Group structures and SMEs - What thresholds apply under the EU Deforestation Regulation?

Executive Summary

The EU Deforestation Regulation (EUDR) imposes different due diligence obligations on companies, depending on their role in the supply chain and the size of the company. The regulation distinguishes between three roles: Operator (market participant), Downstream Operator and Trader. While operators must implement a complete due diligence system including risk analysis and due diligence declaration, significantly reduced requirements apply to downstream operators and traders, especially SMEs. Whether a company is considered an SME is determined by the Accounting Directive 2013/34/EU; the SME Recommendation 2003/361/EC, which was previously frequently referred to, is expressly not applicable to the EUDR (FAQ 3.10). The decisive factor is that a company does not exceed at least two of the three thresholds: €25 million balance sheet total, €50 million net turnover or 250 employees. A change in size only occurs after two consecutive financial years.

Although SME traders do not need to carry out their own risk analyses, they must document the market participant's due diligence declaration, provide evidence of this via a reference number and archive the information for at least five years. Clear clarification of roles within company groups and documented, system-based handling of reference numbers are key requirements for legally compliant EUDR implementation. Companies should review their classification annually and establish suitable measures for implementation in good time. The date of application is December 30, 2026 for large and medium-sized companies and June 30, 2027 for small and micro-enterprises.

EUDR: objectives, background and obligations

The EUDR (EU Deforestation Regulation) aims to curb deforestation and forest damage worldwide by ensuring that only deforestation-free products enter the EU. It applies to companies that import certain raw materials or products into the EU or sell them within the EU. The regulation distinguishes between different types of companies.

In day-to-day business, groups of companies in particular, such as parent companies, subsidiaries, holding companies or joint ventures, are often faced with the question of how to correctly determine and apply the thresholds and obligations of the EUDR. In addition, there is often uncertainty as to what role a company plays in the supply chain, whether as a market participant or as a trader, and how this affects implementation (e.g. due diligence obligations, documentation, risk assessment). Particularly in the case of complex corporate structures or small companies with a strong division of labor, it is important to identify the obligations precisely.

When do which EUDR obligations apply?

By December 30, 2026, companies in the EU must be able to demonstrate transparently that their products do not contribute to deforestation or forest degradation. The regulation particularly affects players that import relevant raw materials such as wood, coffee, cocoa, soy, palm oil, rubber and cattle products or are the first distributors in the EU. Products made from these raw materials are also important and must be taken into account. The EUDR makes a clear distinction as to whether a company acts as a market participant or trader and whether it is an SME as defined by the EU.

Operator, downstream operator and trader - the three roles of EUDR players

The EUDR differentiates between three functional roles.

The operator (market participant) places a relevant product on the EU market for the first time or exports it from the EU - typically importers or EU primary producers. Operators bear the main responsibility and must fulfill the full due diligence obligation and submit a due diligence declaration (DDS).

The downstream operator processes existing relevant products in the EU into new relevant products and places them on the market or exports them - for example, a chocolate manufacturer that processes imported cocoa. They do not have to carry out their own due diligence or submit a DDS, but "only" fulfill information obligations: Ensure traceability, keep DDS reference numbers for five years and report any suspected non-compliance.

The trader resells a relevant product that has already been placed on the market, for example in retail or wholesale. Downstream operators and traders share the same basic obligations under Art. 5 EUDR. Non-SMEs in these roles must also register in the information system and actively verify any substantiated concerns.

The "first downstream" logic - who has to record the reference number?

One of the most important clarifications of FAQ iteration 5 concerns the question of which actor in the supply chain must record the DDS reference number at all. Answer: only the first downstream operator or trader, and that passively. He does not have to actively check whether his supplier is an operator, nor does he have to actively ask for the reference number. The obligation to disclose lies with the operator (Art. 4(7) EUDR).

Specifically, this means (FAQ 3.4 and 3.5): If a company does not receive a reference number from its supplier, it may assume that it is not first downstream in accordance with the "good faith" principle. Only if it is aware that its supplier is an operator and does not pass on the number may it not place the product on the market.

Standard obligations and simplifications - the importance of company size

The standard obligations of the EUDR apply to all market participants, regardless of size. For traders, however, the decisive factor is whether or not the company qualifies as an SME as defined by the EU. The SME classification according to the Accounting Directive 2013/34/EU is decisive here (see below: €25 million balance sheet total, €50 million net turnover, 250 employees - not exceeding two out of three).

The EUDR provides significant relief for traders who are classified as SMEs, as they do not have to submit a separate due diligence declaration for each delivery. Under certain conditions, they may refer to the due diligence declarations of their upstream suppliers. Nevertheless, a number of documentation and cooperation obligations remain, e.g. to retain the due diligence declarations and in the event of inquiries from authorities.

