The EU SME definition: thresholds, partner and linked enterprises, and why it matters for funding in Germany

In EU law, a company is a small or medium-sized enterprise (SME, in German KMU) if it employs fewer than 250 people and has either an annual turnover of no more than EUR 50 million or a balance sheet total of no more than EUR 43 million. The rules come from Commission Recommendation 2003/361/EC and are used by German and EU funding programmes alike. The catch for many international founders: shareholdings and group links are counted too, so a small German entity owned by a larger group often does not qualify.

The thresholds

Staff are measured in annual work units (AWU, German Jahresarbeitseinheiten). One full-time employee working all year equals one AWU; part-time and seasonal staff count proportionally. Apprentices, students in vocational training and staff on maternity or parental leave are not counted.

You use the figures of the last closed financial year. Status only changes if the thresholds are crossed in two consecutive financial years, so one strong growth year does not cost you your SME status.

Autonomous, partner or linked

1. Autonomous enterprise: no holding of 25 % or more in either direction. Only your own figures count.
2. Partner enterprise: a holding of 25 % up to 50 % of capital or voting rights, upstream or downstream. The partner’s figures are added in proportion to the holding.
3. Linked enterprise: control, such as a majority of voting rights, the right to appoint most of the management, or dominant influence by contract. Figures are added in full.

Links through the same natural persons can also count if they control companies in the same or adjacent markets. Certain investors, such as business angels within set limits, universities and non-profit research centres, or small local authorities, do not create a partner relationship even at 25 % to 50 %. If public bodies control 25 % or more, the company is generally not an SME.

Worked example

These figures are invented. Company A has 40 AWU and EUR 8 million turnover. It holds 30 % of company B (100 AWU, EUR 20 million) and 60 % of company C (15 AWU, EUR 3 million).

On its own, A would be a small enterprise. Including B and C, it exceeds 50 AWU and EUR 10 million and is therefore medium-sized, which lowers the bonus it can receive.

Why SME status matters

• Research allowance (Forschungszulage): SMEs receive 35 % instead of 25 % of the assessment base on application. See our research allowance guide.
• GBER-based grants: small enterprises can receive up to 20 and medium-sized enterprises up to 10 percentage points more for industrial research and experimental development, as shown in funding rates and own contribution.
• EIC Accelerator: the programme targets start-ups and SMEs. Details in our EIC Accelerator guide.
• Consulting and start-up support: the BAFA consulting grant is aimed at SMEs, and KfW’s ERP start-up loan StartGeld excludes medium-sized and large enterprises.

How status is checked

You normally submit an SME declaration (KMU-Erklärung) as a self-assessment, listing staff, turnover, balance sheet total and all relevant holdings. In the EU Funding & Tenders Portal you provide this information in the participant register. Funding bodies may ask for annual accounts, shareholder lists or group charts, and incorrect information can lead to repayment.

A quick check:

1. List all shareholders upstream, including indirect holdings.
2. List your own holdings downstream.
3. Classify each: below 25 %, 25 % to 50 %, or control.
4. Add the figures proportionally or in full and compare with the thresholds.
5. Repeat for the previous year to apply the two-year rule.

For complex group structures, specialised advisers are listed in our grant consultant directory.

Sources

• EUR-Lex: Commission Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises
• European Commission: SME definition and user guide
• Research Allowance Act (FZulG)
• EIC Accelerator
• KfW: ERP start-up loan StartGeld (067)

This guide does not replace tax or legal advice; the programme guideline and the grant decision of the funding body are binding.