SME classification: the Law 346/2004 thresholds and how to count partner and linked enterprises

An enterprise is an SME if it has fewer than 250 employees and, in addition, an annual net turnover of up to 50 million euro or total assets of up to 43 million euro. The rules are set by Law no. 346/2004 and by European Commission Recommendation 2003/361/EC. The category is not determined by the company's own figures alone: if the company has partner or linked enterprises, their data is added to its own, and the result may take it out of the micro category or even out of the SME category altogether.

In brief

• Definition: an SME is an enterprise with fewer than 250 employees and a net turnover of up to 50 million € or total assets of up to 43 million €.
• Legal acts: Law no. 346/2004 on stimulating the establishment and development of small and medium-sized enterprises, and Commission Recommendation 2003/361/EC.
• Micro-enterprise: fewer than 10 employees and a turnover or total assets of up to 2 million €.
• Small enterprise: fewer than 50 employees and a turnover or total assets of up to 10 million €.
• Medium-sized enterprise: fewer than 250 employees and a turnover of up to 50 million € or total assets of up to 43 million €.
• Partnership threshold: if a company holds, alone or together with linked enterprises, at least 25% of the capital or voting rights of another company, the two are partners. From a majority of the voting rights, the companies are linked.
• Document: the declaration on own responsibility concerning classification as an SME (annexes 1 and 2 to the law).

Which criteria are checked and what are the thresholds?

Three criteria are checked: the average annual number of employees, the annual net turnover and total assets. The employee criterion is mandatory. Of the two financial criteria, it is enough to meet one: a trading company with a high turnover can remain an SME if its assets do not exceed the threshold. The Commission's guide states explicitly that a company may exceed one of the financial thresholds without losing its SME status.

Turnover is taken excluding VAT and other indirect taxes (art. 6 para. (4) of the law). The data used comes from the financial statements of the previous financial year, approved by the general meeting. A newly established company that does not yet have approved financial statements estimates its data during the financial year and declares it on its own responsibility.

How are employees counted?

The average annual number of employees is calculated monthly, as the simple arithmetic mean of the daily headcount. The calculation includes:

• employees on permanent contracts;
• temporary employees, for the duration of their contract;
• owner-managers;
• partners who work permanently in the company.

Part-time employees are counted in proportion to their working time. Apprentices and students in vocational training are not counted, nor are people on maternity leave or childcare leave. The Commission's guide expresses headcount in annual work units (AWU): a full-time employee working the whole year counts as one unit, while part-time or seasonal staff count as fractions of a unit.

Autonomous, partner or linked: what is the difference?

An autonomous enterprise does not hold 25% or more in another company, and no other company holds 25% or more in it. Only its own data is taken into account.

A partner enterprise has a relationship of at least 25% (in capital or voting rights) with another company, without there being control. The partner's data is added to your own, in proportion to the percentage of the holding. If the percentage of capital differs from that of voting rights, the higher one is used.

Linked enterprises are in one of the situations set out in art. 4^4 of the law: one company holds the majority of the voting rights in another, can appoint or remove the majority of the members of its management bodies, exercises a dominant influence through a contract or a clause in the articles of association, or alone controls the majority of votes through an agreement with other shareholders. The data of linked companies is added in full (100%).

Beware of links through natural persons. Two companies are also linked when the same natural person, or a group of persons acting together, controls both of them, provided that the companies operate in the same relevant market or in adjacent markets. An adjacent market is a market located directly upstream or downstream.

Exceptions to the 25% threshold

A company remains autonomous even if 25% or more of its capital is held by certain investors, provided that they are not involved in its management. The exception covers public investment companies, venture capital companies and individual investors such as business angels (with a total investment of up to 1,250,000 €), universities and non-profit research centres, institutional investors, including regional development funds, and local public authorities. The EU Recommendation limits the exception for local authorities to autonomous ones, with an annual budget below 10 million € and fewer than 5,000 inhabitants. According to the Commission's guide, each of these investors may hold up to 50%, provided that they are not linked to the company being assessed.

