An Overview of Accounting and Auditing in Malta
Malta is an island nation that was formerly a British Colony. It is located in the Mediterranean Sea. The primary source of income for Malta is tourism and financial services. Foreign investors come to Malta to obtain a residence permit and preferential taxation. In Malta, small companies are exempted from preparing financial statements. They may prepare a condensed version of the balance sheet, profit and loss account, and notes to accounts.
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Accounting requirements in Malta are similar to British conditions. Accounts should be prepared as per the EU Single Accounting Directive and according to the Companies Act 1995. EU directive was incorporated into the Maltese Legislation by introducing the General Accounting Principles for Small and Medium-Sized Entities (GAPSME). However, directors of small and medium-sized entities can still apply for the International Financial Reporting Standards (IFRS) adopted by the EU. The annual accounts should give a clear reflection of the company's assets, liabilities, financial position, and profits and losses. Annual accounts include balance sheets, profit and loss statements, and notes to accounts. As per the Companies Act Cap. 386, every company must keep accounting records that include the following information:
- On all sums of money received and spent by the company and details of receipt and expenses;
- On assets and liabilities of the company;
- On all sales and purchases of goods by the company, inventory reports if the company’s business is connected with trade in goods.
Apart from annual accounts, all companies incorporated in Malta must also prepare financial statements and file them with the Registrar.
In case any documents in annual accounts is not in Maltese or English, then the company must enclose a certified translation. The annual accounts must be presented in the same currency as its authorized capital. Where the company's annual accounts are prepared in a currency other than the euro, the company's balance sheet shall contain the exchange rate between the used currency and euro on the reporting date at the average rate of the Central Bank of Malta on that date. Condensed Balance sheets and condensed profit and loss statements can be filed by small companies.
Audit of Accounts
Independent auditors are appointed by the companies in each annual general meeting. Auditors must report to the shareholders on each set of financial statements presented at an annual general meeting of the company. The Auditor’s report should be prepared as per the International Standards of Auditing (ISA).
As per the law in Malta, all companies must get their financial statements audited. However, private companies that do not exceed two of the following three criteria on the reporting date are exempt from preparing audited accounts and prepare condensed versions of a balance sheet, profit and loss statements and notes to accounts:
- The balance sheet total is EUR 46,587.47;
- Aggregate goods turnover is EUR 93,587.47;
- The average headcount of employees per period is 2.
Delayed Filing of Accounts
In case of failure to file an annual return and present financial statements to the Business Registry, the officers of the company shall be held liable, and a fine of EUR 2,329.37 is imposed and a penalty of EUR 46.59 for each day of delay.
In case of failure to file a tax return, a fine of EUR 50 to 1,500 shall be imposed on the company, depending on the duration of the delay.
Consolidated Financial Statements
A company having subsidiaries must file consolidated financial statements for the group of companies. Exceptions to this are small groups and intermediary parent companies. Such companies are not required to file accounts:
- If they meet the criteria:
- The balance sheet total is EUR 2,562,310.74;
- Aggregate goods turnover is EUR 5,124,621.48 EUR;
- The average headcount of employees per period is 50.
- If a parent company is a subsidiary of another parent company that is a member state of the European Union and is part of a bigger group of companies for which consolidated financial statements have been already filed.