SME size criteria in 2022
May 2022 – In mid-March, the Commission des Normes Comptables/Commissie voor Boekhoudkundige Normen (CNC/CBN) published a new version of its opinion on the size criteria for small companies. This document is of some interest.
Definition of small and micro companies
The term "SME" is traditionally used to refer to a small enterprise. The "M" refers in principle to medium-sized companies, but from a legal point of view these entities do not exist in our company law. There are really only two types of companies: companies that are classified as small and companies that are not classified as small.
A small company is a company which, at the balance sheet date of the last closed financial year, does not exceed more than one of the following criteria
number of employees, on average per year: 50 ;
annual turnover, excluding VAT: 9 000 000 euros; and
balance sheet total: 4 500 000 euros.
But there are also micro companies which are defined as a sub-category of small companies. These are small companies which, at the balance sheet date of the last completed financial year, are not subsidiary or parent companies and do not exceed more than one of the following criteria
number of employees, as an annual average: 10 ;
annual turnover, excluding VAT: 700 000 euros; and
balance sheet total: 350 000 euros.
Three elements are therefore taken into account: the number of employees, the turnover and the balance sheet total. The balance sheet total can simply be consulted in the annual accounts and does not require further explanation. But what about the number of employees and the turnover?
Number of employees
In order to calculate the number of workers employed, as an annual average, account must be taken of the average number of full-time equivalent workers registered in the DIMONA database at the end of each month of the accounting period. If the company employs workers who are not registered in the DIMONA database, reference should be made to the general staff register or an equivalent register.
For part-time workers, the calculation is based on the number of hours to be worked under contract, in relation to the normal working hours of a comparable full-time worker (reference worker).
Turnover
Turnover is defined as the amount of sales of goods and services to third parties, which are part of the company's usual activity, excluding VAT and after deduction of commercial reductions (rebates and discounts). If the company benefits from government intervention to compensate for reduced revenues due to a pricing policy, the amount of this is also included in turnover.
The CNC/CBN emphasises that this must be revenue from normal business activity and gives the following example:
Example 1
A profit and loss account shows the following data
annual turnover excluding VAT: 3 300 000 euros;
other operating income: 200 000 euros;
financial income (dividends): 700 000 euros; and
non-recurring financial income: 550,000 euros.
Turnover excluding VAT amounts to 3 300 000 euros.
Where more than half of the income from a company's normal business is income not covered by the definition of turnover, a derogation should be applied. In this case, "turnover" should be understood as the total of operating and financial income excluding non-recurring income.
Example 2
Let us assume that the profit and loss account shows the following figures
annual turnover excluding VAT: 300 000 euros ;
other operating income (excluding one-off income): 850 000 euros;
other financial income (excluding non-recurring income): 2 700 000 euros; and
operating and non-recurring financial income: 550 000 euros.
The first three items result from the normal activity of the company. They total at 3 850 000 euros, more than half of which is made up of items that do not meet the classic definition of turnover. In this case, the amount of 3 850 000 euros is considered as turnover for the size criterion.
Duration of the financial year greater or less than twelve months
First of all, the CNC/CBN stresses that the financial year must not systematically be longer or shorter than twelve months. However, a shorter or longer financial year may be authorised in exceptional cases, on the understanding that it may never exceed twenty-four months less one calendar day.
If you find yourself in this type of exceptional situation, how should you proceed to calculate the criteria?
According to the CNC/CBN, the turnover limit, excluding VAT, must be multiplied by a fraction whose denominator is twelve and whose numerator corresponds to the number of months in the financial year in question. Any month started is counted as a whole month.
Example 3
A company has a turnover of 17 000 000 euros, exclusive of VAT, in accounting year X, which lasts 15 months. The turnover limit (9 000 000 euros for a small company) must be reduced to 15 months. In other words: 9 000 000 euros x 15/12 = 11 250 000 euros > 9 000 000 euros.
In this example, the company has therefore exceeded the maximum turnover for a small company.
Example 4
You can also take the company's turnover not to fifteen months but to twelve months and compare it with the maximum of 9 000 000 euros. The end result is of course the same: the company exceeds the turnover criterion: 17 000 000 euros x 12/15 = 13 600 000 euros > 9 000 000 euros.
Importance
Why is it important to know if your company is an SME? First of all, there are a number of administrative obligations that vary between SMEs and other companies. Annual accounts, for example, are more or less detailed depending on the type of company (micro, small or large).
There are also differences in terms of taxation.
However, bear in mind that in some cases, especially in the European subsidy regulations, the standards applied are completely different!
