The Regulation on Small and Medium Enterprises (the "Regulation") was published in the Official Gazette dated 25 May 2023 and entered into force on the same day. The Regulation has renewed the Regulation on the Definition, Qualifications and Classification of Small and Medium-Sized Enterprises (the "Repealed Regulation"), which was put into force by the Resolution of Council of Ministers dated 19 October 2005.
This Monthly Updates aims to provide a brief explanation on the amendments made by the Regulation and highlights the essential novelties introduced therein.
Amendments to the criteria applied to identify small and medium-sized enterprises (the "SMEs")
In the Repealed Regulation, SMEs were defined as enterprises employing less than 250 people annually and whose annual net sales revenues or the assets in their balance sheet did not exceed TL 250 million.
While the limits on the number of employees to be employed by SMEs are not changed by the Regulation, the limits for the annual net sales revenues or the assets in their balance sheet have been increased to TL 500 million.
Classification of the SMEs
Pursuant to Articles 5 of the Regulation, SMEs are classified as (i) micro enterprises; (ii) small enterprises; and (iii) medium-sized enterprises, taking into account their net sales revenues, assets in their balance sheet and number of their employees.
- Micro enterprises: enterprises with an annual number of employees of less than 10 people and whose annual net sales revenues or the assets in their balance sheet do not exceed TL 10 million.
- Small enterprises: enterprises with an annual number of employees of less than 50 people and whose annual net sales revenues or the assets in their balance sheet do not exceed TL 100 million.
- Medium-sized enterprises: enterprises with an annual number of employees of less than 250 people and whose annual net sales revenues or the assets in their balance sheet do not exceed TL 500 million.
Determination of SME qualifications
According to Article 6 of the Regulation, enterprises that exceed any of the criteria to be classified as SMEs according to the data of the last two accounting years will lose the SME qualification. On the other hand, enterprises that fall under the SME criteria according to their data for the last accounting year will qualify as SME. The Regulation in terms of gaining and losing the qualification of SME is similar to the Repealed Regulation.
In the Repealed Regulation, the enterprise classes are determined according to the last two accounting years, while in the Regulation, the enterprise classes will be determined in accordance with the data of the last accounting year.
Pursuant to Article7 of the Regulation, enterprises are divided into types according to their equity relations with other enterprises on the date of submission of the declaration of enterprise to the relevant institutions. These types are;
- Independent enterprise
- Joint enterprise
- Affiliated enterprise
Moreover, in the event that two or more enterprises have cross-shareholdings, the proportion of capital that is larger shall be taken into account when determining the type of each enterprise.
An enterprise shall be considered an independent enterprise; if (i) the entity alone does not own 25% or more of the capital of any other enterprise; or (ii) one or more enterprises do not jointly own 25% or more of the capital of that enterprise.
In addition, real person enterprises will be considered independent enterprises.
An enterprise shall be considered a joint enterprise if (i) the entity alone or jointly with its affiliated entities owns 25% or more of the capital of another entity, but in any case owns 50% or less, or (ii) 25% or more of the entity's share capital, in any case 50% or less of its share capital is owned by another entity, either alone or jointly with its affiliated entities.
Furthermore, when determining the type of an SME, the data of joint enterprises shall be added to the data of the entity provided that such date shall be taken into consideration at the shareholding ratio.
An enterprise shall be considered an affiliated enterprise, (i) ) the entity alone or jointly with its affiliated entities owns a majority of the share capital of another entity, either alone or jointly with its affiliated entities, or (ii) the majority of such entity is owned by another entity either alone or jointly with its affiliated entities.
Also, when determining the type of an SME, the entire data of affiliated enterprises shall be added to the data of the entity.
Number of Employees
The total number of employees in an enterprise will be determined by the total number of business units per year.
In addition, in accordance with the Regulation, only those who are employed with an employment contract in the relevant enterprises will be considered as employees. However, apprentices or trainees will not be credited to the number of employees.
In short, the Regulation has introduced significant changes on determination of SMEs. Especially, with the Regulation, while the thresholds for the number of employees remain unchanged, the annual net sales revenue or financial balance sheet thresholds have been increased.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.