Summary Under the proposed Cloud and AI Development Act (CADA), Article 2(8) defines a "small and medium-sized enterprise" (SME) by reference to Article 2 of Annex I to Commission Recommendation 2003/361/EC. Under that long-standing EU definition, the SME category is made up of enterprises with fewer than 250 staff and either an annual turnover not exceeding EUR 50 million or an annual balance-sheet total not exceeding EUR 43 million. SME status matters because CADA's support and procurement provisions repeatedly single out SMEs — including the objective that at least 25% of public procurement of cloud and AI be awarded to innovative SMEs (Article 33). As CADA is a proposal, the wording could change before adoption.

Detail

CADA's strategy leans on smaller enterprises as agile innovators, and several of its measures are tailored to them. To apply those measures, the proposal relies on a precise, externally anchored definition of "SME".

The definition

As proposed, Article 2(8) provides that "small and medium-sized enterprise" or "SME" means a small or medium-sized enterprise as defined in Article 2 of Annex I to Commission Recommendation 2003/361/EC. CADA does not restate the thresholds; it points to that Recommendation, the established EU-wide reference.

Under Recommendation 2003/361/EC, the SME category comprises enterprises that:

  1. employ fewer than 250 persons; and
  2. have either an annual turnover not exceeding EUR 50 million or an annual balance-sheet total not exceeding EUR 43 million.

The Recommendation also applies independence and aggregation rules. Broadly, an enterprise that is "linked" to, or a "partner" of, another (for instance where a holding of 25% or more of capital or voting rights exists) must aggregate the relevant data of those other entities when testing the thresholds. So a small company majority-owned by a large group may not qualify as an SME once the group's figures are combined.

Why SME status matters in CADA

SME status is more than a label — it triggers support and emphasis throughout the proposal:

  1. Public procurement target (Article 33). Member States are to pursue the objective that at least 25% of their procurement for cloud computing services and AI systems be awarded to innovative SMEs, and to set out in their national strategies (Article 7) how they intend to achieve it. Article 33 also requires monitoring and reporting on SME participation and measures to improve SME access to procurement.
  2. Union added value in procurement (Article 32). In procurement for innovative cloud services and AI systems, contracting authorities must include non-price award criteria that evaluate a tenderer's contribution to the European cloud and AI ecosystem — criteria that can favour innovative European providers, including SMEs.
  3. Experience and Acceleration Centres for AI (Article 5). These Centres are tasked, among other things, with accelerating the broad adoption of cloud and AI technologies at regional and local level, "notably for SMEs, SMCs and public sector bodies."
  4. National strategies (Article 7). Member State strategies must include measures to accelerate cloud and AI development and adoption "particularly among public sector bodies, SMEs and SMCs."

What this means for you

If you run a cloud provider or data-centre business, whether you qualify as an SME has strategic consequences.

1. Test your status regularly. SME status is not permanent. Reassess staff headcount, turnover and balance-sheet total periodically. Crossing the 250-staff line or the financial thresholds can change your status.

2. Check independence. Even with fewer than 250 staff and low turnover, you may fall outside the SME category if you are linked to a larger enterprise (for example where a large group holds 25% or more of your capital or voting rights), because the Recommendation requires aggregating the group's figures.

3. Use the support aimed at SMEs. If you qualify, engage with the Centres for AI in your Member State (Article 5), watch for SME-favourable measures in your national strategy (Article 7), and position your tenders to benefit from the Union added value criteria (Article 32) and the innovative-SME procurement objective (Article 33).

4. Track the legislative process. The definition itself is stable, since it relies on Recommendation 2003/361/EC, but the specific support measures may evolve as the proposal moves through the legislative process.

Common misconceptions

"SME means only tiny start-ups." It includes medium-sized enterprises. A firm with 200 staff and EUR 40 million turnover can still be an SME.

"SME status exempts me from CADA." It does not. SME status brings support and emphasis, not exemption. A provider still needs the relevant Union assurance level to serve the public sector, for example.

"Turnover alone decides it." You must satisfy the staff-headcount limit (fewer than 250) and at least one of the financial criteria. A 300-staff firm with small turnover is not an SME; a 100-staff firm exceeding both financial limits is not either.

"SMCs are just a kind of SME." No. CADA defines "small mid-cap" (SMC) separately, in Article 2(9), by reference to Commission Recommendation (EU) 2025/1099. SMCs are a distinct category sitting above SMEs, and some measures treat them separately.

Related

This is general information about a draft EU regulation, not legal advice.