The changes to the Maltese Companies Act that were promulgated by Act XXXI of 2015 can indeed be described as analogous to Julius Caesar’s army crossing the Rubicon River in 49 BC as they are indeed a point of no return.
This point of no return is by no means insignificant as the substantial changes are mainly a result of the transposition of the EU Single Accounting Directive into Maltese law. The key changes, which came into effect on January 1, 2016, are outlined below:
Removal of the financial holding company exemption and widening of the group size exemption thresholds:
Up until December 31,, 2015, and subject to the fulfilment of certain conditions, a Maltese parent company which qualified as a “financial holding company” could benefit from an exemption from the filing of consolidated financial statements in terms of article 172 of the Companies Act. This exemption has now been abrogated in line with the directive.
Other exemptions from the preparation of consolidated financial statements which remain applicable relate to the group size exemption and the exemption available for parent companies included in the accounts of larger groups.
In this regard, it is to be noted that in relation to the group size exemption thresholds, a parent company will be exempt from the requirements of preparing consolidated accounts if at its balance sheet date the undertakings to be consolidated do not together exceed the limits of two of the following criteria:
(1) Aggregate balance sheet total: €4,000,000 net (previously € 2,562,311) or €4,800,000 gross (previously €3,074,773);
(2) Aggregate turnover: €8,000,000 net (previously €5,124,621) or €9,600,000 gross (previously €6,149,546):
(3) Aggregate number of employees: 50.
Revocation of the option for small companies to prepare abridged accounts and widening of size thresholds:
Article 185 of the Companies Act has been amended to the effect that the option for ‘small companies’ to prepare abridged accounts has been removed. On the other hand, the Act has also widened the thresholds for ‘small companies’ as illustrated below:
• 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 two out of the above-mentioned three criteria it need not deliver the directors’ report to the Registrar of Companies but must still deliver its full accounts, including the notes to the accounts and the accompanying auditor’s report.
In addition to the above, in the event that the ‘small company’ is also a ‘private exempt company’ in terms of article 211 of the Companies Act, it would not need to deliver to the Registrar of Companies the directors’ report and the profit and loss account but must still deliver its balance sheet, the notes to the financial statements and the auditor’s report.
Additionally, a small company qualifying as a private exempt company satisfying two out of the three criteria listed below would not need to deliver an auditor’s report:
• Balance sheet total: €46,600;
• Turnover total: €93,000;
• Average number of employees during the accounting period: two.
It is, however, to be noted that in cases where a company does not need to file an auditor’s report, 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.
Removal of the Form U:
By means of Act XXXI of 2015, what was article 182(3) of the Companies Act allowing companies, carrying on business or having business interests to the extent of more than 90 per cent outside Malta, to extend the period allowed for laying accounts before the general meeting to 18 months after year end by means of the filing of a statutory Form U has been removed.
Clarification of undistributable reserves:
The Act also amends the marginal note to article 193 of the Companies Act in order for it to be crystal clear that the definition of what constitute undistributable reserves in article 193(3) applies to both public and private companies. Act XXXI of 2015 also adds two new undistributable reserves to the list found in article 193(3) these being the following:
• 193(3)(d): “The difference by which the profit attributable to the participating interest and recognised in the profit and loss account exceeds the amount of dividends already received or the payment of which can be claimed”;
• 193(3)(e): “The amount of development costs included under ‘assets’ which have not been completely written off.”
Time period for submission of accounts of oversea companies:
By means of an amendment to article 387 of the Companies Act, foreign companies registered as oversea companies in Malta must file their accounts with the Maltese Registry of Companies within 12 months from the end of the respective accounting period. Previously, oversea companies which were private companies had to submit their financial statements within 42 days and 10 months from the end of the respective financial period, while oversea companies which were public companies had to submit their financial statements within 42 days and seven months from the end of the respective financial period.
Accounts of oversea companies will need to be in accordance with the provisions of chapter X of Title I of Part V of the Companies Act and general accepted accounting principles and practice and the reference to what was the Third Schedule had been removed.
Impact of the amendments and what one should look out for:
The above-mentioned changes are far- reaching in that, as outlined above, Maltese parent companies previously exempt from the preparation of consolidated financial statements under the financial holding company exemption can no longer avail themselves of said exemption.
Given that such exemption has been removed, consolidated financial statements would now need to be prepared unless the Maltese company would fall squarely within the extended size exemption thresholds or is otherwise exempt as is the case for parent companies included in accounts of larger groups.
Possible solutions in order to avoid the time and cost required in connection with the preparation of consolidated financial statements might inter alia include restructuring in such a way that the Maltese company would no longer fall under the definition of ‘parent company’ or possibly making use of foundations while taking into consideration the relevant legal, accounting and tax considerations.
Antoine Demicoli is a manager at KPMG Malta.