Special case: micro and small "primary operators"

In addition to the simplifications for SME traders, there has been a second simplification component since the targeted adjustment at the end of 2025 that is often overlooked. It is aimed at micro and small primary operators, i.e. actors who produce relevant raw materials or products themselves and place them on the market for the first time. This group is not required to submit a full due diligence declaration for each process. Instead, a one-off simplified declaration in the EU system is sufficient, from which a declaration identifier is then generated. This identifier then serves as a verification and traceability anchor for the products concerned. In certain cases, these primary operators may also provide a postal address if this clearly assigns the production to a location.

The relevant SME definition: Accounting Directive 2013/34/EU

The EU Commission's SME Recommendation 2003/361/EC is often used as a reference for SME classification. This expressly does not apply to the EUDR. FAQ 3.10 of the 5th iteration clarifies: The thresholds of the Accounting Directive 2013/34/EU (as amended by Delegated Directive 2023/2775) are decisive. The thresholds for "small" and "medium-sized groups" from Art. 3(5) and (6) of the Accounting Directive are also not relevant for the EUDR.

A company is considered a medium-sized company if it does not exceed at least two of the following three values on the balance sheet date:

• Balance sheet total: € 25 million
• Net sales: € 50 million
• Average number of employees in the financial year: 250

Small companies are below this threshold in at least two out of three cases, and micro companies are significantly lower. The exact thresholds result from the national implementation of the Accounting Directive - in Germany § 267 HGB. The following applies to small companies: maximum balance sheet total of € 7.5 million, € 15 million turnover, 50 employees (at least two of the three criteria must not be exceeded).

There is an important special rule for temporal applicability: Whether a company benefits from the later start of application on June 30, 2027 (instead of December 30, 2026) depends on whether it was established as a micro or small enterprise on the reporting date of December 31, 2024.

Group structures and holding companies - how are they counted?

In practice, many companies are part of groups, act as subsidiaries, holding companies or have indirect shareholdings through subsidiaries. In practice, many companies are part of groups, act as subsidiaries, holding companies or have indirect shareholdings.

The EUDR therefore raises the question: is each group company assessed individually or does the entire group count? The EU Commission has clearly answered this question in the 5th FAQ iteration and the answer deviates from the usual logic of many other EU regulations.

Basic principle: Individual consideration of the legal entities

In principle, individual legal entities are considered under European law. A company that has its own legal existence and entry in the commercial register is therefore treated as an independent entity. As a result, the EUDR obligations are triggered at the level of the respective legal entity. The EUDR therefore has an important special feature: unlike the SME Recommendation 2003/361/EC, which works with the concept of associated enterprises and partner enterprises, group membership is irrelevant for SME classification under the EUDR.

Individual consideration instead of consolidation - the EU Commission's clarification

Unlike many other EU regulations, the EUDR does not apply a consolidated threshold analysis at group level. FAQ 3.13 makes it very clear that the due diligence obligations apply to "persons" within the meaning of Art. 2(20) EUDR - regardless of whether they are part of a group of companies or not. Subsidiaries, like any other legal entity, must check whether they are to be classified as an SME based on their own balance sheet total, net turnover and number of employees. The decisive factor is the individual legal entity, not the group as a whole.

This has an important technical consequence: every group company that acts as an operator, non-SME downstream operator or non-SME trader must maintain its own account in the EU information system. The system expressly does not provide for group-wide omnibus accounts.

The following also applies within group supply chains: each legal entity is considered individually. In the case of several transactions within a group, the first downstream operator or trader may well be a sister company (FAQ 3.8).

Group-wide efficiency despite individual consideration: The authorized representative

Even if each group company needs its own account, the EUDR offers a central solution: According to Art. 6 EUDR, an authorized representative (with an EU branch and a written mandate in accordance with Art. 2(22)) can submit and jointly manage DDSs and SDs for several group companies. The legal responsibility remains with the respective group company, but the operational burden can be centralized - for example with a specially established compliance function at holding company level.

Scenario: Subsidiary of an international group

A German subsidiary of an international group independently imports coffee products. It employs 40 people, generates € 8 million in sales and has total assets of € 4 million. The French parent company has 180 employees, a turnover of € 60 million and a balance sheet total of € 30 million.

According to FAQ 3.13, the German subsidiary is considered in isolation. With 40 employees, a turnover of €8 million and a balance sheet total of €4 million, it remains well below the thresholds and is considered a small company - regardless of the fact that the parent company is a non-SME. The later application of the EUDR from June 30, 2027 therefore applies to it (prerequisite: status on December 31, 2024) and it benefits from the simplifications for SME players. However, as an operator, it is still required to register itself in the information system; alternatively, the parent company can appoint an authorized representative to submit the DDS centrally for several group companies.

