Small and medium-sized enterprises (SMEs) are central to Europe's economic and social fabric. The EU's long-term prosperity depends on them. The 24 million European SMEs represent 99% of all businesses in the EU and provide two thirds of private sector jobs in the EU; they are also deeply embedded in local communities, particularly in rural areas. They account for more than half of value added in the EU's non-financial business sector, and are Europe's breeding ground for innovation, diversity and equality.
Volatility and unpredictability in the current economic context have made it more difficult for SMEs to do business. In the past years, they experienced difficulties in hiring new staff to meet an unexpectedly strong rebound in demand, while also having to master numerous new challenges. Inflation rates increased drastically, especially during 2022, provoking rises in interest rates, and reducing SMEs access to finance. Russia's war of aggression against Ukraine brought higher energy costs, while rapidly increasing raw material prices put even more pressure on small businesses.
SMEs have not yet returned to their pre-pandemic performance levels. When adjusted for inflation, SME value added for 2023 is forecast to remain 3.6% (against 1.8% for large enterprises) below its 2019 level). On the other hand, SME employment has barely recovered to pre-crisis levels. In real terms in 2022, SMEs in 12 out of the 14 industrial ecosystems experienced a decrease in value added. For 2023, a decline in value added is forecast for SMEs in all ecosystems. This makes it even more important to bring relief to SMEs in the EU so they can grow sustainably.
In addition to the major macroeconomic challenges of the years 2020-2023, SMEs experience difficulties on several other fronts: administrative burden, late payments, access to finance and availability of staff, and challenges related to their lifecycle to compete and grow (e.g. growing the SMEs to mid-caps, transferring the business, insolvency).
Providing short-term relief after years of high uncertainty, boosting long-term competitiveness, and strengthening fairness in the business environment currently tops the policy agenda.
With this Communication, the Commission presents actions to address the latest challenges that SMEs face, with a view to provide relief and to strengthen their competitiveness and resilience.
The Commission will help SMEs capitalise on the full potential offered by EU programmes. It has proposed to increase the capacity of the financing guarantee under InvestEU programme with €7.5 billion, to be made available through a new specific Strategic Technologies for Europe Platform (STEP) window, also available for SMEs. The InvestEU programme supports sustainable investment, innovation, and job creation in Europe. It helps Europe's SMEs access finance by providing more favourable financing conditions to them. In light of the significant over-subscription of the SME window of InvestEU, the Commission will work with Member States to reinforce it through budget transfers to their respective national compartments.
The Commission will also make it easier for SMEs to access sustainable finance. For example, by finalising the simplified reporting standards for listed SMEs under development by the European Financial Reporting Advisory Group (EFRAG) and ensuring they are proportionate. Moreover, a voluntary standard for non-listed SMEs will be developed. These measures will also limit the trickledown effect of sustainability reporting requirements for larger companies to SMEs in their value chains. The Capital Markets Union, the banking and the sustainable finance frameworks together aim to make it easier for SMEs to access the capital they need at the various stages of their development and to finance their sustainable transition.
The Commission will also work on easier access to public procurement markets for SMEs, helping unlock their potential with a positive impact on growth and on economic recovery. Actions proposed include promoting the use of standardised provisions in procurement documents, especially for low-risk or low-value contracts, making it easier for SMEs to handle tender documents. They also involve the organization of workshops in each Member State to develop a dialogue between public authorities and SME business organisations to improve SME participation in strategic public procurement.
To foster liquidity, the Commission has also proposed to replace the existing Late Payment Directive by a new regulation which will set binding maximum payment terms at 30 days for business-to-business transactions. It will also make the payment of compensatory fees and interest legally automatic in case of late payment. This will strengthen the competitiveness of SMEs by improving the payment discipline of all concerned actors, and protect SMEs against the negative effects of payment delays.
