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SME definition

Background

The European Commission Recommendation 2003/361 sets out the main factors for determining whether a company is an SME; number of employees and either turnover or balance sheet total.

The SME definition is important as there are a couple of benefits for a company if it meets the criteria:

  • eligibility for support under many EU business-support programmes targeted specifically at companies of this size such as research funding, competitiveness and innovation funding and similar national support programmes that could otherwise be banned as unfair government support (“state aid” – see block exemption regulation);
  • fewer requirements or reduced fees for EU administrative compliance.

Invest Europe position

The EU SME definition also includes the concept of linked enterprises. Under the linked enterprise rule, companies that receive a majority/controlling investment from a venture capital firm are very likely to lose their SME status. This would prohibit these companies from receiving aid in the form of grants or tax breaks where SME status is a condition.

The SME definition is also increasingly cross-referenced in EU regulation. The AIFMD provides an exemption for SMEs from certain disclosure and asset stripping requirements. To benefit from this exemption the companies must meet the requirements of the SME definition.