Requirements for SME retailers in the supply chain

Many small companies are not market participants under the EUDR, but only act as traders. They sell products that other, usually larger, companies have already imported into the EU. Simplified rules apply to such SME traders and SME downstream operators in accordance with Art. 5 EUDR.

Facilitations for SME traders according to EUDR

The EUDR regulations stipulate that SME traders and SME downstream operators do not have to submit their own due diligence statement (DDS) or carry out their own risk analysis. They are also exempt from registration in the EU information system - this only applies to non-SME downstream operators and non-SME traders (Art. 5(2) EUDR). Further review obligations only apply in the case of substantiated concerns and even then only for non-SMEs.

The EU Commission justifies this simplification by reducing the administrative burden on smaller companies. This significantly reduces the workload for SME traders: they can focus on core obligations without being subject to the extensive documentation and analysis obligations of market participants.

Obligations that nevertheless exist

Even though SME traders are exempt from many administrative obligations, they are not completely exempt from the EUDR. Key obligations include, in particular, the fact that every trader must provide evidence of and archive the market participant's due diligence declaration. For each transaction, it must be ensured that a unique reference number for the respective due diligence declaration is available and can be clearly assigned to this product or its batch.

In addition, the EUDR requires SME traders to keep the evidence for the competent authorities or audits for at least five years. This documentation obligation extends to all transactions with affected products within the supply chain.

Reference number instead of full DDS - what does this mean in concrete terms?

The reference number is the central link in EUDR compliance for SME traders. It refers to the due diligence declaration issued by market participants and must be documented for each delivery. In practice, this means that the reference number for each delivery or batch must be clearly assignable internally, archived in an audit-proof manner and transferable if required. Many companies solve this by carrying the predominant reference in ERP and document processes without having to generate new proofs at each stage of the chain.

From a technical perspective, companies can adapt existing ERP, merchandise management or compliance systems so that the recording, archiving and reporting of the reference number is automated. Organizationally, clear processes must be established to ensure that the associated due diligence declaration is clearly linked to each relevant transaction and can be checked at any time. Safeguarding against sources of error, duplication or loss of reference numbers is crucial, as missing or incorrect information can lead to sanctions in the event of an audit.

Recommendations for action for corporate groups and SMEs

Clarification of the distribution of roles within corporate groups

Within companies or groups of companies, a clear distinction must first be made between market participants and traders. Who is actually importing into the EU for the first time? Who is reselling? These questions are also important for the practical division of tasks. In the case of related business activities, it is advisable to install a responsible function (e.g. compliance officer), which takes over the allocation and monitoring of EUDR obligations and ensures group-wide consistency. It must be documented for each individual company in the group whether it acts as a market participant or trader within the meaning of the EUDR. It makes sense to clearly define the due diligence obligations and, if necessary, have them handled centrally by the parent or holding company, provided this is possible in accordance with the law.

Uniform valuation within the Group

The review of SME status and the relevant thresholds should be documented annually in a comprehensible manner as part of the financial statements or reporting on the corporate structure. Close coordination with the internal legal and compliance department is recommended in order to ensure a uniform interpretation of the relevant EUDR thresholds within the group. Every change in the corporate structure - for example, due to new investments, divestments or newly founded companies - must be transparently included in the assessment. The documentation of the threshold test is also essential because it can be used as proof of the claimed simplifications or obligations in the event of an audit.

For SME dealers: Efficient system for managing reference numbers

SME traders are recommended to use existing software solutions such as ERP or compliance systems to manage the EUDR reference numbers. Are you already familiar with our EUDR module? With this module, all necessary EUDR-relevant checks can be carried out automatically in just one platform. It makes sense to integrate the entry of the reference number as a mandatory field in the workflow for goods receipt, invoicing and warehouse management. At the same time, companies benefit from clear processes for passing on the number within the supply chain, archiving and audit-proof storage. Every employee in retail, purchasing or sales should be made aware of the importance of the reference number so that there are no gaps in verification. A precisely documented and regularly reviewed process for managing reference numbers reduces the risk of official complaints and ensures legal certainty for all transactions.

Conclusion

Correct classification as a market participant or trader is the crucial first step; mistakes here can have serious legal consequences. SMEs benefit from simplifications, but remain under obligation: documentation and management of due diligence declarations and reference numbers must be designed in an audit-proof manner.

In the case of group structures, the individual view per legal entity applies - not the consolidated view. However, close coordination with the legal and compliance department remains essential because the different classifications of the individual group companies can result in different obligations and an authorized representative in accordance with Art. 6 EUDR can bundle the operational burden across the group.

Those who clearly assign roles, regularly check threshold values and introduce efficient systems for reference number management create the basis for legally compliant EUDR compliance.