Keeping annual accounts is not only a legal obligation, it enables you to monitor the health of your business by keeping track of receipts and expenses. Companies with limited liability doing business in the EU, whatever the size, have to prepare a set of financial statements and file it with the relevant national business register.
If you are self-employed or if your business is incorporated in a type with unlimited liability, your business is not regulated by EU rules: you should check the rules which have been decided by each Member State.
Simple rules for small businesses
If you are a small company (not more than 50 employees), the financial statements comprise only a balance sheet, a profit and loss account, and a few explanatory notes. A Member State may additionally require an audit and a management report.
Extra-simple rules for micro-companies
Micro-companies are those which have:
- Not more than 10 employees.
- Balance sheet total below EUR 350 000
- Net turnover below EUR 700 000
Member States may set lower amounts: please check in any case the relevant figures. If your small business exceeds 2 of these 3 criteria for 2 consecutive years, the rules of small companies will apply!
Depending on the Member State where you are located, the extra-simple regime for micro-companies may feature the following:
- Reduced information in the notes to the accounts - any item explained at the foot of the balance sheet need not be explained in the annual report
- Simplified publication of your accounts - they can be sent to a single national authority, such as your tax authority, which publishes them on your behalf
- Simplified layout for the balance sheet and profit & loss statement
- No obligation to calculate year-end accruals and prepayments - except for costs of raw materials and consumables, staff, value adjustments and tax
Even though these simplified rules are permitted by the EU law, not all EU countries apply them.
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International accounting standards
Under the EU's legislation, all listed EU companies must prepare their consolidated accounts in accordance with a single set of global standards - the International Financial Reporting Standards (IFRS). Most Member States also permit the IFRS for the consolidated accounts of non-listed companies. In addition, some Member States have decided to permit or require the IFRS for individual financial statements of certain companies.
These standards are developed by an independent accounting body, the International Accounting Standards Board (IASB) and then adopted by the EU.
Rules for non-EU businesses
To reduce the costs and complexity of trade for all parties, the EU is working towards global convergence of accounting rules. It does so by encouraging non-EU firms trading with the EU to produce their financial reports on the basis of the International Financial Reporting Standards or equivalent national accounting standards.
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