Micro-companies could be exempted from having to draw up annual accounts under an amendment to EU accounting rules approved by the Legal Affairs Committee on Thursday. However, these exemptions would have to be granted by EU Member States, and the companies would still have to keep records of their business transactions and financial situation. Parliament is to vote on the amendment in February.

About 7.2 million EU companies are subject to reporting rules under the EU accounting directives. Some 5.4 million (around 75%) of these are "micro-entities". The proposal voted on Thursday in the Legal Affairs Committee would enable Member States to simplify the business environment for micro-companies by lifting the reporting requirements that apply to them, so as to enhance their competitiveness and release their growth potential.

The exemption from having to draw up annual accounts would apply to companies that meet two of the following criteria: balance sheet total under €500,000, net turnover under €1,000,000 and/or average of 10 employees during the financial year.

Given that the numbers of businesses eligible for exemption will vary greatly from one Member State to another and that their activities have no bearing on cross-border trade or the functioning of the single market, Member States should take account of the differing impact of the threshold values when implementing the directive at national level, added the committee.

Records of business transactions and financial situation

To address concerns that an exemption from accounting duties could hamper internal organisation and reduce transparency and access to information, the Legal Affairs Committee made it clear that that micro-entities must still be subject to the obligation to keep records that show the company’s business transactions and financial situation “as a minimum standard”.

The Proposal on the annual accounts of certain types of companies as regards micro-entities  was presented by the Commission on February 2009, and previously it had been flagged in the European Economic Recovery Plan in November 2008 .The Legal Affairs Committee proposal follows up all this proccess to exempt very small undertakings (micro-entities) from the scope of the accounting directives. This proposal follows that request. This proposal is also part of the EU's "Simplification Rolling Programme", a key priority under its "Better Regulation" agenda.

A study mentioned in the Commission's impact assessment concluded that that the average per company cost of  complying with the requirements of the accounting directives is €1,558. Out of this amount, the administrative burden (i.e. collecting and processing information only to satisfy legal obligations without a real business need) is €1,169.

If all Member States were to exempt micro companies and did not impose additional requirements, the proposal could save an estimated at €6.3 billion.