SMEs need a business-friendly regulatory environment to be productive, competitive and resilient. This requires policy makers to consider SME needs when preparing policy proposals. The Commission uses various regulatory tools to ensure a strong SME and competitiveness consideration in the policy making process. These include tools such as the reinforced SME test to analyse the impact of its proposals on SMEs, the newly introduced competitiveness check to report in an integrated manner on the competitiveness impacts on businesses (including SMEs), the SME filter to identify SME-relevant policy initiatives in the early stages of policy making, and the ‘one in, one out' approach to offset new burdens (€7,3 billion net cost savings in its first year of full application, 2022).
Moreover, the Commission has today proposed to establish a Head Office Tax System for SMEs. This would give SMEs operating cross-border through permanent establishments the option to interact with only one tax administration –that of the Head Office– instead of having to comply with multiple tax systems. This system will increase tax certainty and fairness, reduce compliance costs and distortions in the market that influence business decisions, while minimising the risk of double and over taxation and tax disputes.
The Commission will continue to strengthen checks and improve its better regulation processes to ensure that policies work for SMEs. These include improving how SME test is applied and encouraging the European Parliament and the Council to assess ‘on the spot' the impact on SMEs and competitiveness of their substantial amendments made during the co-legislative process to Commission's proposals. The Commission will appoint an EU SME Envoy to guide and advise the Commission on SME issues, to advocate SME interests to the outside world. The EU SME Envoy will report directly to the President (while also reporting to the Internal Market Commissioner on SME-related activities supported by his services), and will participate in Regulatory Scrutiny Board hearings with Directorates-General on initiatives that have a high potential impact on SMEs. In addition, the Commission will systematically consider the use of SME-friendly provisions in its new legislative proposals, for example longer transition periods for SMEs, SME-targeted guidance, consideration of the impact of delegated and implementing acts on SMEs, and review and sunset clauses in secondary legislation. Other actions include the commitment to engage with executive and decentralised agencies to promote good practices for SME support with a view to make it easier for SMEs to use the agencies' services; and to work with Member States to promote experimentation and innovation for start-ups through regulatory sandboxes.
The Commission will also present in October 2023 additional measures to rationalise reporting obligations, benefiting both companies and administrations. They include for instance adjusting the thresholds of the Accounting Directive by reflecting the effects of inflation. This will lead to a more proportional approach and result in a number of companies being excluded from the scope of the Directive and the associated reporting obligations. Micro, small and medium-sized enterprises will benefit from this adjustment of the thresholds of the Accounting Directive. Another proposal is the creation of an electronic format (e-Declaration) for the declaration of posting of workers, which will significantly reduce administrative burden and compliance costs for employers, allowing them to use a streamlined declaration in a single format in their own language in all participating Member States. This will complement ongoing work to simplify and digitalise the cumbersome procedure related to the so-called A1 document on social security rights.
The way SMEs and their workers learn, take part in society, and lead their everyday business is changing with technological developments, global and demographic challenges. SMEs need skilled staff to deal with these changes and to ensure their resilience while contributing to society, productivity, and innovation.
To achieve this, the Commission is building on the European Skills Agenda and on the EU Pact for Skills to both strengthen the skills for sustainable competitiveness of SMEs and to better make use of all available skills.
To strengthen skills, the Commission will establish Net-Zero Skills Academies for industries like hydrogen and solar. It will also launch more skills partnerships, assist with energy efficiency measures, offer compliance training for new legislation, and facilitate access to language technologies.
To make the most of available skills the Commission will, amongst other actions, present by the end of 2023 a plan to recognise qualifications of third-country nationals to address skill gaps, and identify SME skills needs in industrial ecosystems. Transition pathways launched for various sectors like tourism, construction, and textiles also propose actions to be taken by Member states, like SME compensation for vocational training investment, skills profiles in education, and aligning curricula with industry needs. The Commission will also promote jobs in tourism, create textile training partnerships, organise digital SME matchmaking events, and empower underrepresented groups like women and youth entrepreneurs.
The Commission has been supporting companies throughout their entire life cycle, from the start-up phase to the growth and maturity phases. It will continue to work with Member States to facilitate the creation of new businesses by reducing start up times and costs. It will also continue to support Member States in improving their national business transfer ecosystems and to promote the exchange of best practices.
