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Importance of SME qualification – Micro-, small and medium sized enterprises?

The correct SME qualification (micro, small or medium-sized) has a particular importance for Hungarian companies when applying for certain EU tenders or reviewing the eligibility for corporate income tax (CIT) base decreasing items or CIT credits, but also for determining whether a given company is subject to innovation contribution or not. The Hungarian SME qualification has to be carried out based on a complex methodology prescribed by the corresponding act, and the SME status has to be indicated in the annual CIT return.

Definition of SME

SME is an acronym for micro, small and medium-sized enterprises. In Hungary the companies within the SME sector are classified into three different categories based on a methodology defined by the law (Act XXXIV of 2004 on Small and Medium-sized Enterprises and the Support Provided to Such Enterprises*),as follows:

  • micro enterprises,
  • small enterprises, and
  • medium enterprises.

These company categories together qualify as SME.

Figures for SME qualification

For the SME qualification, the below three figures need to be considered: 

  • total number of employees, 
  • net sales revenue, and
  • balance sheet total. 

The limits for each SME company size are indicated in the SME qualification table below.

total number of employeesnet sales revenuebalance sheet total
micro enterprise< 10personsand

≤ 2 M EUR

or≤ 2 M EUR
small enterprise< 50personsand≤ 10M EURor≤ 10 M EUR
medium enterprise< 250personsand≤ 50 M EURor≤ 43 M EUR


In case a company does not meet any of the above criteria, it is considered as a large enterprise.

However, any enterprise in which the state or any municipal government holds directly or indirectly at least 25% does not qualify as an SME.

We would like to highlight that due to the so-called “2-year rule”, a company qualifies as an SME/large enterprise if it exceeds or falls below the above limits for two consecutive years.


SME qualification – further companies to consider

For the SME qualification, not only the figures of the given company have to be considered, but also the corresponding data of the so-called linked and partner enterprises. Even though the definitions are similar to the related company as per the CIT Act (Act LXXXI of 1996),they are not identical.

Partner or linked companies

Linked enterprises are, among others, those companies which directly or indirectly hold a majority of voting rights in each other, or one enterprise has the right to exercise a decisive influence or control over another.

Partner enterprises are those companies where one company holds – directly or through linked enterprises –  at least 25% but not more than 50% of the registered capital or voting rights of the other enterprise.

For the SME qualification of a given company the figures of the linked enterprises have to be considered totally, while the figures of the partner enterprises are to be considered proportionally. 

What tax advantages are available for SMEs?

The Act LXXXI of 1996 on Corporate Tax and Dividend Tax (CIT Act) provides several CIT base decreasing items and tax credits which may be claimed by companies that belong to different SME categories.

As per the CIT Act, CIT base decreasing item may be applied upon investments aimed at acquiring new machinery carried out during the tax year by small and medium-sized enterprises, provided that the further conditions are met.  


In addition to the above, CIT credit on interests upon investment loans is also available only to SMEs. However, it has to be noted that SMEs can reduce their CIT base by a higher proportion of eligible costs when claiming the development tax credit or the tax credit of energy efficiency investments  and renovations.

Besides the several CIT savings, micro and small enterprises are exempt from innovation contribution liability and the transfer pricing documentation obligation.

As shown above, for extensive company groups the SME qualification of a given company is quite a complex task, but determining the correct SME size is a crucial point not only for the eligibility for certain tax benefits, but also for different grants, tenders, and also regarding transfer pricing rules. Our experts at RSM are pleased to assist you with the appropriate SME qualification.


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