How should the definition of SMEs be interpreted?

Importance of the definition of SMEs

According to the European Union, small and medium-sized enterprises are the engine of the European economy. SMEs therefore merit the full attention of EU policy. Certain support programmes are therefore only available to SMEs, and SMEs often receive a higher rate of subsidy.

Basic criteria

An SME is an independent company with fewer than 250 employees (expressed in full-time equivalents - FTE). An SME also has an annual turnover of no more than €50 million or a balance sheet total of no more than €43 million.

A small enterprise (SE) is an independent company with fewer than 50 employees. An SE also has an annual turnover of no more than €10 million or a balance sheet total of no more than €10 million.

A medium-sized enterprise (ME) is an independent company with 50 employees or more and fewer than 250 employees. An ME also has an annual turnover of no more than €50 million or a balance sheet total of no more than €43 million.

A company transitions to a new status of SE (small enterprise), ME (medium-sized enterprise) or LE (large enterprise) when it meets or fails to meet the criteria for two consecutive financial years. In the event of an acquisition or merger, you assess the group structure after the time of the share transaction and consider only the last completed financial year.

Independence

In certain cases, data from other companies must also be included in the calculation for these criteria ('consolidation'). This is the case when the company is not an independent business.

A business loses its independence when there are one or more 'partner enterprises' or 'affiliated enterprises’.

What are partner enterprises?

Partner enterprises are companies linked by a shareholding relationship, either directly or together with one or more associated companies, which consists of 25% or more of the capital or voting rights.

If the group structure means that investors hold 25% or more of the capital or voting rights, you can find more information below.

What are affiliated enterprises?

Affiliated enterprises are companies that have a shareholding relationship, either directly or through another company, which consists of more than 50% of the capital or voting rights.

If the group structure means that natural persons are shareholders in multiple companies, please read this information.

Determining the size of an enterprise at group level

Companies that produce consolidated financial statements can determine the size of the enterprise at group level using the financial statements at the highest consolidated level. To determine the size, they have to apply the basic criteria to the consolidated financial statements. If the company does not publish consolidated financial statements but does prepare them for internal use, these can also be used, subject to certification by a company auditor or (certified) ITAA accountant.

If no consolidated financial statements are prepared, the three basic criteria (FTEs, turnover and balance sheet total) for the company must be added together with those of its partner and associated enterprises. In the case of partner enterprises, their figures must thereby be added after applying their shareholding percentage. In the case of associated enterprises, the figures in question must be added in full. We strongly recommend using our calculation tool for this.

Example: If A has a 40% shareholding in B and an 80% shareholding in C, B is a partner enterprise of A and C is an associated enterprise of A. The size of A based on the three criteria is then: A + 40 % of B + 100 % of C. This must be calculated for the total number of employees, the turnover and the balance sheet total.

Control

If the level of control differs from the shareholding percentage, control is also important. Control is defined as being able to exercise decisive influence, either de facto or on the basis of a legal capacity. If control in the companies

in your group does not match the shareholding percentage based on capital held, your application must specify for which companies this is the case.

Natural persons as shareholders

A group of natural persons acting in concert (e.g. with family ties or jointly owning a majority stake in another company) is counted as a single natural person. If a natural person or such group jointly holds more than 50% of the capital or the voting rights in one or more other companies outside the group, you must include these companies. You must thereby also indicate whether or not these companies operate either in the same market or in related markets. Markets are related if the products or services are complementary or interchangeable (= horizontal integration) or are part of another step in the production chain (= vertical integration). Where appropriate, you must specify the companies concerned and the related markets. Natural persons' shareholdings of 50% or less than 50% in one or more other companies outside the group do not need to be disclosed.

Investors as shareholders

VLAIO differentiates between pure and mixed investors. A pure investor's sole business purpose is to take stakes and shareholdings in other companies, which ex ante are not part of the same group. A mixed investor's business purpose is not exclusively to take stakes and shareholdings in other companies, and they have (industrial/administrative) commercial (products, services) activities in addition to the financial activities. This group also includes mixed investors who are part of an industrial group whereby the investment in another company is an additional activity to their core business.

An exception to the independence criterion applies to pure investors for a shareholding percentage of between 25% and 50%. This exception implies that a company is still independent if a pure investor holds between 25% and 50% of that company’s capital or voting rights.

A pure investor is classified into one of the four categories listed in the summary below:

• Public investment companies
• Venture capital firms
• Business angels (shareholding may not exceed €1.25 million in the case of business angels)
• Institutional investors, including regional development funds

The same exception to the independence criterion for a shareholding percentage between 25% and 50% applies to the following categories of investors:

• Universities or non-profit research centres including university spin-off funds
• Autonomous local authorities with an annual budget of less than €10 million and with less than 5,000 residents.

Additional information

• Template for determining enterprise size
• Calculation tool for enterprise size
• User guide to the definition of SMEs
• Example of the application of the consolidation rules
• SME definition: the difference between the European definition and definition for tax purposes