The EU now recognizes two size categories below "large enterprise," and the AI Act treats both more gently than everyone else. An SME has fewer than 250 employees and turnover up to €50 million (or a €43 million balance sheet). A small mid-cap (SMC) — a category created in 2026 — has fewer than 750 employees and turnover up to €150 million (or a €129 million balance sheet). Which side of those lines you fall on decides how much process AI Act compliance takes.
The SMC tier arrived with the Digital Omnibus on AI (Regulation (EU) 2026/1744), in force since July 27, 2026. Most guides to the AI Act were written before it existed — which is why so many 400-person companies still believe they're on the enterprise compliance track.
Last verified: August 10, 2026. General information, not legal advice — border cases belong with counsel qualified in EU law.
This is the qualification half of the topic. For the full breakdown of what the relief package contains and how to use it, see our guide to the small mid-cap AI Act exemptions; for what the AI Act requires and when, start with the amended EU AI Act timeline.
The exact thresholds, side by side
| Category | Headcount | Financial test (either one) |
|---|---|---|
| SME | Under 250 | Turnover ≤ €50M or balance sheet ≤ €43M |
| Small mid-cap (SMC) | Under 750 | Turnover ≤ €150M or balance sheet ≤ €129M |
| Large enterprise | 750+ | Above the SMC ceilings |
The SME definition comes from the Commission's long-standing Recommendation 2003/361; the SMC definition from the 2025 Commission Recommendation on small mid-caps. An SMC is, by construction, a company that fails the SME test but passes the wider one.
How to check which category you are
Four steps, in the order mistakes usually happen:
- Count headcount the EU way. The test uses annual work units — full-time equivalents over the year — not the number of names on payroll. Part-time and seasonal staff count fractionally.
- Apply the financial test as an either/or. You only need to pass one of the two ceilings (turnover or balance sheet). Companies with high revenue but a lean balance sheet often pass on the second test.
- Aggregate linked and partner enterprises. If you're part of a group, hold significant stakes, or are held by a larger owner, the thresholds are assessed with those relationships counted in. This is where most misclassification happens — a 200-person subsidiary of a large group is usually not an SME, and the same logic follows the SMC definition.
- Check both years. Category changes generally require crossing the thresholds over consecutive reporting periods, not a single spike. If you just crossed 250 heads this year, you haven't necessarily lost SME status yet — and if you're growing toward 750, plan for the day you cross it.
If steps 3 or 4 describe you, that's the point where this stops being a blog-post exercise — have counsel confirm the classification before you build a compliance budget on it.
What each category gets under the AI Act
Both categories get the same relief package — the Digital Omnibus extended the AI Act's SME simplifications to SMCs, so the meaningful line is no longer SME/everyone-else but under-750/over-750: simplified technical-documentation templates, proportionate quality-management expectations, priority access to regulatory sandboxes, and size-tailored penalty caps (per Orrick's final-text summary and the Morgan Lewis analysis). The full list, what it does and doesn't waive, and how to use it is in the exemptions guide.
What no category changes: the obligations themselves. Article 50 transparency applies to every company size now (since August 2, 2026), and the high-risk regime arrives for everyone on the fixed December 2, 2027 date — relief changes the paperwork burden, never the applicability.
The trap: there are two "small mid-cap" definitions in Brussels
A separate legislative file — the "Omnibus IV" company-law package — is negotiating its own small mid-cap definition with higher provisional thresholds (under 1,000 employees, up to €200M turnover). It covers different legislation. For AI Act purposes, the numbers are under 750 employees and €150M / €129M. If an article about AI compliance quotes a 1,000-employee threshold, it has confused the two files — a useful tell that the rest of it may be agreement-stage guesswork too.
What to do once you know your category
- SME or SMC: scope your 2027 high-risk work against the simplified documentation route, and get in the sandbox queue early if you're building anything Annex III-adjacent.
- Crossing 750 soon: you lose the relief when you cross — factor the fuller documentation regime into the growth plan rather than discovering it in 2027.
- Either way: systems built with logging, permissions, and human oversight from day one generate their own compliance evidence regardless of category — that's how we build AI agents. If you're planning automation with the 2027 date in view, talk to us about building it compliant-by-design.
Sources
- Regulation (EU) 2026/1744 — Official Journal text (July 24, 2026)
- European Commission — AI Omnibus enters into force (July 2026)
- EUR-Lex — Commission Recommendation on the definition of small mid-cap enterprises
- Orrick — EU AI Act Update: Digital Omnibus Finalizes 8 Compliance Changes (July 2026)
- Morgan Lewis — EU Approves Delays and Other Amendments to Certain EU AI Act Obligations (June 2026)