[Q&A] Classifying Enterprises Under SME Regulations
2025. 7. 4
Question: How is it determined whether our company qualifies as a large enterprise under the Small and Medium Enterprise Payment Guarantee Ordinance?
Answer: The determination of whether an enterprise qualifies as a large enterprise is of critical importance in assessing the application of the Small and Medium Enterprise Payment Guarantee Ordinance. Pursuant to the newly amended Small and Medium Enterprise Payment Guarantee Ordinance, where a large enterprise purchases goods, construction works, or services from a small or medium enterprise (SME), it must settle payment within 60 days from the date of delivery of such goods, works, or services. If the contract stipulates alternative terms, such terms shall apply, provided that payment must be made promptly in accordance with reasonable payment deadlines based on industry standards or customary practices. It is prohibited to set upon receipt of payment from a third party as a condition the payment to an SME or to stipulate that payment to the SME shall be made in proportion according to the progress of payment by a third party.
The classification of enterprise types is determined in accordance with the Standards for the Classification of Small and Medium Enterprises (reference may also be made to the Statistical Classification Measures for Large, Medium, Small and Micro Enterprises), based on indicators such as the number of employees, operating revenue, and total assets, in conjunction with industry-specific characteristics. For example:
Manufacturing industry: An enterprise with fewer than 1,000 employees or operating revenue below RMB 400 million shall be classified as an SME or micro enterprise.
Wholesale industry: An enterprise with fewer than 200 employees or operating revenue below RMB 400 million shall be classified as an SME or micro enterprise.
Retail industry: An enterprise with fewer than 300 employees or operating revenue below RMB 200 million shall be classified as an SME or micro enterprise.
Warehousing industry: An enterprise with fewer than 200 employees or operating revenue below RMB 300 million shall be classified as an SME or micro enterprise.
Furthermore, Article 7 of the Standards for the Classification of Small and Medium Enterprises provides that the upper threshold for medium-sized enterprises constitutes the lower threshold for large enterprises. Accordingly, if an enterprise meets or exceeds the aforementioned criteria, it shall be classified as a large enterprise.
Additionally, the Statistical Classification Measures for Large, Medium, Small and Micro Enterprises stipulates that large, medium, and small enterprises must simultaneously meet the lower thresholds of all listed indicators; failure to do so results in downgrading by one tier. The term "employees" refers to the number of employees at the end of the reporting period, or, where no such figure is available, the annual average number of employees shall be adopted. For industries where operating revenue is measured—such as manufacturing, construction, wholesale and retail above a specified threshold, accommodation and catering above a specified threshold, and other industries where key business revenue indicators are established—the key business revenue shall be used.
For example, if a company operates in the wholesale industry and has 200 or more employees and key business revenue exceeding RMB 400 million, it shall be deemed a large enterprise, and the Small and Medium Enterprise Payment Guarantee Ordinance shall apply. Consequently, in transactions between SMEs and large enterprises, unless otherwise agreed, the 60-day payment period constitutes the general rule. Even where alternative arrangements are agreed, such terms must be reasonable.
It should be noted that in 2021, proposed amendments to the Standards for the Classification of Small and Medium Enterprises were subject to public consultation. The draft amendments proposed raising the thresholds—for instance, in the wholesale industry, while the employee threshold for large enterprises remained at 200, the operating revenue threshold was increased from RMB 400 million to RMB 2 billion. Although no further developments have been reported regarding these proposed amendments, the upward adjustment of thresholds appears highly likely. Enterprises are therefore advised to monitor the situation closely.