Chapter 1: Initial Steps and Obligations to Keeping Your Maltese Company in Good Standing

In this first chapter of our series “The Essential Guide to Keeping a Maltese Company in Good Standing”, we focus on the initial steps every company must take after incorporation in Malta, understanding the laws, obligations, and structures that keep your business compliant and in good standing.

Before we look at specific compliance duties, it’s important to understand the environment in which Maltese companies operate. Malta’s business landscape offers unique advantages, but also imposes clear statutory responsibilities on every incorporated entity.

Malta continues to position itself as a jurisdiction of choice for international business. It’s strategic location, competitive tax environment, and sound regulatory system continue to attract a wide range of companies operating across various sectors, encouraging them to establish operations locally. From companies engaged in traditional trading activities such as imports and exports, to those offering professional services, as well as companies operating in specialised industries including maritime and shipping, Malta is home to a growing number of incorporated entities, reinforcing its position as a key business hub in Europe.

Maltese Acts

The first step required to set your company on the right track towards keeping your company in good standing is to identify the fundamental legal framework that governs your business activities. Before diving into your company’s tax compliance matters, it is crucial to determine and confirm under which Act your company is registered, as the compliance obligations arising under each framework differ. Depending on the nature of your business activities, your company will generally fall under one of the following two principal Maltese Acts:

• Companies Act (Chapter 386 of the Laws of Malta): The Companies Act provides the legal framework for setting up, managing, and closing companies in Malta. It outlines the rules for company registration, corporate governance, financial reporting, and liquidation. This Act is notably the primary regulatory framework for most companies incorporated in Malta. If for instance, your company is engaged in typical commercial business activities, such as services or manufacturing, it is most likely that it is governed by theCompanies Act. This Act is applicable to both private and public companies as well as partnerships and is administered by the MBR.
• Merchant Shipping Act (Chapter 234 of the Laws of Malta): Companies operating within the maritime sector, such as those engaged in shipping, ship management, or related maritime activities, are governed by the Merchant Shipping Act. This is the principal piece of legislation regulating shipping activities in Malta and provides specific rules for businesses operating within the maritime industry, including the registration and operation of ships under the Maltese flag. Essentially, the Merchant Shipping Act governs areas such as ship registration, the rights and obligations of ship owners, crew regulations, and maritime safety standards. Overseen by the Merchant Shipping Directorate within Transport Malta, the Merchant Shipping Act plays a crucial role in supporting Malta’s position as one of the world’s leading ship registries.

While most companies are governed by the Companies Act, those operating in the maritime sector must comply with the Merchant Shipping Act, which may include additional accounting and compliance requirements tailored to the specific industry.

Reporting obligations to competent authorities in Malta

The next step entails understanding to which competent authority in Malta your business has a reporting obligation to. Depending on your company’s specific business activities, more specifically, the industry in which your company operates, it is likely that your business is subject to specific regulations, enforced by industry-specific regulatory bodies. Various notable well-known examples include the Malta Gaming Authority (MGA) which regulates certain companies operating in the gaming industry and the Malta Financial Services Authority (MFSA) which supervises an ever-increasing number of businesses which are connected to Financial Services. Knowing to which regulator or governing body your business owes an obligation ensures that you are operating legally and sound.

Below, we have mapped out the main industries under which business activities operate. We have also listed the applicable regulatory authority overseeing that industry, along with an explanation of its key responsibilities. Further to the above discussion, we have also listed the typical applicable Maltese Act under which businesses operating in their respective industries fall.

In addition to focusing specifically on Malta, this stage should also be extended to understanding to which authority outside of Malta does your business have an obligation to and what are the regulations of each and every jurisdiction in which your business operates. For instance, recently we’ve encountered a case of a Malta company that ran a successful gaming affiliate business locally for a number of years. Generally speaking, gaming affiliates are not under the supervision of the MGA, however this company received a legal letter from the MGA equivalent of a different jurisdiction instructing the company to cease its operations with immediate effect in the other jurisdiction because it required licensing. Cross boarder transactions are becoming ever more common. If you intend to operate in other jurisdictions, ensure that you also know the requirements of those other jurisdictions.

Statutory Obligations

The next step necessary to ensure that you remain on track towards keeping your company in good standing is to identify the principal legal obligations that arise once your company is registered in Malta. Whether your company is actively trading or entirely dormant, incorporation alone is not sufficient to ensure compliance with the requirements prescribed under the Maltese law. Beyond simply avoiding fines and penalties for non-compliance, maintaining your company in good standing is critical for safeguarding your company’s reputation, maintaining credibility with regulators, and securing the continuity of your company’s business operations.

