On 1 January 2016, the Act and Royal Decree of 18 December 2015, which implement the Accounting Directive (Directive 2013/34/EU of 26 June 2013), entered into force. The changes resulting from the Act and the Royal Decree are in line with expectations (cf. Eubelius Spotlights September 2015). The most important differences are described below.
Revised definition of "small company"
The thresholds for qualifying as a small company (article 15 Companies Code) have been raised. As of 1 January 2016, a company is considered "small" if it 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 during the financial year: 50 (no change);
- Annual turnover, excluding VAT: EUR 9,000,000 (before: EUR 7,300,000); and
- Balance sheet total: EUR 4,500,000 (before: EUR 3,650,000).
These criteria remain within the ranges set out in the Directive and are essentially a delayed adjustment for indexation, as the threshold amounts were last updated more than ten years ago.
Until recently, companies with an average number of employees exceeding 100 were automatically characterised as large companies. The legislator removed this exception so that companies with over 100 people on the staff can still qualify as small companies. However, this criterion has not completely disappeared, since the legislator requires that companies with a works council must communicate their (full) annual accounts to that body. The general meeting of shareholders is only required to approve the accounts in abridged form. As a consequence, the board of directors is the sole body responsible for the preparation and approval of the full annual financial accounts. It is recommended that the board of directors should provide the (full) annual accounts to the general meeting of shareholders in due time.
Introduction of the micro-company
In addition, the legislator has introduced a new category of company: the micro-company (article 15/1 Companies Code), i.e. a company which 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 during the financial year: 10;
- Annual turnover, excluding VAT: EUR 700,000; and
- Balance sheet total: EUR 350,000.
The micro-company becomes a sub-category of the small company, and falls under the general law applicable to annual financial accounts. The administrative requirements governing this category of company are considerably simplified. For instance, the micro-company will be allowed to set up its annual financial accounts according to a "micro-model", which will be implemented through a Royal Decree.
From "small group" to "group of limited size"
The small group, governed by article 16 of the Companies Code, has also been updated, and has been renamed "group of limited size". The thresholds are raised, and a company is part of a group of limited size as soon as it exceeds, on a consolidated basis, two of the following thresholds:
- Average number of employees during the financial year: 250 (no change);
- Annual turnover, excluding VAT: EUR 34,000,000 (before: EUR 29,200,000); and
- Balance sheet total: EUR 17,000,000 (before: EUR 14,600,000).
Calculation of thresholds
An important change concerns the calculation of the thresholds, which previously were always calculated on a consolidated basis in a group context. A "small" company within a large group would qualify ipso facto as a "large" company. Today, this calculation on a consolidated basis only applies to parent companies and consortia. This means that a small company within a large group will also benefit from the more favourable regime applicable to SMEs. As expected, however, the legislator will continue to calculate on a consolidated basis for tax purposes. As such, a company within a large group will remain a "large" company for tax purposes. Thus, the impact of the implementation of the Accounting Directive remains limited to the indexation of the threshold amounts.
Another new feature is the corporate law anti-abuse provision: when a company is incorporated for the sole purpose of avoiding certain information-reporting obligations, the calculation will continue to apply on a consolidated basis.
A significant departure from the initial scheme is that the consequences of exceeding or dropping below the above-mentioned thresholds will only take effect after two financial years (on the basis of the so-called "consistency principle"). In other words, the status of a company will not be affected by a one-off move above or below the thresholds. As a result, reporting requirements (under either the abridged or the full model) will become more stable and predictable.
Transitional regime
The Act of 18 December 2015 entered into force on 1 January 2016, but it provides for a transitional regime.
Under that regime, on the first financial year starting after 31 December 2015 a company should only assess whether it exceeds more than one of the criteria of the new article 15 of the Companies Code on the balance sheet date of the last completed financial year. A company which qualified as large in 2015, but which exceeds only one of the criteria, will qualify as a small company as of 1 January 2016.
As of the second fiscal year starting after 31 December 2015, the consistency principle will be in full force: if more than one criterion of article 15 of the Companies Code is exceeded (or is no longer exceeded), it will only have an impact if the situation continues over two consecutive fiscal years. If the same company exceeds more than one criterion on balance sheet date 31 December 2016, it will still qualify as small. The company will only qualify as large if it again exceeds one of the criteria at the end of the next financial year.
A company that qualified as large in 2015, but which at balance sheet date 31 December 2015 exceeded only one criterion of the new article 15 of the Companies Code will be considered as a small company as of 1 January 2016. If on balance sheet date 31 December 2016 this company exceeds more than one criterion, it will still qualify as small. The company will be considered large only if it exceeds more than one criterion again in the next financial year.
Conclusion
Any change to the SME thresholds has an important practical impact for the companies concerned: SME status is an important starting point for the application of certain company law exemption regimes. For example, SMEs may prepare an abridged form of annual accounts (article 93 Companies Code), they are exempt from preparing full annual reports (article 94 Companies Code) and they are exempt from appointing a statutory auditor (article 141, 2° Companies Code). There are also numerous tax advantages.
The legislator decided to adjust the threshold amounts for indexation and, in many cases, no longer calculates on a consolidated basis. Undoubtedly, this will result in an increase in the number of SMEs. However, the impact is limited in many cases, since its application is limited in various ways. Indeed, a company with more than 100 employees is still required to prepare full annual accounts for the purpose of fulfilling its information requirements towards the works council, and the tax legislator will continue to calculate the thresholds on a consolidated basis.