Size thresholds for companies adjusted

Financial reporting and auditing obligations vary depending on the size of a company. To determine the size of a company, three criteria are important: the annual average number of employees, the annual turnover (excluding VAT) and the balance sheet total.

These three criteria have recently been amended by the law of 28 March 2024. In this blog, we explain how the size of a company is determined and what this means for your obligations around the annual accounts, the annual report and the possible appointment of an auditor.

What types of companies are there?

Micro company

A micro company is a company that does not exceed more than one of the following criteria on the balance sheet date of the last completed financial year:

• average number of employees: 10
• annual turnover excluding VAT: € 900,000
• balance sheet total: € 450,000

Even if a company does not exceed more than one of these criteria, it can never be considered a micro company if it is the parent or subsidiary of another company.

Small company

A small company is a company that does not exceed more than one of the following criteria on the balance sheet date of the last completed financial year:

• average number of employees: 50
• annual turnover excluding VAT: € 11,250,000
• balance sheet total: € 6,000,000

Large companies

Large companies are those companies that do not meet the criteria for micro or small companies.

At what point is size determined?

Article 1:24 (small companies) and Article 1:25 (micro companies) of the Companies and Associations Code stipulate that the criteria must be assessed on the balance sheet date of the last completed financial year.

Does a company exceed a criterion? Then this excess or non-excess must persist for two consecutive financial years before it has any consequences. Thus, a one-off excess has no immediate impact.

Transitional provision

However, through the law of 15 May 2024, a transitional provision was provided for the regulation on the new criteria for the size of companies. As a result of this transitional provision, the size of a company is determined exceptionally and for once on the basis of one (the only) financial year starting after 31 December 2023. Exceptionally, therefore, the figures of the two previous financial years are disregarded.

What if my financial year does not coincide with the calendar year?

The Accounting Standards Commission (CBN) has provided clarifications on how to apply these new size criteria in a new advice 2024/07. In particular, the CBN advice addresses the situations where a company's financial year does not coincide with a calendar year and when, consequently, the size criteria should be assessed.

From when do the new thresholds apply?

The increased size criteria must be used for a company's first financial year that started after 31 December 2023.

What are the implications of being classified as a micro, small or large company?

Financial statements

Large or listed companies and companies that can be considered public interest entities must prepare financial statements based on the full schedule.

Micro and small companies have the option to prepare financial statements based on an abbreviated schedule. Micro companies are even allowed to use a micro schedule, further reducing the administrative burden.

Annual report

Along with the annual accounts, the governing body of a company has to prepare an annual report on their company policy.

Micro and small companies are exempt from this, unlike large companies.

Auditor

Finally, micro and small companies do not have to appoint a statutory auditor. An exception to this exemption applies to companies that may, however, be considered a small company, but are listed or a public interest entity.

Conclusion

The new thresholds for classifying micro, small and large companies have been raised by the law of 28 March 2024. This means that companies are less likely to fall under the stricter regime of larger companies. Normally, the thresholds must be exceeded for two consecutive financial years to take effect, but a transitional provision means that a company's size will be determined once based on the financial year starting after 31 December 2023.

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