New Thresholds in the German Commercial Code (HGB): Implications for Your Corporation
In recent years, the economic landscape in Europe has undergone significant changes. High inflation rates, increasing global competitive pressure, and varying bureaucratic requirements within the EU have underscored the need to adapt existing legislation. Against this backdrop, the European Union has raised the thresholds for classifying corporations. These adjustments have now been incorporated into the German Commercial Code (HGB) and provide considerable relief, particularly for companies that are on the cusp of different size categories. Section 267 HGB, which classifies corporations based on balance sheet total, revenue, and employee numbers, plays a central role in this. The new regulations have far-reaching consequences for financial reporting obligations in annual financial statements and compliance with the Corporate Sustainability Reporting Directive (CSRD).
Causes and Timeline
The adjustment of the thresholds was a response to persistently high inflation, which unexpectedly pushed many companies beyond the previous thresholds, leading to disproportionate increases in bureaucratic requirements. Simultaneously, the EU sought to reduce bureaucratic hurdles and create more standardized regulations across member states to strengthen competitiveness.
In October 2023, the EU decided to raise the thresholds, which were implemented in Germany in February 2024 through the “Act Amending the DWD Act and Amending Commercial Law Provisions.” After being approved by the Bundesrat in March 2024, the new regulations came into effect in April of the same year.
Details of the New HGB Thresholds
All financial thresholds in Section 267 HGB were raised by 25%, and the thresholds under Section 267a HGB by approximately 28.5%:
- Micro Corporations (Section 267a (1) HGB):
- Balance sheet total: previously ≤ €350,000, now ≤ €450,000
- Revenue: previously ≤ €700,000, now ≤ €900,000
- Number of employees: ≤ 10 (unchanged)
- Small Corporations (Section 267 (1) HGB):
- Balance sheet total: previously ≤ €6,000,000, now ≤ €7,500,000
- Revenue: previously ≤ €12,000,000, now ≤ €15,000,000
- Number of employees: ≤ 50 (unchanged)
- Medium-sized Corporations (Section 267 (2) HGB):
- Balance sheet total: previously ≤ €20,000,000, now ≤ €25,000,000
- Revenue: previously ≤ €40,000,000, now ≤ €50,000,000
- Number of employees: ≤ 250 (unchanged)
A company falls into one of these categories if it meets two of the three criteria. Large corporations meet two of the three criteria from the medium-sized category (Section 267 (3) HGB).
Impacts and Recommendations
The raised thresholds affect companies that are at the boundaries between different size categories. The new regulations provide relief in several areas:
- Audit Requirements: Smaller corporations can continue to prepare abridged financial statements and notes without audit obligations and submit their reports later. Medium-sized corporations, on the other hand, must prepare and audit their financial statements within three months after the end of the fiscal year. Large corporations are subject to additional reporting obligations.
- CSRD Reporting Obligation: Due to the raised thresholds, some companies previously classified as ‘large’ may now be considered ‘medium-sized.’ As a result, they may no longer be subject to CSRD reporting obligations, as they no longer meet the criteria for mandatory sustainability reporting under the new classification.
- Accounting and Internal Processes: The new regulations provide companies with more flexibility in annual financial statement planning, including retroactively for the 2023 fiscal year. However, companies should carefully consider how these changes are integrated into their internal processes.
- Stakeholder Communication and Creditworthiness: Due to the legislative changes, some companies will need to disclose less information. This affects communication with stakeholders as well as creditworthiness: reduced disclosure could cause dissatisfaction among stakeholders and complicate credit assessments. Open communication and careful consideration of options are therefore crucial.
The new thresholds are mandatory for fiscal years starting after December 31, 2023. For fiscal years starting after December 31, 2022, companies have the option to apply the new thresholds.
5. Conclusion
The adjustment of thresholds in the HGB offers significant relief to corporations on the boundaries of previous categories. It is advisable to closely examine the new regulations and adjust internal processes accordingly to take full advantage of the legislative changes. The team at Mauer is available to assist you with implementation.