Focus on SME: the ‘engine’ of the economy

No less than 99% of all European companies are SMEs: a total of no less than 24 million companies, accounting for two-thirds of total private-sector employment. SMEs are therefore often referred to as ‘the engine of the economy’. The EU’s long-term prosperity depends strongly on these firms, and the important role they play in achieving the transition towards a green, digital and resilient economy.

Yet, SMEs have been disproportionately affected by a whole series of major setbacks in recent years: the COVID-19 crisis, the Russian war against Ukraine, the energy crisis, rising inflation and labour market tightness. Partly as a result, SMEs still score below 2019 levels in 2023. That is why the European Commission – after years of high uncertainty – is coming up with plans for a brand-new SME Relief Package.

What exactly is this ‘SME Relief Package’?

The new SME Relief Package consists of several plans aiming to boost the competitiveness and resilience of SMEs in Europe. Briefly, these proposals include: reducing the ‘regulatory burden’ on companies, strengthen fairness in the business environment across the Single Market, improving the investment climate and SMEs’ access to finance, and supporting SMEs’ growth into mid-caps, to unleash their full economic potential.

As part of these plans, the European Commission proposes two brand-new legislative measures:

• a Regulation on late payments in commercial transactions. This proposal tackles ‘payment delays’, an unfair practice that compromises the cash flow of SMEs and hampers resilience of supply chains. It introduces new rules for a stricter maximum payment limit of 30 days, fixes legal gaps and ambiguities in the current Directive, ensures an automatic payment of accrued interest (and compensation fees), and introduces new measures to protect companies against bad payers.
• a Directive establishing a Head Office Tax System for SMEs. This proposal is interesting for SMEs doing business across borders (such as those in border regions): it will give them the option to interact with only one tax administration (the ‘Head Office’) instead of multiple tax systems. SMEs operating in different Member States will be able to fully maximise the freedom of establishment and the free movement of capital without being hindered by unnecessary tax related obstacles.

Other significant promises to help SMEs

In the communications accompanying the new Relief Package, the Commission also promises:

• to simplify and digitalise cumbersome administrative procedures for SMEs (such as declarations and certificates for the posting of workers).
• to keep working towards the previously promised reduction (25%) in SME reporting requirements.
• to appoint a ‘SME Envoy’ to advice the EU on SME issues, and advocate SME interests externally.
• to review the current thresholds of the SME definition by the end of 2023. A harmonised definition will be developed with an additional focus on the growth of small mid-cap companies.
• to keep supporting training actions provided by the Large Skills Partnerships to match skills with the needs of SMEs from the European labour market.

And last but not least: the Commission promises to boost the availability for funding for SMEs (on top of the >200 billion euro that is already available under various EU funding programmes running until 2027). This includes ensuring that the extra budget (7,5 billion euros) for the funding guarantee capacity under the InvestEU programme, will also be available to SMEs via the ‘Strategic Technologies for Europe Platform’ (STEP).

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