Focus must now be directed towards identifying the ongoing corporate obligations that must be fulfilled by the directors or company officers to keep your company in good standing. Companies incorporated and registered under the Companies Act are subject to several statutory requirements, ranging from the timely submission of specific documents to the maintenance of a registered office. This article also provides an overview of the primary corporate obligations that every Maltese company is required to adhere to:

Annual Return:

One of the first obligations that company officers must address following incorporation is the filing of the Annual Return. The Annual Return is a mandatory corporate document that confirms the company’s key details for a relevant year. These details include the registered office address, the authorised and issued share capital (along with the amount paid up), and the details of the company’s officers, namely the directors and the company secretary, including their name, surname, address, nationality, and identification document number. In case of a body corporate, details should primarily pertain to the name, company number and registered address. Importantly, filing the Annual Return on time is not a mere formality, it’s a statutory obligation that ensures that public records remain accurate and up to date, and failure to comply within the applicable deadline will result in hefty administrative penalties, which will be discussed further below.

Beneficial Owner Forms:

The BO Form is a separate corporate filing that confirms that no changes have occurred to the details of the company’s beneficial owner throughout year. Unlike the Annual Return, however, the obligation to submit the Annual BO Form does not apply to all companies and its applicability largely depends on the company’s shareholding structure. Specifically, if a corporate shareholder is included in the company’s shareholding structure, the company must file an annual BO form, providing the required verifications. As with the Annual Return, failure to submit the Annual BO Form on time will result in the imposition of significant fines and penalties.

Registered Office:

Regardless of where your company’s business activities are actually carried out, every company incorporated in Malta is obligated to maintain a registered office locally. This registered office serves as the official address for the company, where all formal communication addressed to the company, its officers, and shareholders are sent. Additionally, this must also be the address where your company’s statutory records are held, including the company’s incorporation documents and copies of the annual audited accounts. While the registered office may not necessarily be the place where your business operations are conducted, the business address utilised for this purpose, is either that of your accountant, who manages your financial books, or your corporate service provider, who assisted with your company’s incorporation and registration in Malta.

Submission of Financial Statements

Another important obligation that must be addressed by company officers to keep a company in good standing, relates to the timely submission of the audited financial statements. This isn’t just a box to tick, it’s a fundamental part of keeping your company compliant and avoiding unnecessary penalties. As we guide our clients through this process, we’ve learned that many companies face challenges when it comes to understanding what’s required to keep your company in good standing from a financial reporting and auditing perspective. Here’s what you need to know to avoid common mistakes and ascertain that you remain on the right track to ensuring compliance with statutory requirements.

In addition to compliance matters, it’s also essential to highlight the vital role that accounting plays within your company. Accounting serves as an essential tool for business owners, offering clear insights into your company’s overall financial health. This is pivotal not only for making informed strategic decisions but also for monitoring your company’s progress over time and ensuring that your business remains on track towards reaching its objectives. Accounting also proves to play a crucial role in identifying key business trends, sourcing new business opportunities, as well as assessing potential risks.

Bookkeeping and Accounting Function

As an initial step, the bookkeeping function of your company, which forms part of the wider accounting function, is fundamental to making informed business decisions. Ensuring that all financial transactions are recorded correctly and accurately is the first step towards maintaining regulatory compliance and safeguarding the smooth and efficient running of your company. This process involves effective and ongoing financial management, together with the implementation of key accounting tasks and procedures that must be carefully followed. In particular, maintaining accurate bookkeeping records for all business transactions, performing monthly bank reconciliations, and ensuring the timely calculation, review, and submission of periodic VAT and tax returns are all fundamental obligations which, more broadly, form part of the wider process leading to the preparation of a company’s financial statements.

In addition, ensuring that your company’s financial statements are prepared in accordance with international accounting standards and local regulations constitutes another critical step towards the success of your business and in keeping your company in good standing. The financial statements of a company should importantly present the entity’s financial position, its performance, and equity. The presentation and disclosure requirements embedded in accounting standards are often detailed. It is imperative that your company complies with all applicable requirements, a process which often necessitates seeking expert advice and guidance from an experienced accountant.

Reporting Accounting Frameworks

The next critical consideration which must also be discussed with your accountant relates to determining the appropriate reporting accounting framework that applies to your company’s size and respective specific business activities. From a financial reporting perspective, financial statements in Malta must be prepared in adherence with either the International Financial Reporting Standards (IFRS), as adopted by the European Union, or the General Accounting Principles for Small and Medium Sized Entities (GAPSME).

