In this first part of our series “The Essential Guide to Keeping a Maltese Company in Good Standing”, we introduce why maintaining good standing matters and what you should know from the start.
Upon incorporating a company in Malta, it is imperative that its directors ensure that the entity remains in good standing. The fines and penalties for non-compliance shouldn’t be taken lightly. Some repercussions could be significant, but we are not here to scare you of these consequences. We rather guide you to constantly keep your company active and in proper good standing.
This article series has been developed in collaboration with our in-house expert advisors, including accountants and legal professionals who have shared insights drawn from their years of practical experience. The aims of this series are to outline the key legal obligations that every company incorporated in Malta must comply with to maintain regulatory compliance, avoid potential penalties, mitigate the risk of being struck off the public registry and maintain good standing. The series also highlights common pitfalls encountered by companies with the aim of helping readers proactively avoid similar challenges.
Common Challenges When Managing a Maltese Company
A frequently encountered challenge that our clients discuss with us is how to navigate through the complex set of regulations which govern their company when they open a company in Malta. We often receive questions such as:
- When should I pay tax?
- How much taxes should I pay?
- Should I charge VAT?
- What can I do with my expenses? And many other questions mostly related to taxes.
“Only taxes and death” is a renowned phrase. Rightly so, tax compliance should be an important topic on all business owners’ agenda. Yet, not adhering to corporate compliance requirements is guaranteed to trigger an avalanche of penalties. Some of these penalties are even more severe than not paying the right taxes.
Start With the Legal Foundations
Our first suggestion is to park those tax questions when you incorporate a company and get to them after you determine which are the fundamental Maltese Acts that directly impacts your business. You should start asking the following questions as a starter:
- Is my Company registered under the Companies Act or the Merchant Shipping Act?
- To which competent authority does my business has a reporting obligation to?
- What obligations arise simply from having my Company registered? It is good to highlight that even if your company was completely dormant, there’s still a number of statutory obligations that you must consider.
- Where should I have my registered address? Should it be with my accountant/ Corporate Service Provider or elsewhere? How is this different from my business address?
- What are the statutory corporate responsibilities of all those trusted with governance? (i.e. directors, legal and judicial representatives, company secretary and shareholders)
These first set of questions ensure that you are embarking on the right trajectory to keeping your company in good standing. You are no longer making assumptions or else taking various steps for granted. Asking these questions should not be interpreted that you do not trust your advisor who helped you to set the company up. Instead, you are actively taking steps to understand the fundamental requirements of keeping your entity in good standing. Great advisors enjoy working hand in hand with clients who understand what they’re doing.
Understanding Corporate Deadlines and Obligations
The next critical consideration from a corporate governance perspective relates to statutory deadlines. We recommend that this process should go beyond merely marking a few dates in your calendar. It requires a clear understanding of the specific obligation in relation to your company. Peer comparison should be simply avoided. This is a common mistake that we encounter, especially when it comes to filing of forms such as the Beneficial Owner forms, or as they’re more commonly known the BO Forms.
Recently a director approached one of our advisors to seek help on the thousands of euros in penalties that were incurred by his company simply because he did not submit the BO Form. This director told us that his brother was assisting him with the administrative side of his business as he ran a company for a number of years, but he never mentioned the BO Form. He was at a loss on how he got fined thousands of euros in penalties and his brother who swears that he never submitted the BO form ever in his life never received a cent in penalties. It transpired that the company owned by his brother was owned directly by a natural person unlike the shareholding of our client that had a holding company between the trading and himself. To help ensure you avoid similar issues, this article also outlines practical scenarios in which companies registered in Malta are required to file the BO Form.
The Role of Audited Financial Statements
Another important deadline relates to the submission of the audited financial statements. Further on this, we will provide a detailed overview of the applicable deadlines for filing the audited financial statements of companies registered in Malta, along with other corporate reporting deadlines in another article of this series. We will also explain what the commonly referenced “10months and 42 days” after year end mean, including when this will be applicable and when not using practical examples.
