The European Union in its environmental regulations is increasingly introducing distinctions and deferring obligations for SME (SME – Small and Medium-sized Enterprises)In practice, however, the definition of an SME is not always consistent, and its application in various legal acts may raise doubts.
The topic is particularly evident in two regulations that are key to sustainable trade:
-
CBAM (Carbon Border Adjustment Mechanism, Regulation 2023/956),
-
EUDR (EU Deforestation Regulation, Regulation 2023/1115).
Therefore, in this article we explain:
-
How should SME be understood for the purposes of CBAM and EUDR,
-
Where do the discrepancies in interpretations come from?
-
Why can't the EUDR rely on definitions and recommendations contained in other legal acts?
-
What is the specific legal basis for the SME definition in the EUDR.
What is SME in EU law?
The basic point of reference for most EU policies is Commission Recommendation 2003/361/EC, which defines micro, small and medium-sized enterprises on the basis of:
-
number of employees,
-
annual turnover,
-
balance sheet total.
This recommendation applies to support programs, regional policy, and competitions financed by EU funds, among other things. However, the recommendation is not generally binding – it constitutes a piece of so-called soft law.
SME at CBAM
The CBAM Regulation does not explicitly address SME issues in the context of simplifications and reporting obligations. However, discussions on the CBAM, the Omnibus package, and the transitional provisions all address the need to reduce administrative burdens for smaller entities. The European Commission publishes guidelines and Q&As addressing the use of simplifications, for example, for small-scale importers.
SME in EUDR – legal basis
In the case of the EUDR, the situation is completely different. This regulation itself defines SME in Article 2, point 30 Regulation (EU) 2023/1115:
"'small and medium-sized enterprise' means a small and medium-sized enterprise within the meaning of Article 3(1) of Directive 2013/34/EU of the European Parliament and of the Council."
This means that:
-
active legal basis for the SME category in EUDR it is Directive 2013/34/EU (so-called accounting directive),
-
Article 3 of this Directive specifies the criteria for classifying an enterprise as micro, small, medium and large, based on:
-
balance sheet total,
-
annual net sales revenues,
-
average number of employees in the financial year.
-
Furthermore, Article 33 EUDR provides for a difference in implementation:
-
December 30, 2025 – beginning of obligations for large and medium-sized enterprises,
-
June 30, 2026 – a term for micro and small enterprises.
Why can't the Commission's recommendations be applied in the EUDR?
A practical question arises: can definitions from other legal acts (e.g. Recommendation 2003/361/EC) be referred to when determining the SME status in the EUDR?
The answer is: nieThe reasons are as follows:
-
The nature of the legal act – The EUDR is a regulation, i.e., an act of EU law directly applicable in all Member States. The definition contained in Article 2(27) is directly applicable and takes precedence over definitions from other sources.
-
Reference to a specific act – The EUDR leaves no room for interpretation, but refers directly to Directive 2013/34/EU. This is the act that should be used as the basis for company classification.
-
Specificity of sectoral regulation – SME status in the EUDR relates to due diligence obligations and TRACES declarations. Expanding definitions from other acts could lead to unequal treatment of entities in different countries.
-
Different legislative purpose Recommendation 2003/361/EC addresses support and financing policies, while the EUDR introduces compliance obligations related to environmental protection and international trade. The objectives of both documents are different, and therefore their definitions of SMEs cannot be used interchangeably.
Practical consequences for businesses
At CBAM – it is possible to refer to the broader SME definition, although current Commission guidelines and national authorities' practices should always be consulted. Simplified reporting may apply to importers with limited operations.
In EUDR – the only point of reference is the definition contained in Article 2, point 27 of the EUDR, referring to Directive 2013/34/EUNo other soft law documents (recommendations, Commission communications) can be used as a basis for independently determining SME status.
For businesses, this means the need to:
-
precise calculation of employment and turnover thresholds in accordance with Directive 2013/34/EU,
-
prepare for obligations in accordance with the deadlines provided for in Article 33 EUDR,
-
avoiding interpretations based on documents that have no legal force.
How to avoid interpretation errors?
First and foremost, read the regulations directly – the EUDR definition of an SME is clear and included in the text of the regulation. Also, check the source of the law – recommendations and directives can support interpretation, but they do not replace regulations. Finally, document your analyses – it's worth keeping internal legal memos and analyses of SME status to be able to present them in the event of an audit.
Summary
The definition of an SME in EU law is not always uniform – and the differences in its application are clearly visible in the EUDR. It contains its own, binding definition, referring to Directive 2013/34/EU – and only this legal act can be used as a basis for categorizing enterprises.
Therefore, companies must be particularly careful not to base their analyses and procedures on soft law documents in situations where the regulation provides a clear and closed definition.
A conscious and correct understanding of the status of SMEs in these regulations is the key to the effective and safe implementation of environmental obligations in an organization.
👉 At Green Reporting, we help companies interpret regulations, analyze SME status, and implement CBAM and EUDR processes. Contact us to avoid interpretation errors and prepare your organization for upcoming obligations.
