The new SME definition

User guide and model declaration

European Commission


Micro, small and medium-sized enterprises (SMEs) play a central role in the European economy. They are a major source of entrepreneurial skills, innovation and employment. In the enlarged European Union of 25 countries, some 23 million SMEs provide around 75 million jobs and represent 99% of all enterprises.

However, they are often confronted with market imperfections. SMEs frequently have difficulties in obtaining capital or credit, particularly in the early start-up phase. Their restricted resources may also reduce access to new technologies or innovation.

Therefore, support for SMEs is one of the European Commission’s priorities for economic growth, job creation and economic and social cohesion.

Importance of a European SME definition

In a single market with no internal frontiers, it is essential that measures in favour of SMEs are based on a common definition to improve their consistency and effectiveness, and to limit distortions of competition. This is all the more necessary given the extensive interaction between national and EU measures to help SMEs in areas such as regional development and research funding.

In 1996, a recommendation establishing a first common SME definition was adopted by the Commission. This definition has been widely applied throughout the European Union. On 6 May 2003, the Commission adopted a new recommendation in order to take account of economic developments since 1996 (for the complete text, see annex II, p. 32 of this guide). It entered into force on 1 January 2005 and will apply to all the policies, programmes and measures that the Commission operates for SMEs.

For Member States, use of the definition is voluntary, but the Commission is inviting them, together with the European Investment Bank (EIB) and the European Investment Fund (EIF) to apply it as widely as possible.

Objectives of this guide

This guide presents the changes being made by the new definition and the reasons for them (see chapter 1, p. 8). It then explains how to determine if an enterprise can qualify as an SME by following a step-by-step approach (see chapter 2, p. 11).