Hungarian small and medium-sized enterprises (SME) enjoy numerous benefits, such as grant opportunities, non-repayable subsidies, discounted loans, tax benefits, and tax exemptions. However, in many cases, those who wish to determine whether they qualify as an SME must navigate a complicated maze of legal regulations.
In our country, as in others, SMEs are provided with various advantages that help them remain competitive against large corporations. However, in order to take advantage of these opportunities, they must overcome many legal and interpretational challenges.
At first glance, it may seem simple to determine whether a company is an SME or not. The law defines three main criteria:
- The number of employees does not exceed 250;
- The annual net revenue is up to 50 million euros;
- The balance sheet total is up to 43 million euros.
If the company meets either the employee count or financial thresholds, it is considered an SME. However, in reality, the situation is not always this simple.
Related Companies
One of the biggest pitfalls in SME classification is that when determining the thresholds, not only the company’s own data but also the data of other members of the corporate group must be considered. When evaluating the company, the data of related and partner companies must be added to the company’s own data.
Related companies are those in which one company directly or indirectly has more than 50% influence or control over another company. In this case, the data of related companies must be fully included in the company’s own data, even if the ownership share does not reach 100%. For example, if a company holds 60% ownership in a subsidiary, the full data of that subsidiary must be considered when determining the SME status.
Partner companies are those that are not related companies but in which the company’s influence exceeds 25%. In such cases, the level of influence is considered proportionally. For example, with a 35% share, only the corresponding proportion of the company’s data needs to be added.
Relatives
The scope of related companies is further complicated by the presence of family relations. According to the law, the businesses of family members are also considered related companies, meaning their data must also be included in the SME classification. This applies not only to immediate family members but also to other relatives, such as cousins or brothers-in-law. Therefore, it is important to include the data of family businesses when determining the SME status, which is not always a simple task.
The data of companies owned by jointly acting individuals must only be added if they operate in the same or adjacent markets. For instance, if a father works as a mason and his son works as a truck driver, their data must still be included, even if they are in completely different industries.
The Time Factor
Many people make a mistake regarding SME classification if they are unfamiliar with the so-called “two-year rule.” According to this rule, a company loses or gains its SME status if it exceeds or does not meet the defined thresholds in two consecutive years. Therefore, if there is an exceptional year, it is not yet certain that the category will change, as the change requires meeting the desired criteria for two consecutive years.
This rule also means that the exact SME classification can only be done correctly if the classification is performed every year, starting from the company’s establishment.
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