Following a short consultation period, on 17 October 2023, the Commission adopted amendments to Article 3(13) of the Accounting Directive.  It amends the monetary thresholds for the categorisation of companies referred to in Article 3(1) to (7) to account for the impact of inflation which reached 24.5% in the euro area and 27.2% for the EU27 between 1 January 2013 to 31 March 2023. 

This is the first increase in size threshold since 2013 and will ensure that micro, small and medium-sized entities are not subject to many EU financial and sustainability reporting provisions applicable to larger companies.  As a consequence, the amendments increase the SME threshold by approximately 25% (slightly more in many cases after applying applicable rounding provisions).  In respect of medium/large companies, the net turnover threshold would be increased from €40 million to €50 million and the balance sheet threshold from €20 million to €25 million, reducing the scope of the application of the Corporate Sustainability Reporting Directive (CSRD) accordingly. 

The Commission estimates that approximately 6.0% of limited liability companies would see an alleviation in their reporting and audit obligations, which would be many thousands of companies.  Therefore thousands of companies that would otherwise be in-scope for reporting in 2026 under CSRD and, consequently under the EU Taxonomy Regulation, will instead fall outside of the regime.  The EU Commission estimates that this change to the scope of CSRD reporting would result in one-off cost savings of €150 million and savings of recurring annual costs of €700 million.

Next steps

Member States are required to apply these new thresholds at the latest from financial year 2024, with the possibility to opt for early application for financial year 2023.The Commission expects to adopt proposals in Q4 2023 with a requirement for Member States to apply transposing measures for financial years beginning on or after 1 January 2024 i.e. the first CSRD application date which will require initial reporting in 2025.

Our Sustainable Finance & Investment practice brings together a multidisciplinary global team to support our clients in this mission-critical area. 

This note is intended to be a general guide and covers questions of law and practice.  It does not constitute legal advice.

Authored by Emily Julier and Julia Cripps.

^{Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.}