SME Status

What is SME status?

SME status (German: KMU-Status; SME stands for small and medium-sized enterprises) refers to the classification of a company as a micro, small or medium-sized enterprise under the definition of the European Commission. What is measured is the number of employees as well as annual turnover or annual balance sheet total, including shareholdings of 25% or more in both directions. The check is thus similar to looking at a household rather than a single person: anyone closely connected with others is measured together with their figures.

The definition comes from Recommendation 2003/361/EC and has been taken over in substance as Annex I into the General Block Exemption Regulation (Allgemeine Gruppenfreistellungsverordnung, AGVO). This is the EU regulation under which certain state aid is permitted without individual approval by the European Commission. The SME definition is used by most European and German funding programmes and also by funding bodies in other EU states, such as the Austrian Research Promotion Agency (FFG). The status is evidenced in the funding application by an SME declaration. In funding rounds and company acquisitions, it becomes relevant because new shareholders or an acquirer can change the classification.

SME thresholds and size classes

The definition distinguishes three size classes (as at 2026). The number of employees is a fixed limit; for the financial figures, it is sufficient to meet one of the two values.

• Medium-sized enterprise: fewer than 250 employees and annual turnover of at most EUR 50 million or an annual balance sheet total of at most EUR 43 million.
• Small enterprise: fewer than 50 employees and annual turnover or annual balance sheet total of at most EUR 10 million.
• Micro enterprise: fewer than 10 employees and annual turnover or annual balance sheet total of at most EUR 2 million.

Employees are counted in annual work units: full-time staff employed throughout the year count in full, part-time staff and those not employed throughout the year proportionately. Trainees and employees on maternity or parental leave are disregarded. Turnover is taken without value added tax.

The data of the last closed accounting period form the basis, calculated on an annual basis. Newly founded companies without a closed financial statement use, in good faith, estimated values for the current financial year. If a company exceeds a threshold, it loses the status only if this happens in two consecutive financial years. If, by contrast, the shareholding structure changes, for example through an acquisition by a large company, the status can lapse immediately according to the Commission's user guide to the SME definition.

Autonomous, partner and linked enterprises

The thresholds apply to the enterprise with its shareholding relationships, not to the individual company:

• Autonomous enterprise: It holds 25% or more of the capital or voting rights in no other enterprise, and no other enterprise holds such a share in it. Only its own data count.
• Partner enterprise: A shareholding of 25% or more in one direction or the other, without a link existing. The partner's data are added proportionately, according to the higher of the two shares of capital or voting rights.
• Linked enterprise: One enterprise controls the other. This is the case above all if it holds the majority of the voting rights or can appoint or remove the majority of the members of the management or supervisory body. A controlling influence based on a contract or the articles is equivalent. The data are added in full.

A link also arises through natural persons if the same person or group of persons controls several enterprises that operate in the same or an adjacent market. Further companies of the founders therefore belong in the check.

The exception for certain investors

An enterprise remains autonomous even if certain investors reach or exceed the 25% threshold, as long as they are not linked to it. These include public investment corporations, risk capital companies (venture capital companies and funds), institutional investors, universities and non-profit research centres and small autonomous local authorities. Business angels also belong here, provided their investments in the same enterprise do not exceed EUR 1,250,000 in total. The exception ends as soon as such an investor reaches the majority or exercises controlling influence. Usual rights as a shareholder do not establish controlling influence under the definition, as long as the investor does not interfere in the management.

For the public sector, a separate rule applies outside this exception. If public bodies, alone or jointly, control 25% or more of the capital or voting rights, the enterprise is not an SME.

SME status in a funding round and company acquisition

A funding round can change SME status without anything changing in the operating business. What matters is who holds how much after the round. A venture capital fund with a minority stake generally falls under the exception for risk capital companies. A corporate investor (corporate venture capital), that is, the investment arm of an established group, by contrast, generally makes the company a partner enterprise from 25%. Its group figures are then added proportionately; with a majority, it becomes a linked enterprise, and they count in full. For a larger group, this is regularly enough to exceed the thresholds.

In a company acquisition, the status regularly ends on completion if a large company acquires; buyers set future funding rates correspondingly lower in the valuation. For ongoing funding, the circumstances at the time of approval generally matter; whether a later loss of status has consequences is governed by the respective grant award notice.