More specifically, the audited financial statements should accurately reflect the company’s current state of affairs, along with a clear overview of its financial performance, its financial position, and overall cash flows for the respective financial period. But are you making sure of not disclosing more than what is necessary? As the saying goes, sometimes less is more. Over disclosing critical and sensitive information in your audited financial statements might be beneficial to your competitors but definitely not to your company! The Companies Act outlines several exemptions to this auditing requirement, depending on the type of company you own and its size. On the other hand, the Merchant Shipping act, imposed a new audit requirement way back a few years ago.
Why Maintaining Good Standing Matters
In addition to ensuring compliance with statutory requirements and providing a transparent overview of a company’s ongoing business activities, maintaining good standing is also crucial for companies to avoid penalties, which are typically enforced by the Malta Business Registry (MBR), the relevant tax and VAT authorities in Malta. In recent times, the MBR under the leadership of its Chief Executive Officer Dr. Geraldine Spiteri Lucas underwent a transformative initiative which saw a paradigm shift in the way the MBR operates. MBR became more ‘client’ centric and one of the MBR’s newly introduced and actively working towards goal, is to have as many entities as possible in good standing. Essentially, the imposition of such penalties reinforces the need for timely submission of all accounting and corporate requirements, urging companies to always maintain good standing and keep updated company records on the public registry. Yet, the MBR actively sends numerous notices and publishes frequent notifications throughout the year to remind all those who have a legal entity registered with them about their obligations.
Corporate Meetings and Ongoing Responsibilities
A later article in this series will explain the obligations to hold Annual General Meetings (AGM), the difference between an AGM and an EGM (Extraordinary General Meeting), the notices which should be sent, by whom such notices should be sent, who should receive notice, who should be present for these meetings, what are the requirements of holding a quorum, what should be discussed, the importance and requirement of minuting such meetings and other important aspects of keeping your company in good standing.
Other essential corporate obligations which need to be dealt with include promptly notifying the relevant authorities of any material changes within the company, what events require notification, their relevant deadlines and which authority to notify.
So far, we’ve barely scratched the surface of keeping your company in good standing. We haven’t yet discussed taxes and your relationship with the taxman.
Accounting, Taxes, and Working With the Right Advisors
Once you get the basics sorted, you should start thinking about accounting and taxes. We encourage you to speak with an experienced accountant that can guide you and your business along the way. While many immediately understand that medical doctors have their areas of expertise, so do accountants. Don’t hesitate to ask the accountant with whom you are working with if they have the right expertise to assist you and your business.
Any business owner should know the difference between bookkeeping services and accounting services. Bookkeeping services is the term generally referred to recording raw data in an accounting system. It is a function of accounting services but should not substitute other services. We recommend that you obtain a written advice before you start operating on how your business accounting should be shaped. This small advisory exercise might seem like an inconvenience and an additional burden especially when you’re about to start your business, but it might save you thousands in the future. It should cover a general understanding of what your business does, how VAT should be treated in your business, when and where you should have your business registered. Similar to other scenarios depicted earlier on, whatever your relatives or friend are doing should not be relevant to you. You should seek to obtain a tailor made advise to your business which will deal with all the nitty gritty details of what you intend of doing. We cannot stress enough the importance of communicating any changes to your accountant. If for instance you were providing a service and now you started selling a good, it is likely that the accounting treatment will change considerably. You should always notify your accountant about the changes in your business.
Once you set the modus operandi with your accountant, we lastly recommend that you learn the specific tax filing deadlines. Think ahead as much as possible. While this might sound obvious, sending your accounting data to your accounting on the eve of the deadline, will not ensure that your accountant will manage to reach the statutory deadline. You need to allow sufficient time for your accountant to crunch through the data and analyse it properly. What if your accountant needs to ask you questions?
If you’re enjoying reading this article and want to keep your company in good standing, follow the next parts of this series. Our articles are not intended as a substitute of speaking with a professional but more as a guide of what you need to know and what you need to discuss with your trusted advisor. We’re always here to help. If you feel lost or feel overwhelmed when reading through this article, don’t hesitate to drop us a line and one of our advisors will be glad to guide you through the process. By the end of this series, you will have the necessary information to always keep your company afloat and in good standing.