Europe amends rules for annual accounts for micro-entities

After the European Parliament the Council of the European Union approved the proposal on the annual accounts for micro-entities. Member States have the possibility to exempt micro-entities or small companies with less than 10 employees from their obligation to publish their annual accounts. Belgium now has to decide: will the Belgian micro-entities be exempt from their publication obligation of their annual accounts?

What are micro-entities?

A micro-entity is each company which on its balance sheet does not exceed the limits of two of the three following criteria:
- balance sheet total: 350.000€
- net turnover: 700.000€
- average number of employees during the financial year: 10.

A micro-entity is not the same as a micro-company. A micro-company is defined as a company with less than 10 employees and for which the turnover or the balance sheet total does not exceed 2 million €. This definition is only binding in certain specific cases (e.g. state support) or for the European framework program for research and technological development (see recommendation 2003/361/EC of 6 May 2003).

Amending Council Directive 78/660/EEC

Publishing their annual accounts triggers an important administrative burden for micro-entities or small companies. Europe has been working for several years to reduce this administrative burden. After the European Parliament the European Council has approved  the proposal to amend Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities (see Council Directive 2012/6/EU of 14 March 2012). The new rules should lead to administrative simplification. Actually all European micro-entities should publish their complete annual accounts. The European Union counts 5 million micro-entities, representing approximately three quarter of all companies. Member States have the option to keep this obligation or to exempt micro-entities from the obligation to publish their annual accounts. They do not exempt companies to draft simplified annual accounts.


A micro-entity can refer to a number of exemptions or simplifications:

exemption from accrual accounting: accrual accounting is the actual allocation of profit and loss to the correct accounting period. Accrual accounting will only stand for expenses related to raw materials and related products, value corrections, personnel expenditure and taxes. All other costs can be accounted for on cash basis.

exemption from the explanation with the balance sheet and profit and loss accounts: this exemption only applies when the most important information is mentioned in footnote on the balance sheet. This is a.o. information on amounts paid to directors, management and supervisory boards and information on the purchase of own shares.

exemption from the annual report: since non-listed small companies in Belgium should not draft an annual report, this is not relevant for Belgian companies.

exemption from publication or disclosure obligation of the annual accounts: the annual accounts should not be deposited (in Belgium with the National Bank). Condition hereto is that the balance sheet information is deposited with an indicated authority. This raises questions about the accessibility and transparency of financial data. The deposit costs for the annual accounts in our country are rather low and afterwards everyone can consult these data electronically and for free on the National Bank's website.

Transposition of the Directive in national legislation

Member States should now transpose the new European rules into their national legislation. They should therefore decide whether or not they take the option to exempt micro-entities from the publication obligation of their annual accounts. Since it concerns an option to implement exemptions and simplifications, there is no deadline to transpose the Directive into national legislation. But if important trade partners such as France and Germany make use of the possibilities foreseen in the Directive, while Belgium keeps the publication obligation for annual accounts, this can lead to distortion of competition.