Higher thresholds planned for enterprise class sizes in the Commercial Code

On 17 January 2024, the German federal government passed a bill to raise the thresholds for accounting and financial reporting. The plan is to raise the monetary thresholds that determine the enterprise size classes under accounting law. The goal of this is to reduce the administrative burden as well as substantial costs for companies and for the public administration. These thresholds are linked in particular to publication obligations, statutory auditing duties and the extent of the disclosures that have to be made in annual financial statements and management reports.

This raising of thresholds implements the amendment to Directive 2013/34/EU of the European Parliament. The bill to transpose this into the German Commercial Code (Handelsgesetzbuch – HGB) provides for raising the monetary thresholds (revenues and balance sheet amounts) for determining the size classes laid down by sections 267 and 293 of the Commercial Code by around 25 per cent each up to a balance sheet amount of 7.5 million euros, revenue of 15 million euros and the number of 50 employees. A significant raise to the thresholds of 267a of the Commercial Code is also planned. The European regulations allow the raise in the thresholds to be applied retrospectively to the 2023 financial year as well.

The proposal in the implementation of the bill concerning the date of first application is that the draft of sections 267(1) and (2), 267a(1) and 293(1) sentence 1 of the Commercial Code should be applied to annual and consolidated financial statements, management reports and group management reports for the first time for the financial year beginning after 31 December 2023. However, the draft of sections 267(1) and (2), 267a(1) and 293(1) sentence 1 of the Commercial Code may already be applied to annual and consolidated financial statements, management reports and group management reports for the financial year starting after 31 December 2022 and so for financial statements closing on 31 December 2023 (company option).

In classifying the size criteria, two consecutive financial years must always be taken as the basis. If an enterprise applies the option of retrospective application, a corporation would still be considered as a small enterprise on the reporting date of 31 December 2023 if it has not exceeded two of the three characteristics contained in the draft of section 267(1) of the Commercial Code as amended on this reporting date and on 31 December 2022 or 31 December 2021.

Which enterprises are affected?

The effects following from the size criteria affect corporations with a duty to publish financial information, commercial partnerships with limited liability and cooperatives.

When does the rule apply from? 

The amendment is to be applied for the first time for financial years beginning after 31 December 2023, although previous application for financial years beginning after 31 December 2022 is also possible.

Check retrospective application and ways to make arrangements

Raising the thresholds, especially the possibility of retrospective application to 2023, has great significance in practice. By choosing to apply the raise retrospectively, it is possible for companies with the reporting date of 31 December 2023 that are subject to audit under the current legislation to no longer be subject to statutory audits once the law on raising the thresholds enters into force, or for them to claim simplifications in disclosing. Businesses whose financial statements for 2023 have not yet been approved still have opportunities to make arrangements for the financial year 2023, such as by reducing their balance sheet amount by exercising recognition options or by settling or offsetting receivables and liabilities, particularly with affiliates.

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