolidation obligations. A group may be required to prepare consolidated accounts for Companies Act purposes while also having a separate consolidated tax computation for fiscal unit purposes. These two exercises can differ in scope, entity perimeter and basis.
7. CSRD and sustainability reporting for large entities
The Corporate Sustainability Reporting Directive (CSRD — EU Directive 2022/2464) has been transposed into Maltese law by the Corporate Sustainability Reporting Regulations 2026 (L.N. 39 of 2026), published on 13 February 2026. Sustainability reporting is now embedded within the statutory reporting framework as part of the directors’ report.
The implementation is phased:
From 1 January 2026: large public-interest entities exceeding 500 employees.
From 1 January 2027: all other large undertakings and large groups.
From 1 January 2028: listed SMEs and certain small non-complex credit institutions.
Companies crossing into the “large” category — and therefore required to apply IFRS — will also face mandatory CSRD sustainability disclosures in their directors’ report. The step-up from medium to large triggers both a change in accounting framework and a new reporting obligation. This should be factored into any group structure or growth planning.
8. Practical considerations for choosing the framework
For most small Maltese private companies, GAPSME is the natural and lowest-cost choice. The main triggers for considering IFRS despite qualifying for GAPSME are set out in Section 4. A few additional practical points:
Goodwill and the acquisition decision
Where a company is acquiring another business and goodwill arises, the choice of framework directly affects reported profit and distributable reserves for years after the acquisition. Under GAPSME, goodwill amortisation reduces both profit and reserves annually. Under IFRS, there is no annual charge unless impairment is identified. Companies involved in acquisitions should model this difference explicitly before deciding on the framework for the acquisition vehicle.
Investment property
Both GAPSME and IFRS allow the fair value model for investment property, with changes in fair value recognised in profit or loss. The choice between cost and fair value is an accounting policy decision that must be applied consistently to all investment property. The fair value model avoids the need for depreciation charges but introduces volatility in reported profit as property values change. Companies holding significant investment properties should assess both models before establishing their policy.
Monitoring threshold proximity
Directors of companies approaching either the small or medium thresholds should perform a formal threshold assessment at each balance sheet date and document their conclusions. The two-year rule provides a window, but the assessment must be done annually — a company that breached the threshold in the prior year and does so again in the current year must change category from the following period.
9. Frequently asked questions
What are the GAPSME thresholds in Malta?
A company qualifies as a small entity under GAPSME if it satisfies at least two of: balance sheet ≤ EUR 4 million, net turnover ≤ EUR 8 million, average employees ≤ 50. A company qualifies as a medium entity if it satisfies at least two of: balance sheet ≤ EUR 20 million, net turnover ≤ EUR 40 million, average employees ≤ 250. Companies exceeding the medium thresholds for two consecutive years must use IFRS.
Is GAPSME the same as IFRS for SMEs?
No. GAPSME was developed by the Malta Institute of Accountants based on the EU Accounting Directive 2013/34/EU. IFRS for SMEs is a separate, standalone standard issued by the IASB. In Malta, companies apply GAPSME or full IFRS as adopted by the EU. IFRS for SMEs is not part of the Maltese financial reporting framework.
Does a company have to switch to IFRS the moment it exceeds the medium thresholds?
No. The two-year stability rule means the company must exceed the thresholds for two consecutive financial years before being required to switch. If thresholds are exceeded in year 1 but not year 2, the company remains in the medium category. Only if exceeded in both years must the company switch to IFRS from year 3 onwards.
Can a company use the fair value model for investment property under GAPSME?
Yes. GAPSME allows both the cost model and the fair value model for investment property. Under the fair value model, the property is measured at fair value at each balance sheet date, with changes in fair value recognised in profit or loss. The chosen policy must be applied consistently to all investment property. This is similar to the treatment under IAS 40, though IFRS requires fair value to be disclosed even when the cost model is used.
What happens to goodwill differently under GAPSME vs IFRS?
Under GAPSME, goodwill arising on a business combination is amortised over its useful life. Where the useful life cannot be reliably estimated, it must be amortised over a maximum of 10 years. Under IFRS 3, goodwill is never amortised — instead it is tested for impairment at least annually. This means a company reporting under GAPSME will have a lower reported profit in each year of the amortisation period, with the charge reducing distributable reserves. A company under IFRS will show no annual charge unless an impairment event occurs.
Can a company switch back to GAPSME after electing IFRS?
Yes, by passing a new board resolution. However, switching mid-stream creates comparability issues and may require restatement of prior period comparatives. The decision to elect IFRS should be made with a long-term view. For companies growing toward the medium thresholds, electing IFRS early may be more efficient than forcing a framework switch under compulsion.
What happens if a company applies the wrong framework?
Applying GAPSME when IFRS was required — for example, a company that exceeded the large thresholds for two consecutive years without switching — is a compliance failure under the Companies Act and the Accountancy Profession Act. The MTCA and the MBR may both take an interest. Auditors would need to qualify or modify their report. Correcting a prior-period framework error typically requires comparative period restatements.
What does the directors’ report contain for medium entities under GAPSME?
Medium entities must include at minimum: a fair review of the development and performance of the business and its position at year-end; principal risks and uncertainties; significant post-balance sheet events; and information on expected future developments. Small entities are exempt from the directors’ report, provided the signing directors deliver a declaration to the MBR confirming the company qualifies for the exemption.
Related guides from EGM Assurance
Statutory Audit in Malta: 2026 Guide for SMEs — egmassurance.com/articles/statutory-audit-malta-smes
Audit Preparation Checklist for Malta Companies — egmassurance.com/articles/audit-preparation-checklist-malta
Corporate Filings and Beneficial Ownership: Directors’ Guide — egmassurance.com/articles/corporate-filings-beneficial-ownership-malta
Fiscal Unity Regime in Malta: How Tax Consolidation Works — egmassurance.com/articles/fiscal-unity-malta
Authoritative references
Accountancy Profession (GAPSME) Regulations (L.N. 289/2015) — legislation.mt (L.N. 289/2015)
Accountancy Profession Act (Cap. 281) — legislation.mt/eli/cap/281
Companies Act (Cap. 386), Article 185 — legislation.mt/eli/cap/386
EU Accounting Directive 2013/34/EU — eur-lex.europa.eu (Directive 2013/34/EU)
Corporate Sustainability Reporting Regulations 2026 (L.N. 39 of 2026) — legislation.mt (L.N. 39/2026)
Malta Institute of Accountants (MIA) — GAPSME framework — miamalta.org
Malta Business Registry — mbr.mt
Not sure which accounting framework applies to your company? We assess your size category, advise on framework choice and prepare financial statements under both GAPSME and IFRS. https://egmassurance.com/contact |
|---|
This article is prepared by EGM Assurance for general informational purposes and reflects the legal and regulatory position in Malta as at April 2026. It does not constitute legal, accounting or professional advice and should not be relied on as a substitute for advice specific to your company’s circumstances. Always confirm current obligations with a qualified professional before acting.