Significance of SME status for funding rates and access to funding

Some programmes are open only to SMEs or only to small enterprises, such as the INVEST grant. State aid law permits higher funding rates for SMEs, that is, a higher share of the funding in the eligible costs. For industrial research projects, the AGVO provides a basic intensity of 50% of the eligible costs, for experimental development 25%. Medium-sized enterprises can receive 10, small enterprises 20 percentage points more (as at 2026, under the AGVO in force until the end of 2026). For the research allowance, SMEs can apply for an increase from 25% to 35% of the assessment base for expenses after 27 March 2024.

An incorrect SME declaration is not a formal error. If it later turns out that the status did not exist, the funding body can revoke the notice and reclaim the excess funding, generally with interest. The declaration therefore belongs among the documents requested in a due diligence and reconciled with the shareholder structure and annual financial statements.

Worked example: checking SME status after a funding round

According to its last annual financial statement, a technology GmbH (German limited liability company) has 60 annual work units, EUR 8 million turnover and EUR 12 million balance sheet total. On its own, it is a medium-sized enterprise. In a funding round, 30% of the shares are to go to a new shareholder. The choice is between a venture capital fund and an industrial group with, on a consolidated basis, 900 employees, EUR 150 million turnover and EUR 120 million balance sheet total.

• Fund variant: The shareholding falls under the exception for risk capital companies, provided the fund obtains no controlling influence. Only the company's own data count, and SME status is retained.
• Group variant, employees: 60 + 30% × 900 = 60 + 270 = 330 annual work units, that is, above the limit of 250
• Group variant, turnover: 8 + 30% × 150 = 8 + 45 = EUR 53 million, that is, above EUR 50 million
• Group variant, balance sheet total: 12 + 30% × 120 = 12 + 36 = EUR 48 million, that is, above EUR 43 million
• Result: With the group as a partner enterprise, the GmbH loses SME status; the number of employees alone already rules it out.
• Effect on the research allowance with EUR 1.2 million of eligible expenses per year: 35% gives EUR 420,000, 25% gives EUR 300,000, and the difference is EUR 120,000 per year.

With a shareholding of 20% by the group, the GmbH would remain autonomous, provided the group obtains no controlling influence.

Distinction: SME status, HGB size classes and Mittelstand

• Size classes under Section 267 of the German Commercial Code (HGB): govern preparation, audit and disclosure obligations in the annual financial statement, follow their own thresholds and look at the individual company. They say nothing about the status under funding law.
• Single undertaking within the meaning of the de minimis regulation: groups companies together for the ceiling on minor aid (de minimis aid). The term resembles the linked enterprise but does not cover partner enterprises.
• Mittelstand: an economic, often owner-related term without uniform thresholds, which has no significance under funding law.

Common mistakes

• Only own figures checked. Anyone who does not include partner and linked enterprises submits an incorrect declaration, even if the company itself is small.
• Exception for investors assumed. It applies only to the investor groups named, for business angels only up to the investment limit and always only without controlling influence.
• Grace period applied wrongly. The two-year rule protects against a loss of status through growth, not against the consequences of an acquisition.
• Status checked only at the time of application. If the effect of a funding round is considered only after notarisation, the size of the shareholding and the investor's rights can no longer be shaped.
• Employees counted wrongly. Counting heads instead of annual work units or leaving out working shareholders distorts the most important figure in the check.

Frequently asked questions

Does a company lose SME status immediately if it exceeds a threshold?

No, not through growth. The status changes only when the thresholds are exceeded in two consecutive financial years. If the shareholding structure changes, by contrast, the change can take effect immediately.

Does a shareholding by a venture capital fund cost the SME status?

As a rule, no, as long as the fund holds no majority and exercises no controlling influence. Risk capital companies are among the investors whose shareholding does not lead to aggregation even from 25%.

How can SME status be checked and evidenced?

In three steps: classify the shareholdings (autonomous, partner or linked), add up the data accordingly and compare them with the thresholds. The Commission's user guide on this is made available, among others, by the Federal Office for Economic Affairs and Export Control (BAFA); for EU programmes, there is an online self-assessment tool from the Commission. The status is evidenced by an SME declaration in the funding application; funding bodies can require annual financial statements, the list of shareholders and information on shareholdings.

Do the founders count towards the number of employees?

Yes, provided they work regularly in the company and draw financial benefits from it. Shareholder-managing directors are therefore generally counted.

The Roemer Capital view

If a corporate investor or a group company is to take a stake, we play through before the negotiations how the planned shareholder structure affects SME status. Classification under funding law is handled by the tax adviser or the company's specialised partners; in the financial model, we calculate what a change of status means for the research allowance and ongoing funding.

The status therefore belongs in the comparison of investor offers. A higher offer from a strategic investor is not automatically the better one if it costs funding rates that a financial investor would leave untouched.