The practical applicability of either of these accounting frameworks largely depends on the size and nature of your business. For example, larger entities, including those that are publicly listed, must prepare their financial statements in accordance with IFRS, as GAPSME is not applicable to them. In contrast, GAPSME is the default accounting framework for smaller entities that meet certain eligibility criteria. These conditions primarily focus on company size thresholds related to total balance sheet size, annual revenue, and the average number of employees. Nonetheless, Small and Medium-Sized Entities (SMEs) still have the option to adopt IFRS. In such cases, the company’s board of directors must pass a formal resolution to adopt IFRS as the applicable accounting framework for financial reporting purposes.

From a practical perspective, if your company exceeds the thresholds applicable to a small company, it will automatically be classified as a medium-sized entity and must adopt the financial reporting requirements prescribed for such entities. Similarly, if a company surpasses the thresholds for a medium-sized entity, it must transition from using GAPSME to adopting IFRS for financial reporting purposes. This size classification is of particular significance, as it directly determines the financial reporting obligations your company must adhere to, particularly in relation to the presentation and disclosure requirements of financial statements.

For instance, companies reporting under the IFRS framework are required to present a full detailed comprehensive set of financial statements, including a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows and the accompanying detailed notes to the financial statements. In contrast, companies qualifying as small entities under the GAPSME framework are only required to prepare a balance sheet, an income statement, and the related notes, with the disclosures being notably simplified compared to those required under IFRS. Medium-sized entities, while still reporting under GAPSME, must additionally include a statement of changes in equity, and a statement of cash flows, expanding the scope of their financial statements compared to small entities. These key financial statements provide a comprehensive overview of your company’s financial position and performance for the reporting period.

A set of financial statements is also typically accompanied by a directors’ report, providing key insights into the company’s developments occurring throughout the year which extend beyond financial matters. This report should confirm the principal activities of a company and its subsidiaries, where applicable, and offer a comprehensive review of the business’s progress during the financial period.

Appointment of auditors

Once your company’s financial statements are fully compliant with the relevant accounting framework, and are audit ready, the next step required to keep your company in good standing involves the appointment of independent auditors. These auditors are responsible for conducting an independent review of the financial statements and issuing an auditors’ report, which typically also accompanies the audited financial statements upon filing submission. This is a statutory requirement for nearly all companies registered in Malta, unless the company qualifies for an exemption as outlined under the Companies Act. The auditors’ report, which must be prepared in accordance with the International Standards on Auditing (ISAs), provides an independent opinion on whether the financial statements give a true and fair view of the company’s financial position, performance, and cash flows, in accordance with the applicable accounting framework, whether IFRS or GAPSME.

The audit process can become a tedious one if not carefully planned and efficiently executed. It is another critical responsibility for company officers to ensure that the audit process is managed smoothly and supported by effective communication and coordination particularly between the auditors, key staff members of the company and the accountants who prepared the financial statements. Establishing a clear framework at the initial stages of the audit process, notably outlining expectations and deliverables for all key stakeholders, and structuring a clear timeline with an actionable plan, is fundamental to keeping the audit process on track. Beyond satisfying a statutory requirement, it is worth noting that a statutory audit delivers and provides key insights into your company’s financial health, identifying areas requiring improvement, and supporting better strategic decision making across all areas of your company.

From the initial stages of preparing a company’s financial statements to the completion of the statutory audit, business owners and company officers are strongly encouraged to work closely with both their accountant and auditor. As further noted above, it is crucial that they ensure the financial statements do not unnecessarily expose commercially sensitive information. Equally important, they must also ensure that all financial reporting and audit related processes are carried out in a streamlined manner, making the entire process more efficient, less-time consuming, and more manageable from a practical standpoint.

Merchant Shipping Act: New auditing requirements

Shipping companies now have the option to be established and operate under the Merchant Shipping Act instead of the Companies Act. The Merchant Shipping Regulations underwent an amendment on 21st February 2020, notably through Legal Notice 31 of the same year. Such companies are now required to submit audited financial statements to the MBR within the stipulated period. In terms of these amendments, such requirements closely resemble and are almost identical to those applicable to private limited liability companies established under the Companies Act. These amendments also entail the imposition of penalties as outlined in the eleventh schedule of the Companies Act in cases of default.

Corporate Governance

This article aims to offer a clear and practical understanding of the statutory obligations that arise solely from having a company registered in Malta. It also outlines the level of awareness that business owners and company officers are expected to have as a bare minimum to fulfil these legal requirements and ensuring that their company is kept in good standing. This leads to the critical question relating to what exactly are the statutory corporate responsibilities of those entrusted with the governance of a company, particularly the directors, legal and judicial representatives, company secretary, and shareholders? Let’s address this by first understanding how corporate governance contributes to the effective management and operations of a company.