There is also a reverse rule: a company is not an SME if at least 25% of its capital or voting rights is controlled by one or more public bodies or public entities (art. 4^5).

Worked example

Company A has 8 employees, a turnover of 1.5 million € and assets of 1.2 million €. Company B holds 30% of A. B has 20 employees and a turnover of 4 million €. A in turn holds 60% of company C, which has 5 employees and a turnover of 0.8 million €.

• Employees: 8 (A) + 30% × 20 (B, partner) + 100% × 5 (C, linked) = 19.
• Turnover: 1.5 + 30% × 4 + 100% × 0.8 = 3.5 million €.

On its own, A would be a micro-enterprise. With the combined data it has 19 employees, so it qualifies as a small enterprise. In a call for proposals reserved for micro-enterprises, A would not be eligible.

Two rules limit the chain of calculation. First: only partners immediately upstream or downstream are taken into account, not the partners of partners. Second: if a partner has linked companies of its own, their data is first added to the partner's data, and the total is then taken in proportion to the holding.

What happens if you exceed the thresholds?

Status is lost or gained only if the thresholds are exceeded, or respected, in two consecutive financial years (art. 6 para. (2)). An exceptional year therefore does not change the category. However, the Commission's guide specifies that the rule does not apply where the excess results from a change of shareholders, such as a merger or an acquisition. In that case, status is assessed on the structure at the date of the transaction, and it may be lost immediately.

The classification declaration and what evaluators check

Classification is based on a declaration on own responsibility, signed by the legal representative using the model in annex 1 to the law. Partner or linked companies also complete annex 2, with the calculation of the combined data. Employee numbers may be checked by the Labour Inspectorate, and financial data by the Ministry of Finance. If the declaration does not match reality, the control bodies draw up a report and refer the matter to the criminal investigation authorities where there are indications of an offence.

In EU-funded projects, evaluators usually compare the declaration with the balance sheet, with the trade register data on shareholders and with their holdings in other companies. Common mistakes:

• omitting companies controlled by the same individual shareholder on an adjacent market (for example, a supplier or a customer);
• using the percentage of capital when the percentage of voting rights is higher;
• including VAT in turnover;
• counting part-time contracts as full-time or including apprentices;
• using data from a financial year other than the last approved one;
• changes of shareholders after the close of the financial year that are not reflected in the declaration.

What this means for your business

Our recommendation: before any call, draw up the complete organisation chart of the group. Include all the companies in which individual shareholders hold stakes and note the CAEN code of each. Most rejections on this criterion stem precisely from links through natural persons that the applicant did not consider relevant. If the group is close to a threshold, calculate the classification on the last two approved financial years and avoid changes of shareholders during the evaluation period. You can carry out an initial check with the eligibility check.

Frequently asked questions

Can I be an SME if I exceed the turnover threshold?

Yes, if you have fewer than 250 employees and total assets do not exceed €43 million. To qualify as an SME it is enough to meet one of the two financial ceilings, while the employee criterion is mandatory.

If I own two companies in different sectors, are they linked?

A link through a natural person matters only if the companies operate on the same relevant market or on adjacent markets, that is, directly upstream or downstream. If the sectors have no connection, the companies are not linked under this rule.

What data does a newly established company use?

A company without approved financial statements estimates its data during the financial year and declares it on its own responsibility. The Commission's guide recommends that the estimate be supported, for example, by a business plan.

Does a venture capital fund holding 40% make me a partner enterprise?

Not necessarily. Venture capital companies are among the investors exempted from the 25% threshold, provided they are not involved, directly or indirectly, in managing the company. In that case the company can remain autonomous.

When do I lose micro-enterprise status?

When you exceed the ceilings in two consecutive financial years. The exception is a change of shareholding, for example an acquisition, after which the classification is reassessed immediately.

Official sources

• Law no. 346/2004 on stimulating the establishment and development of small and medium-sized enterprises, updated version (Legislative Portal)
• Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises (EUR-Lex)
• User guide to the SME definition, European Commission

Information checked on 27 September 2026. Conditions may be amended by the managing authority — check the guide in force before submitting.