A number of changes were recently made to the Companies Act as a result of the transposition of the EU's Accounting Directive. Some of the amendments introduce new requirements relating to the format of accounts and certain reporting by Maltese companies (new Third and Fourth Schedules).

Below are the key elements of the changes:

1. Removal of Financial Holding Company Exemption

It will no longer be possible for any Maltese parent companies to claim the benefit of the "financial holding company" exemption in respect of annual accounts for accounting periods beginning on or after 1 January, 2016.

Therefore, if the Maltese parent company cannot make use of the other exemptions for consolidation of accounts (i.e. Size Exemption under article 173 or Inclusion in Accounts of Foreign Parent under article 174), the Maltese parent company will have to prepare and file Consolidated Accounts for the whole group apart from its stand-alone accounts.

2. Removal of Form U Mechanism

It will no longer be possible for companies to file a Form U in order to get an extension of time for filing their accounts. Up till now, companies could extend the period for filing their accounts up to 18 months from the end of a financial year if more than 90% of their business or business interests were outside Malta. The main benefit of this mechanism was to enable companies involved in international business to obtain a stamp duty exemption. Although the Form U mechanism is being removed, the Inland Revenue is in discussions with IFSP for the Form U to be substituted by a declaration so that the stamp duty exemption can be obtained in these instances.

3. More Detailed Directors Reports in Annual Accounts

The amendments require a much more detailed Directors Report than was required up to now. An analysis of the company's development, performance and position will need to be covered in the report, both from a financial and non-financial perspective.

4. Exemption from Preparation of Audit Reports / Filings of Other Reports by a Company

Prior to the recent amendments, certain private exempt "small companies" were already exempt from obtaining an audit report for their accounts, and were entitled to file abridged accounts/notes. The recent amendments:

  1. have increased the thresholds to qualify as a "small company", and
  2. done away with the concept of "abridged accounts", but have thresholds which indicate when a directors report or a profit & loss account need not be delivered, and
  3. retain the exemption from filing of an audit report in certain cases.

The thresholds to qualify as a "small company" have been raised as follows:

  • Balance Sheet total : from €2,562,310 to €4 million
  • Turnover total : from €5,124,621 to €8 million
  • Average number of employees remains the same at 50

If a company does not exceed the limits of 2 out of the above 3 criteria, it need not deliver the Directors' Report to the Registrar but must deliver its full accounts and accompanying auditor's report.

If the "small company" is also a private exempt company, it need not deliver the Directors' Report and the Profit & Loss Account to the Registrar, but must still deliver Balance Sheet, Notes and the auditor's report.

If the "small company" is a private exempt company, and also does not exceed the limits of 2 out of the following 3 criteria (which have been slightly amended from the ones existing before), it need not appoint an auditor and does not need to deliver an Auditor's report. The Directors' Report and the Profit & Loss Account to the Registrar must, however, still deliver Balance Sheet and Notes:

  • Balance Sheet total : €46,600 (previously €46,587)
  • Turnover total : €93,000 (previously €93,174)
  • Average number of employees remains the same at 2

There are also rules as to when a Parent Company could qualify as a "small company" and therefore benefit from less filings at the Registry of Companies. For it to do so, the group of which it is a parent must be a "small group" where all the group undertakings must, on a consolidation basis, not exceed the limits of 2 out of the 3 following criteria:

  • Aggregate Balance Sheet total of €4m net (previously €2,562,311) or €4,800,000 gross (previously €3,074,773)
  • Aggregate Turnover total of €8m net (previously €5,124,621) or €9,600,000 gross (previously €6,149,546)
  • Average number of employees remains the same at 50

It is important to note that even where the Maltese company is not required to appoint an auditor / obtain and file an auditor's report as per above in terms of the Companies Act, the company will still need to prepare audited accounts in connection with the preparation of its tax return as required under article 19(4) of the Income Tax Management Act.

5. Undistributable Reserves

An amendment has been made to clarify that article 193 on Undistributable Reserves does not apply only to public companies. While article 193(1) and (2) refer to public companies, the list of "undistributable reserves" in article 193(3) applies to all companies even if private ones.

Another two undistributable reserves have been added to the list in article 193(3).

6. Accounts of Oversea Companies

An amendment has been made to require Oversea Companies to file copies of their accounts within 12 months from the end of every accounting period as opposed to the previous timeline of 42 days from the end of 10 months for private companies and 7 months for public companies.

Accounts of oversea companies now need to be in line with GAAP (generally accepted accounting principles and practice) rather than in accordance with the Third Schedule to the Companies Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.