New Dutch legislation with regard to annual accounts (2) - re-categorization of legal entities.

13 November 2015

René Rieter, Alexander Defauw

On 26 June 2013, Directive 2013/34/EU of the European Parliament and of the Council (the Accounting Directive) entered into force. The Accounting Directive repeals the Fourth (78/660/EEC) and Seventh Directive (83/349/EEC). The objects of the Accounting Directive are to harmonise, simplify and modernize EU accounting law, to reduce administrative costs for small and medium sized companies and to facilitate the comparison of annual accounts. The Dutch Parliament passed the Accounting Directive Implementation Act (the Act) on 30 September 2015 to bring the Accounting Directive into effect in domestic legislation.

The Act applies to all legal entities that are subject to Title 2.9 of the Dutch Civil Code (DCC), i.e. private limited liability companies (B.V.'s), public companies (N.V.'s), cooperatives, mutual insurance associations, (commercial) associations and foundations, and non-Dutch companies to which the Act on Companies Formally Registered Abroad applies.

In addition to the changes relating to the production and ultimate filing period for annual accounts (see our previous Dutch Corporate Structuring Newsflash), another significant change that is introduced by the Act is the decrease of the thresholds for qualification as micro, small, medium and normal sized entity. These categories are used to determine which accounting requirements apply.

Categories of legal entities

Dutch requirements with regard to reporting, auditing and filing of annuals accounts, depend on the size of the legal entity. Before the Act takes effect, there is a distinction between normal, medium and small sized entities. For medium and small sized entities, a less restrictive regime applies. For instance, a small entity only has to file a shortened balance sheet and explanatory notes, which do not have to be audited. Medium sized companies are allowed to file a less shortened balance sheet, shortened P&L and explanatory notes, but are not exempt from an auditor statement.

The schedule below contains a basic overview of the accounting requirements per category.

Data     Small Medium Normal
Balance sheet * shortened  * less shortened * detailed
P&L --  * shortened  * detailed
Explanatory notes * shortened  * detailed  * detailed
Annual (management) report -- * *
Auditor's statement -- * *
Summary allocation profit/ loss in conformity with the articles -- * *
List special control rights     *
Specification number of profit sharing rights    * *
Specification of important events after the end of the financial year    * *
Specification of branch offices (names, countries)    * *

A certain category applies if an entity complies with at least 2 out of 3 of the below-mentioned requirements for two successive balance sheet dates. For instance, if the entity has less than 50 employees and an annual turnover of less or equal to EUR 8,800,000 for two successive balance sheet dates, it qualifies as a small sized company.

The schedule below reflects the classification before the Act

Requirements Small   Medium  Normal
Balance sheet total  < €4,4m < €17,5m > €17,5m
Annual turnover < €8,8m < €35m > €35m
Number of employees  < 50  < 250  > 250

The micro regime will be introduced for even smaller entities. The Act allows that micro entities only prepare a very concise balance sheet and P&L. Only the balance sheet needs to be filed with the Trade Register. Explanatory notes, annual report or other information are exempt from filing.

Under the Act these thresholds are changed as follows.

Requirements Micro  Small Medium  Normal
Balance sheet total  < €350k < €6m < €20m > €20m
Annual turnover  < €700k < €12m < €40m > €40m
Number of employees  <10   < 50  < 250  > 250
Effective date

The Act entered into force on 1 November 2015 and applies to financial years starting on or after 1 January 2016. It is permitted to apply the new rules to financial years which started earlier.

Significance

The changes to the thresholds of the various sized entities apply to and affect the following entities:

  • private limited liability companies (B.V.’s), public companies (N.V.’s), cooperatives, mutual insurance associations, (commercial) associations and foundations that are resident in the Netherlands;
  • private limited liability companies (B.V.’s), public companies (N.V.’s), cooperatives, mutual insurance associations, (commercial) associations and foundations that are resident outside of the Netherlands; and
  • Non-EU companies to which the Act on Companies Formally Registered Abroad applies.

As a result of the changes an entity could (automatically) be re-categorized in smaller sized category. Many more entities are expected to fall into the ‘small’ and ‘medium-sized’ categories. This will reduce the filing requirements of (competition sensitive) information and lower the administrative burden.

We suggest checking whether an entity is lower categorised and therefore can benefit from the changes. Since it is permitted to apply the new rules to financial years which started earlier than the effective date of the Act, it is possible to apply for a less restrictive regime over the financial year 2015.


Authors

Image of Alexander Defauw

Alexander Defauw

Associate
Netherlands

Call me on: +31 (0)70 353 8800
Image of Rene Rieter

René Rieter

Partner
Netherlands

Call me on: +31 (0)70 353 8800