Under current EU legislation, every company, regardless of its size, has to prepare annual accounts that comply with a number of minimum criteria. The European Commission now proposes exempting certain companies from this reporting obligation. The Commission’s proposal is in line with the European Union’s Better Regulation Strategy, which aims to reduce the administrative burden on companies by 25 per cent. It is estimated that this measure would save small European companies EUR 63 million, but this amount has been disputed by opponents.

The companies that are to be exempt from preparing full financial reports are so-called "micro-entities”. These are companies that do not exceed the limits of two of the three following criteria: (i) a maximum average number of employees of ten during the financial year, (ii) a balance sheet total of EUR 500,000, and/or (iii) a net turnover of EUR 1 million. It would be the responsibility of each EU Member State to decide whether it actually exempts its micro-entities from preparing and/or publishing a full financial report.

The proposal has been heavily debated and strongly endorsed by Germany and the United Kingdom. Belgium, France and Italy oppose the measure, considering it to be purely cosmetic, as in any case even micro-entities need to prepare annual accounts for tax purposes, banks and statistics authorities.

Since the proposal has already been endorsed by a number of Members of the European Parliament, it is expected to pass through Parliament swiftly.