European Law Report - Reducing administrative burdens for micro-enterprises
The EU is once more focusing on how to alleviate regulatory burdens on small enterprises. The European Commission recently adopted a proposed law which permits member states to exempt micro-entities from EU financial reporting rules. This proposed law...
The EU is once more focusing on how to alleviate regulatory burdens on small enterprises. The European Commission recently adopted a proposed law which permits member states to exempt micro-entities from EU financial reporting rules. This proposed law comes in the wake of the recent approval by the EU's industry ministers of the Small Business Act and like the latter Act has the objective of further reducing administrative burdens for the EU's smallest companies.
Micro-entities are usually mostly engaged in business at local or regional level with no or limited cross-border activity. Nonetheless, they are to date still, in terms of EU law, subject to the same reporting rules as larger companies. Such companies often have limited resources to comply with demanding regulatory requirements.
By way of this new law, member states have the option to relieve micro-enterprises from the obligations imposed by the EU's Fourth Council Directive on the annual accounts of certain types of companies. This directive establishes minimum requirements for the annual accounts of mainly limited-liability companies. It contains provisions concerning the presentation and content of annual accounts and annual reports, the valuation methods used, as well as their publication and audit.
Although the directive contains exemptions for small- and medium-sized companies from certain obligations, such companies are often still subject to the same reporting rules as larger companies. In terms of this proposed law, member states will have the possibility to design, at a national level, other suitable reporting requirements that are more adapted to the needs of micro entities. By way of example, various reporting requirements such as tax and statistics could be integrated into one.
Micro entities are defined as those companies which meet two of the three following criteria: a balance sheet total of not more than €500,000; a net turnover of not more than €1,000,000; and have an average number of not more than 10 employees during the financial year. Any company that satisfies these criteria can benefit from this proposed law.
The current financial and economic crisis has clearly shifted the EU's focus to measures aimed at securing the survival of a sector which has been severely hit by the collapse of banks and decreasing liquidity in the market. This comes as no surprise when one considers that 99 per cent of EU companies are SMEs which account for roughly 70 per cent of EU jobs and GDP. Estimates show that if member states implement this exemption, the savings potential for each micro entity could amount to approximately €1,200 per year.
This notwithstanding, the measure has not been met with much enthusiasm by the sector. The European Association of Craft, Small and Medium-sized Enterprises has voiced its concern that this legislative attempt by the Commission is unlikely to save small businesses money and indeed risks distorting the single market and reducing transparency. The European craft and SME employers' organisation maintains that filing annual accounts is a fundamental tool for small businesses to prove their financial solidity.
Furthermore, there is concern that this legislative measure would create an uneven playing field between businesses operating in different member states since the latter enjoy, in terms of the proposal, an option as to whether to apply the exemption or otherwise. The organisation is instead recommending the simplification of existing harmonised accounting rules and the application of the same to all businesses.
Whether the proposed measure will be actually changed to reflect these recommendations is still to be seen as it continues on its procedural path to being adopted as law by the European institutions.
mariosa@vellacardona.com
• Dr Vella Cardona is a practising lawyer and a freelance consultant in EU intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.
Micro-entities are usually mostly engaged in business at local or regional level with no or limited cross-border activity. Nonetheless, they are to date still, in terms of EU law, subject to the same reporting rules as larger companies. Such companies often have limited resources to comply with demanding regulatory requirements.
By way of this new law, member states have the option to relieve micro-enterprises from the obligations imposed by the EU's Fourth Council Directive on the annual accounts of certain types of companies. This directive establishes minimum requirements for the annual accounts of mainly limited-liability companies. It contains provisions concerning the presentation and content of annual accounts and annual reports, the valuation methods used, as well as their publication and audit.
Although the directive contains exemptions for small- and medium-sized companies from certain obligations, such companies are often still subject to the same reporting rules as larger companies. In terms of this proposed law, member states will have the possibility to design, at a national level, other suitable reporting requirements that are more adapted to the needs of micro entities. By way of example, various reporting requirements such as tax and statistics could be integrated into one.
Micro entities are defined as those companies which meet two of the three following criteria: a balance sheet total of not more than €500,000; a net turnover of not more than €1,000,000; and have an average number of not more than 10 employees during the financial year. Any company that satisfies these criteria can benefit from this proposed law.
The current financial and economic crisis has clearly shifted the EU's focus to measures aimed at securing the survival of a sector which has been severely hit by the collapse of banks and decreasing liquidity in the market. This comes as no surprise when one considers that 99 per cent of EU companies are SMEs which account for roughly 70 per cent of EU jobs and GDP. Estimates show that if member states implement this exemption, the savings potential for each micro entity could amount to approximately €1,200 per year.
This notwithstanding, the measure has not been met with much enthusiasm by the sector. The European Association of Craft, Small and Medium-sized Enterprises has voiced its concern that this legislative attempt by the Commission is unlikely to save small businesses money and indeed risks distorting the single market and reducing transparency. The European craft and SME employers' organisation maintains that filing annual accounts is a fundamental tool for small businesses to prove their financial solidity.
Furthermore, there is concern that this legislative measure would create an uneven playing field between businesses operating in different member states since the latter enjoy, in terms of the proposal, an option as to whether to apply the exemption or otherwise. The organisation is instead recommending the simplification of existing harmonised accounting rules and the application of the same to all businesses.
Whether the proposed measure will be actually changed to reflect these recommendations is still to be seen as it continues on its procedural path to being adopted as law by the European institutions.
mariosa@vellacardona.com
• Dr Vella Cardona is a practising lawyer and a freelance consultant in EU intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.