Essentially, corporate governance refers to a structured system outlining detailed rules, practices and processes, through which a company is “directed”, “controlled” and “administered”. It establishes a framework that companies adopt for decision making, promoting ethical conduct and ensuring that companies always operate with accountability, transparency, and integrity. Fundamentally, corporate governance defines the roles and responsibilities of key stakeholders, including the board of directors, management, shareholders, auditors and regulators. More specifically, it outlines the core duties of the board of directors of a company, their interaction with the other stakeholders, and their influence on the company’s overall operations.

Responsibilities of those entrusted with Corporate Governance

The Companies Act plays a crucial role in providing companies registered in Malta with a strong foundation for corporate governance practices, setting out a legal framework that governs a company’s operations, defines the responsibilities of key stakeholders, and provides guidance on ethical business practices in general. Under the Companies Act, directors and those entrusted with the corporate governance of a company, must specifically ensure proper management and accountability. Their key duties include acting in the company’s best interests, exercising independent judgment, promoting business success, and maintaining accurate financial records. They must also ensure compliance with laws and regulations while avoiding conflicts of interest. Although the board of directors plays a central and a fundamental role within a company, shareholders also have significant rights, including voting at meetings, approving major transactions, and engaging in company decisions.

Apart from the Companies Act, a company’s Memorandum and Articles of Association also plays an important role in the context of corporate governance by supplementing the legal framework specified in the Companies Act with additional internal guidelines. From a general viewpoint, the Memorandum and Articles of Association establishes a company’s internal framework, clearly defining its structure, operations and key processes. Other crucial corporate governance aspects and procedures which are also covered in the Memorandum and Articles of Association of a company, include key areas concerned with shareholder rights, decision-making, share transfers and other important corporate related processes.

AGMs and EGMs

Another important aspect of keeping your company in good standing, which this article also seeks to examine, relates to the statutory obligation imposed by the Companies Act to hold an annual general meeting. A company may hold other several meetings during the year, but it is still required by law to hold an AGM, as this is treated separately from other meetings. In addition to being a statutory requirement, holding an AGM also plays a key role in maintaining transparency and a strategic focus within a company. While the board of directors are essentially entrusted with the daily management of a company, certain powers are reserved for the shareholders, who can exercise them and engage in key company decisions through their involvement in an AGM. More specifically, through an AGM, company directors come together to review several important matters of a company. During this meeting, which is held on annual basis, directors are required to present shareholders with a set of financial statements and may also present additional key reports and management updates. Shareholders can ask questions, scrutinise the financial performance of a company, approve financial accounts, and vote on significant decisions such as appointing the auditors for the next term and their remuneration. Other important company matters which are typically discussed during an AGM include the declaration of dividends for a relevant year.

Upon calling an AGM, the directors must issue a written notice to company stakeholders, namely shareholders, auditors and other members, at least fourteen days in advance. This notice, importantly, must specify the date, time, and location of the meeting, as set by the directors.

The requirement of structured engagements between shareholders and directors is a fundamental aspect of corporate governance outlined in both the Companies Act and the Memorandum and Articles of Association of a company. In addition to an AGM, other meetings held outside the regular annual schedule to address urgent company matters, may be referred to as EGMs. In this specific case, this can be called by directors or shareholders with at least a 10% holding in the company’s paid-up share capital.

Generally speaking, a quorum at an AGM in Malta is met when two members are present in person, unless otherwise stated in the company’s Memorandum and Articles of Association. In terms of matters discussed during the meetings, resolutions for ordinary matters require a simple majority, while those for extraordinary matters require a 75% majority. Shareholders have also the power to appoint proxies to attend and vote on their behalf during an AGM or an EGM.

Key takeaways

Keeping your company in good standing goes well beyond the initial company incorporation process. It requires an ongoing commitment from directors or company officers to understanding the key obligations which arise once a company is registered in Malta, as well as adopting a structured approach to fulfilling these ongoing statutory requirements. Whether your company is newly incorporated or whether it has been operating for several years, you are encouraged to seek the professional assistance of an experienced accountant or a knowledgeable advisor, to help ensure that you’re always on track to keeping your company in good standing.

Summary

Further on this, the below table aims to provide company owners or directors with a clear summary of the statutory obligations discussed in detail throughout this chapter.

In this article we’ve outlined the main obligations which arise once a company is registered in Malta. However, understanding these obligations alone will not help you keep your company in good standing and achieve compliance with statutory requirements. You must now address these obligations by first gaining a clear understanding of the filing deadlines that apply to each obligation.

Continue reading through the next article to gain a better understanding of the filing deadlines that companies registered in Malta are required to adhere to.