Since approximately 50% of new businesses fail during their first five years, the Commission's insolvency policy supports entrepreneurs who are at risk of insolvency by providing early warning tools, and those who have faced bankruptcy to ensure that they can quickly get a second chance. The Commission will report on the application and impact of the Directive on restructuring and insolvency by mid-2026.
The Commission will also pay special attention to the capacity of SMEs to grow to mid-caps. Mid-caps are an essential part of the EU economy: small mid-caps (250-499 employees) and large mid-caps (500-1499 employees) together account for more than 13% of overall employment in the European private sector.
The Single Digital Gateway (SDG) is an ambitious EU eGovernment initiative launched in 2020 that helps Member States to digitalise their public administrations. Through its official Your Europe web portal, the SDG helps businesses and citizens to better understand and use their rights and the opportunities offered by the Single Market. It improves the European business environment for companies, notably SMEs, by cutting red tape, and simplifies the daily life of EU citizens. Concretely, it sets up an EU one-stop shop that provides businesses and citizens with information about rules and procedures relating to many areas (e.g. employees, goods, taxes, or travel, residence, healthcare…), and with assistance services.
By the end of 2023, Member States shall ensure that administrative procedures in 21 key areas such as starting, running and closing a business or working in or moving to a different Member State) are fully accessible online. They will also have to set up the ‘Once-Only Technical system', allowing for the automated cross-border transfer of information needed to complete these procedures. The SDG implementation report published today provides an assessment of how the SDG functions and describes its next phase, setting out what should be done to deepen its impact.
The Platforms to Business Regulation (P2B) Regulation aims at ensuring a fair, transparent and predictable business environment for business users, in particular SMEs which depend on it to reach their customers across the Union.
Today, the Commission publishes its first preliminary implementation report which shows improvements of the digital business environment. Platforms are more transparent and fairer on some aspects such as terms and conditions and putting in place internal complaint handling systems. For instance, a majority of online platforms now give the reasons for suspending or terminating a company account in their terms and conditions, which allows them to have higher predictability when doing business online. However, its full potential has yet to be realised, due in particular to still limited compliance by online platforms, with some sectors more affected than others (retail, tourism). The report pinpoints the need to ensure a better enforcement by national authorities and to raise awareness among business users of their rights.
SMEs have been a constant priority in Commission policy, in particular since the beginning of this mandate. The Commission approaches the interests and expectations of SMEs in an integrated way by including SME aspects in a range of its policies. To this end, the Commission made a considerable amount of funding available to SMEs, helping them to harness the twin transitions and to strengthen their resilience with initiatives aiming to create market opportunities. The Commission expects that more than €200 billion will be made available to SMEs under the EU's various funding programmes running until 2027. This includes substantial amounts under of the EU's Cohesion Funds (€€65 billion) and the Recovery and Resilience Facility (€45.2 billion) dedicated to direct and indirect measures in support of SMEs, helping them become more resilient, sustainable and digital.
In a period of successive crises, the Commission has also been attentive to strengthening the resilience of SMEs. SME interests were at the centre of the Commission proposals to make the EU state aid framework more flexible for Member States, to provide necessary support to businesses in need, while ensuring equal treatment and limiting undue distortions to competition that would undermine the Single Market. Furthermore, SMEs were the primary beneficiaries of support of nearly €100 billion designed to protect jobs and incomes affected by the coronavirus pandemic under the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency (SURE).
In addition, SMEs are being supported across a wide array of policy areas. For instance, the Net-Zero Industry Act eases net-zero tech production permits, fosters market access, and encourages skill development through regulatory sandboxes. The Critical Raw Materials Act ensures SME access to vital materials for green, digital, and defence tech. Electricity market reform permits crisis-driven regulated prices for SMEs. The Data Act facilitates access to industrial data for SMEs. A network of over 150 Digital Innovation Hubs helps SMEs adopt digital technologies.
Source : European Commission, september 2023 - photo : freepix, rawpixel.com