Are we headed to a more SME-friendly regime as of 1 January 2016?

These are just some of the consequences of the law of 18 December 2015 transposing the European Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings into Belgian law.

Thanks to this law and accompanying Royal Decree, administrative burdens for SME’s will decrease significantly.

1. Background

Directive 2013/34/EU fits into the overarching Small Business Act for Europe dating from 2008 by means of which the EU wants to create a lenient climate for SME’s in Europe.

The main objective consists of instigating the entrepreneurial spirit in Europe by (i) lowering administrative burdens and (ii) by creating favourable fiscal measures.

Consequently, both elements can be found in this law and are, as such, discussed separately below.

2. Administrative simplification for some companies

The modifications are two-fold: first of all the thresholds for small enterprises have been increased and secondly a new category of enterprises, the "micro-entity", has been created.

Increased thresholds for small enterprises

A small enterprise can choose to use condensed financial statements and therefore it can benefit from a simplified administration.
In order to be qualified as a "small enterprise", a company has to make sure it doesn’t exceed more than two out of three legal thresholds.
The transposing law has raised these thresholds, laying down, as of 1 January 2016, the following criteria:

Furthermore, the exception regarding the entities that, on average, have more than 100 employees, has been removed. If a company remained below the first two thresholds but had more than 100 employees, it automatically became "large". As of 1 January 2016, these companies with over 100 employees will only be "large" if yet another threshold is exceeded.

The consequence of this threshold increase is that, as of 2016, more ‘small’ companies will remain below these new thresholds.

Furthermore, a lot of companies will most likely remain "small" for a longer period of time.

Indeed, the transposing law states that if two of the aforementioned thresholds are exceeded, this will only have implications (and will therefore lead to requalification) if the thresholds are exceeded during two consecutive financial years (consistency principle).

Introduction of micro-entities

The creation of micro-entities is also part of the European initiative to lower the burdens of enterprises.

As of 1 January 2016, the micro-entity is introduced. The criteria, which have to be met at the end of the year in order to benefit from the related advantages, are:

In order to be considered a micro-entity, no more than one threshold can be exceeded.

On the other hand, when more than one threshold is exceeded, this will only have consequences if this occurs during two consecutive financial years. In other words: if a company exceeds more than one threshold in year 1, it can still correct this in year 2 without losing the qualification of "micro-entity".

There is, however, one major exception. If a company meets the conditions as set out above, but is a parent company or subsidiary, it can never be a micro-entity.

The Commission on Accounting Standards suggests that micro-entities should be considered a subcategory of small enterprises. This has also been written down in the law, in this way when an article refers to a ‘small’ enterprise, this will also cover the micro-entities, unless explicit reference of the contrary.

The most important consequence of this transposing law and the creation of the micro-entity is that this enterprise is exempt from making an annual report and only has to provide notes to the annual accounts to a limited extent. 

The way the micro-entities will have to draw up their annual accounts is described in the accompanying Royal Decree.

3. Fiscal measures

The qualification as ‘micro-entity’ does not only entail administrative simplification. 

The transposing law also introduces two favourable fiscal measures for these micro-entities.

The first measure determines that, as of assessment year 2016, people wanting to acquire shares of a starting micro-entity, can benefit from a tax reduction of 45% (only 30% in case of acquisition of shares of ‘small’ entities).

However, there are some limitations to this advantage; it is only for contributions in cash and it is only granted for participations up to EUR 100,000.00 per taxable period.

The second favourable tax regime that is instated concerns the payment of the withholding tax. It is provided that micro-entities not older than 4 years only have to transfer to the Treasury 80% of the withholding tax that they levy on salaries that they pay starting from 1 August 2015 to their employees (90% for small enterprises).

4. Conclusion

The Belgian government wanted to send a clear signal to the SME’s. From now on, these entities are exempt from certain administrative duties and fiscal burdens so that they can focus on their core task: managing the company. 

The legal changes provide a lenient regime for existing and future entrepreneurs and are, as such, more than welcome.