Adjustment of size criteria for companies

Rising inflation in recent years has had an unexpected impact on many Belgian companies that are ‘small’ according to the definitions of the Companies and Associations Code (CAC). Higher inflation has meant that their turnover and balance sheet total have increased sharply. This may seem a positive development at first glance, but it has sometimes caused them to lose their status as a ‘small company’.

A company is ‘small’ if it does not exceed more than one of the following criteria: 50 employees, a turnover of €9,000,000 and a balance sheet total of €4,500,000. These levels had not been raised since 2015. When a company became ‘large’, there are unwelcome consequences: the loss of tax breaks and the need to comply with stricter rules regarding the form of the annual financial statements and associated publication requirements.

The European Commission’s action and its implementation in Belgian legislation

To deal with this problem, the European Commission decided in October 2023 to modify the criteria. The modifications took place in Belgium on 27 March 2024, and the higher cut-off points apply to financial years starting after 31 December 2023.  

From now on, a company will be ‘small’ if it does not exceed more than one of the following cut-offs on the balance sheet date of the most recently closed financial year: 

• annual average workforce: 50 (unchanged)
• annual turnover, excluding VAT: €11,250,000 (instead of the previous €9,000,000)
• balance sheet total: €6,000,000 (instead of the previous €4,500,000). 

The cut-offs for a ‘micro company’ have also been modified. A micro company is now defined as a small company with legal personality that is not a subsidiary or parent company on the year-end date and that does not exceed more than one of the following cut-offs:

• annual average workforce: 10 (unchanged)
• annual turnover, excluding VAT: €900,000 (instead of the previous €700,000)
• balance sheet total: €450,000 (instead of the previous €350,000).

In addition, the cut-offs have been modified for a ‘group of limited size’. A group is ‘of limited size’ if, on a consolidated basis, no more than one of the following cut-offs is exceeded:

• annual average workforce: 250 (unchanged)
• annual turnover, excluding VAT: €42,500,000 (instead of the previous €34,000,000)
• balance sheet total: €21,250,000 (instead of the previous €17,000,000).

If a group of companies is not required under the CAC to prepare consolidated annual financial statements, assessing the turnover and balance sheet total limits on a consolidated basis could entail additional administrative burdens. 

To prevent consolidation from having to take place solely in order to assess the size criteria, a parent company may choose to simply add together the turnover and balance sheet totals of all affiliated companies. The cut-off amounts for turnover and balance sheet total are increased in this context by 20%; this is known as the aggregated method of calculation. 

This means that the new cut-off amounts are, for an ‘SME company’:

• annual turnover, excluding VAT: €11,250,000 + 20% = €13,500,000
• balance sheet total: €6,000,000 + 20% = €7,200,000

and for a ‘micro company’:

• annual turnover, excluding VAT: €900,000 + 20% = €1,080,000
• balance sheet total: €450,000 + 20% = €540,000

Entry into force

For the first financial year beginning after 31 December 2023 (for companies that draw up their accounts for the calendar year, this means the financial year from 1 January 2024 to 31 December 2024), the size of the company is determined on the basis of the figures for the next financial year to be closed. This means that the company is classified as ‘small’ or ‘large’ on the basis of the data for the financial year ending 31 December 2024 itself and taking into account the new increased cut-off amounts. 

However, for the following financial year, 2025, the figures for the two previous financial years, i.e. 2023 and 2024, will be taken into account on the basis of the ‘consistency principle’ to determine whether the company is considered ‘small’ or ‘large’. The company’s status for the financial year 2025 is therefore determined on the basis of the figures as of 31 December 2023 and 31 December 2024, taking into account the new, increased cut-offs.

An example may make this clearer:

A company has exceeded only one of the new, increased cut-offs on the balance sheet date of 31 December 2024. Its annual turnover is €11,700,000, which is higher than the new cut-off of €11,250,000; however, both the balance sheet total of €4,700,000 and the workforce of 44 employees remain below the new, increased levels. As a result of the one-off suspension of the consistency principle, the fact that only one cut-off point is exceeded is considered sufficient to classify the company as 'small'.

Subsequently, for the financial year 2025, the consistency principle will come into effect again, but with reference to the new, increased cut-offs. The company has only exceeded one (new) cut-off point across the financial years 2023 and 2024, which means that it will be considered a small company for 2025.

Closing dates

For the closing dates of both 31 December 2025 and 31 December 2026, the company will continue to be considered a small company due to the consistency principle. However, since it exceeds the cut-off amounts in both years, it will be a ‘large’ company for the closing date of 31 December 2027.

The above explanation is also confirmed by the Accounting Standards Committee (CBN/CNC) in their advice issued on 11 September 2024 (CBN/CNC advice 2024/07).

Tax impact

If a company is ‘small’, it will be able to apply certain tax breaks. The raising of the cut-off levels means that more companies will once again be able to take advantage of these favourable measures.

The tax breaks include:

• a reduced corporate tax rate of 20% on the first tranche of €100,000 (instead of 25%) if certain conditions are met;
• the possibility of applying the reduced withholding tax rate for dividends (VVPRbis) to qualifying capital contributions;
• the possibility of creating a liquidation reserve (VVPRter);
• the possibility of applying an investment deduction, namely the basic deduction of 10% that will come into effect on 1 January 2025 on fixed assets acquired or developed;
• no tax surcharge due to missing advance payments during the first three financial years after incorporation;
• the possibility of raising capital through tax-efficient crowdfunding.

Various tax breaks relating to employment / withholding tax also apply to ‘small’ companies.