1.2. Types of small and medium-sized enterprises in the European Union and Ukraine

There are mainly 3 types of the SMEs:

• Micro-enterprises

• Small enterprises

• Medium enterprises

However, such range of types can be different country by country, depending on the national definitions or applicable practice. Thus, some countries apply all 3 types of SMEs, the other countries employ only two types (small and medium), and the others use only one general definition (SMEs). For example, in Ukraine several years ago article 63(7) of Economic code of Ukraine defined only small and medium-sized enterprises.

Authors of a paper titled «Defining SMEs: A Less Imperfect Way of Defining Small and Medium Enterprises in Developing Countries» recommend «to merge “small” and “medium” into a single category» [94, p. 12]. They argue that «[i]f small businesses are provided the same benefits as medium businesses and studies of SMEs make no distinction between the two, we see little reason to continue to use such distinctions.


Indeed, it is surprising that the distinction has not atrophied from disuse. Where it is used, however, it needlessly undermines recognition of the essential attribute of SMEs: dynamic growth. We therefore think it is time to make the de facto merger of “small and medium” a de jure recognition of “SME” as a single size group, or “developmental asset class.”» [94, pp. 15-16]. In my opinion, such an opinion is wrong, because the division of SMEs is useful at least for the statistics. The analysis of the statistical information, for example in Ukraine, shows the proportion of the quantity of such types of SMEs. We can see that micro enterprises embraces 81% of all businesses of Ukraine, and small ones — 14% and medium ones — 4,8% accordingly [74]. Thus, such information is a good indicator to choose different legal regimes for different enterprises. Also I think it cannot determine the dynamic growth in any case, because the general definition of SMEs leaves the same if the special definitions are defined, because they are actually different types of SMEs and if we unite them we get the general definition. In any case, a state should help the weakest type of SMEs, which is a micro enterprise. Why should a state? Any micro enterprise is a potential small enterprise. If one enterprise can transform from micro to small it means that such an enterprise pays more tax and gives more job positions.

For example, tax law of Ukraine doesn’t define and separate SMEs. Only in article 49(4) of the tax code where large and medium-sized enterprises are just mentioned in the context of submitting of a tax declaration in electronic form and in paragraph 7 of article 75(1.2) of the tax code where SMEs are just mentioned too [77]).

Article 14(1.24) defines that «large taxpayer is a legal entity the volume of income of which from all activities during the last four consecutive tax (fiscal) quarters exceeds 500 million hryvnias or total amount paid to the State Budget of Ukraine as tax payments, which is monitored by controlling agencies for the same period, is over twelve million hryvnias» [77]. Such an entity is not a type of SMEs, but it lies under SMEs’ definition if it suits it.

Nevertheless, in the tax code of Ukraine there are a simplified tax regime (simplified system of taxation, accounting and reporting) and single tax rates which directed actually to micro-enterprises.


Article 291(4) of the tax code of Ukraine defines that entities using the simplified system of taxation, accounting and reporting, are divided into the following groups of single tax payers:

1) the first group — sole proprietors who do not use hired labour, carry out only the retail sale of goods from trading places in the markets and/or carry out business activity in rendering consumer services to population and the amount of income of which in a calendar year does not exceed 300,000 UAH;

2) the second group is the sole proprietors who carry out economic activity in rendering services, including the consumer ones, to single tax payers and/or population, manufacturing and/or sale of goods, activity in the sphere of restaurant management, provided that during a calendar year they correspond to all of the following criteria: do not use the hired labour or the number of employees who have labour relations with them does not exceed 10 persons at the same time; the amount of income does not exceed 1,500,000 UAH.

3) the third group is the sole proprietors who do not use the hired labour or the number of employees who have labour relations with them is not limited, and the legal entities — economic entities of any organisational-legal form the amount of income of which does not exceed 20,000,000 UAH during a calendar year.

4) the fourth group is agricultural enterprises which have the share of agricultural goods/services equal or more than 75% for a consequent tax year. [77].

Therefore, SMEs, depending on number of employees, turnover and/or balance sheet total, are separated into micro, small and medium-sized enterprises or small and medium-sized enterprises. If there a national legislation detect only medium-sized or only small-sized enterprises, such enterprises are a form of SMEs, but not a type and there is no separation of SMEs.

In my opinion, we should talk about micro, small and medium sized enterprises than just about SMEs, thus, the abbreviation «SMEs» should be replaced by «MSMEs» or «MSMBs».

Other types of SMEs can be defined depending on a criterion of having general and specific types of SMEs. For example, in Spain there is the general definition of SMEs


which unites all specific definitions [39]. Also in book «Antitrust for Small and Middle Size Undertakings and Image Protection from Non-Competitors» also the general definition of SMEs is mentioned [97, p. 105]

Last but not least, SMEs can be divided using a teleological criterion. There are the following types of definitions of SMEs:

for legal and administrative purposes;

for statistical purposes [115, p. 11];

for accounting or financial reporting purposes [14];

for competition purposes [97, p. 191];

for tax and transfer pricing purposes [123];

and so on.


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