Ownership relationships, the data of linked and partner enterprises, and, in certain cases, the owner’s other business interests may also affect the classification. As a result, a company that appears to be a small enterprise when assessed on a standalone basis may ultimately qualify as a medium-sized enterprise or even a large enterprise.
Who qualifies as a micro, small or medium-sized enterprise?
Enterprises are classified on the basis of three indicators:
- total headcount;
- annual net turnover;
- balance sheet total.
The headcount criterion must always be met. However, in relation to the financial indicators, it is sufficient for the enterprise to meet either the annual net turnover threshold or the balance sheet total threshold.
| Enterprise category | Headcount | Annual net turnover | Balance sheet total |
| Microenterprise | Fewer than 10 employees | No more than EUR 2 million | No more than EUR 2 million |
| Small enterprise | Fewer than 50 employees | No more than EUR 10 million | No more than EUR 10 million |
| Medium-sized enterprise | Fewer than 250 employees | No more than EUR 50 million | No more than EUR 43 million |
As a general rule, when converting the financial thresholds into Hungarian forints, the official foreign exchange middle rate published by the National Bank of Hungary and applicable at the end of the enterprise’s financial year must be used. In the case of a newly established enterprise, the exchange rate applicable on the last day of the year preceding the reporting year is relevant.
The enterprise’s own data are not always the only data that must be considered
One of the most important steps in determining SME status is establishing whether the enterprise under review qualifies as an autonomous enterprise, a partner enterprise or a linked enterprise. This determines whether the headcount and financial data of other enterprises must also be taken into account and, if so, in what proportion.
| Type of relationship | Typical relationship | Data to be taken into account |
| Autonomous enterprise | No partner or linked enterprise relationship exists. | Only the enterprise’s own data. |
| Partner enterprise | One enterprise holds at least 25% of the capital or voting rights of another enterprise, but there is no controlling influence or other relationship between the parties that would result in linked enterprise status. | A proportion of the partner enterprise’s data corresponding to the ownership interest or percentage of voting rights. |
| Linked enterprise | There is a majority of voting rights, controlling influence, a right of management, a right to appoint the majority of the members of the management body, or another form of control. | 100% of the linked enterprise’s data. |
There is no general rule under which an ownership interest exceeding 50% automatically excludes the possibility of classification as a partner enterprise. The decisive question is whether the ownership interest is accompanied by a majority of voting rights, controlling influence or another management or control right. Consequently, a partner enterprise relationship may theoretically exist even where the ownership interest is higher. In practice, however, an ownership interest exceeding 50% will usually result in linked enterprise status.
In the case of a partner enterprise, the higher of the ownership interest and the percentage of voting rights must be applied. For example, if an enterprise holds a 30% ownership interest but 40% of the voting rights in another company, 40% of the other company’s headcount, annual net turnover and balance sheet total must be taken into account.
In the case of a linked enterprise, the data are not included proportionately. Instead, the linked enterprise’s headcount and financial data must be added in full to the indicators of the enterprise under review. This may be necessary not only where there is a direct ownership or control relationship, but also where the relationship exists indirectly through several enterprises.
A common individual owner may also create a link between enterprises
A common mistake is to examine only direct ownership relationships between enterprises. In certain cases, however, two enterprises may also qualify as linked enterprises where the same natural person, or a group of natural persons acting jointly, exercises controlling influence over both enterprises.
This also requires the enterprises to carry out all or part of their activities in the same relevant market or in adjacent markets. An adjacent market may, for example, include successive stages in the production and sale of a product.
When determining SME status, it is therefore not sufficient to review only the companies owned by the applicant enterprise. The individual owner’s interests in other enterprises and the relationship between the activities of the enterprises concerned must also be examined.
State or municipal ownership must also be considered
As a general rule, an enterprise does not qualify as an SME if the state or a local authority directly or indirectly holds, individually or jointly, at least 25% of its capital or voting rights.
Certain categories of investors may be exempt from this rule. Therefore, where a state, municipal, institutional or venture capital investor is present, the ownership structure must always be examined in detail.
Which financial statements should be used?
As a general rule, the classification must be carried out on the basis of the most recent consolidated, annual or simplified annual financial statements approved by the person or body authorised to approve them.
As a general rule, SME status is not lost or acquired merely because the relevant thresholds are exceeded or no longer exceeded in a single year. The enterprise must exceed the relevant headcount or financial thresholds in two consecutive accounting or tax reporting periods, or fall below those thresholds in two consecutive periods.
Why is accurate SME classification important?
The size of an enterprise may determine whether it is eligible to participate in a funding programme, the aid intensity available to it and the types of benefits or incentives it may claim. European Union funding schemes linked to SME categories are also based on a combined assessment of headcount, annual net turnover, balance sheet total and relationships between enterprises.
The enterprise’s standalone data shown in the company register or financial statements may therefore not always be sufficient. A full SME assessment should be repeated particularly before submitting a funding application, following a change in ownership, in connection with an acquisition, or before or after the restructuring of a group of companies. An incorrect classification may result not only in the rejection of a funding application, but also in the recovery of aid that has already been granted.
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