Does Your Business Qualify for the SME Exclusion?

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Does Your Business Qualify for the SME Exclusion?
 
The introduction of Malta's Transfer Pricing Rules has prompted many businesses to assess whether their intercompany arrangements fall within scope. One of the first considerations is whether an enterprise forms part of an SME Group, as qualifying businesses may benefit from an exclusion under the Rules.


 
The First Step in Assessing Transfer Pricing Scope 
Malta introduced Transfer Pricing through Subsidiary Legislation 123.207 (Transfer Pricing Rules), which applies to arrangements between associated enterprises entered into, or materially altered, on or after 1 January 2024. 

The Rules provide an exclusion for enterprises that qualify as micro, small or medium-sized enterprises (SMEs), as defined in Annex I of Commission Regulation (EU) No 651/2014. 

An enterprise is generally considered an SME where it has: 
  • Fewer than 250 employees; and 
  • Either: 
an annual turnover not exceeding €50 million, or 
a balance sheet total not exceeding €43 million. 


 
How Enterprise Relationships Affect the SME Assessment
Looking Beyond the Individual Company

Determining whether an enterprise qualifies as an SME requires more than assessing the size of the individual company. The Rules require consideration of the wider group structure when calculating the relevant thresholds. 

Specifically: 
  • Linked enterprises – 100% of the employee, turnover and balance sheet figures of linked enterprises must be included in the assessment. 
  • Partner enterprises – the employee, turnover and balance sheet figures of partner enterprises must be included on a proportionate basis.
A linked enterprise generally exists where one enterprise exercises control over another, including through: 
  • majority voting rights; 
  • the right to appoint or remove the majority of the administrative, management or supervisory body; 
  • the right to exercise dominant influence under a contract or constitutional documents; or 
  • control of the majority of voting rights through an agreement with other shareholders or members. 

Partner enterprises are those that are not classified as linked enterprises but have, either individually or jointly, a relationship of more than 25% (upstream or downstream). 
How Enterprise Relationships Affect the SME Assessment

Does Your Business Qualify for the SME Exclusion?

How Enterprise Relationships Affect the SME Assessment

Performing the Assessment

The SME assessment should be based on the approved annual accounts for the relevant financial year. 

Where an enterprise has not yet prepared approved annual accounts, a bona fide estimate should be made in the form of a business plan covering the period until the business generates turnover. 


Why This Matters

Being part of a group that does not qualify as an SME does not necessarily mean that a company falls within the scope of Malta's Transfer Pricing Rules. However, the SME exclusion is generally one of the first assessments undertaken when determining whether the Rules apply. 

In addition, disclosure in the income tax return is required from Year of Assessment 2026 where a taxpayer falls outside the scope of the Transfer Pricing Rules due to being part of an SME Group. Documenting the SME assessment is therefore advisable. 


How BDO Malta Can Help

Assessing whether the SME exclusion applies requires careful consideration of group structures, ownership relationships and the treatment of linked and partner enterprises. 

BDO Malta's Transfer Pricing specialists assist businesses in assessing their position under the Maltese Transfer Pricing Rules, documenting SME assessments and evaluating whether transfer pricing obligations apply to their arrangements. 


Get in Touch

If you would like to discuss how the SME exclusion applies to your business or wider group, our Transfer Pricing team is available to assist. Contact us.