Are You Still an SME? The New Thresholds for Defining Company Size

Company Size Is More Than Just an Administrative Label. Classifying a business as a “microenterprise,” “SME,” or “medium-sized company” is far from a mere label. Defining a company’s size has a direct impact on its tax obligations, access to grants, and, in many cases, its ability to grow and compete in an increasingly dynamic market. But what happens when the classification thresholds change? That’s precisely the focus of the recent reform, which has updated the criteria for considering companies as micro, small, or medium-sized.

Inflation Calls for an Update of the Thresholds

Over the past decade, inflation has significantly reshaped the economy, rendering the existing classification thresholds outdated in relation to the economic reality of businesses. According to Eurostat, the statistical office of the European Commission, cumulative inflation from 2013 to 2023 reached 24.3% in the euro area and 27.2% across the European Union. As a result, in October 2023, the Delegated Directive (EU) 2023/2775 established new limits to align company classifications with inflation—allowing SMEs to adapt to a more realistic economic context.

This adjustment was necessary because the previous thresholds no longer accurately reflected economic developments over the last decade. In this sense, the change is not just technical; it also acknowledges the resilience and growth of companies during uncertain times.

New Thresholds That Redefine What It Means to Be an SME

As a result of this reform, the thresholds that define company size have increased to reflect rising prices and SME growth. These changes affect total assets and net turnover:

Company Type	Previous Figures	Updated Figures
Micro
Assets	Does not exceed €350,000	Does not exceed €450,000
Net Turnover	Does not exceed €700,000	Does not exceed €900,000
Small
Assets	Does not exceed €4M	Does not exceed €5M
Net Turnover	Does not exceed €8M	Does not exceed €10M
Medium and Large
Assets	Does not exceed €20M	Does not exceed €25M
Net Turnover	Does not exceed €40M	Does not exceed €50M

These new thresholds will apply to the first fiscal year that closes after their official publication in the BOE.

Once this European Directive is transposed, microenterprises will be those with a balance sheet not exceeding €450,000 and a turnover below €900,000, reflecting an upward adjustment of 28.6% compared to the previous limits. As for small businesses, it is worth noting that Member States can define higher thresholds than initially specified, without exceeding €7.5 million in balance sheet and €15 million in turnover. Finally, for medium and large companies, the balance sheet will start at €25 million and turnover at €50 million, reflecting a 25% increase.

It is important to note that the number of employees, which also forms part of the criteria for classifying company size under European law, has not been altered by this Directive and remains at the current levels: fewer than 10 employees for microenterprises, fewer than 50 for small enterprises, and fewer than 250 for medium-sized enterprises.

More Than Just an Adjustment

Updating the thresholds is not just an administrative matter. These changes have a direct impact on the economic structure of companies, particularly those that were on the border between categories. The fact that a company previously classified as small is now considered a microenterprise generates significant changes. One of the most important effects is that many businesses will no longer be required to audit their accounts. While this does not eliminate the need for good accounting practices, it lightens the formal burden, which can be highly beneficial.

Furthermore, the adjustment to the new thresholds results in a considerable reduction in accounting obligations: companies will be able to file abbreviated accounts without the need for a detailed memorandum, and will be required to provide much less detail in the balance sheet and profit and loss statement. This change not only simplifies administrative management but also reduces the costs associated with regulatory compliance.

On the other hand, a change in company category may directly impact financial strategy. For example, some businesses may be able to access specific grants for microenterprises, which could open up new growth opportunities. The change in status may also influence how they present themselves to banks or investors. Ultimately, a simple change in category can redefine both a company’s obligations and its possibilities.

Is This the Future of SMEs?

At its core, this legislative change reflects a more flexible and realistic vision of what it means to be an SME today. The new thresholds not only modify the legal framework: they reshape the opportunities and challenges for thousands of small and medium-sized businesses. Understanding where your company fits in now is not just a formality, but the first step in redefining your accounting, tax, and financial strategy.

Companies that take advantage of this transition to strengthen their management will be better prepared for growth. In this context, having the right support can make the difference between adapting or falling behind.

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