Very small companies could be exempted from having to draw up annual accounts, after MEPs approved changes to EU accounting rules in its plenary session. It would be up to each Member State to grant such exemptions, depending on the impact the directive would have in that country. Companies would in any case still have to keep records of their business transactions and financial situation.

After theLegal Affairs Committee proposal on reducing red tape for small companies in January, the full parliament has now endorsed a resolution which will save an important amount of money to these kind of business.

About 7.2 million EU companies are subject to reporting rules under EU accounting directives. Some 5.4 million (around 75%) of these are "micro-entities". They are primarily engaged in business at local or regional level, with little or no cross-border activity. This proposal would allow Member States to simplify the business environment for micro-companies by waiving the usual reporting requirements, thus boosting their competitiveness and 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
• Average of 10 employees during the financial year.

To address concerns that an exemption from accounting duties could hamper internal organisation and reduce transparency and access to information, the EP made it clear 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 cited in the Commission's impact assessment concluded that the average cost per company of complying with the requirements of the accounting directives is €1,558. Of this amount, the administrative burden (i.e. collecting and processing information purely 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.