The European Commission unveiled a comprehensive package of measures on 21 May 2025, aimed at modernising the regulatory framework for businesses in the EU and, in particular, strengthening start-ups, scale-ups, and small and medium-sized enterprises (SMEs). For companies in the IT, tech, and digital economy sectors, this package introduces concrete legislative changes and strategic realignments with potentially significant implications.
Core Legislative Proposals
New Definition for Small Mid-Caps (SMCs): The Commission has put forward a Recommendation for a harmonised definition of SMCs. The interests of SMCs are to be given greater consideration in legislation. Furthermore, they are to be relieved of bureaucratic requirements. An enterprise is considered an SMC if it:
- is not an SME as defined in Recommendation 2003/361/EC;
- employs fewer than 750 persons; and
- has an annual turnover not exceeding EUR 150 million OR an annual balance sheet total not exceeding EUR 129 million. This definition is
- intended for use in future EU policies and programmes, providing legal clarity for a growing group of enterprises that often found themselves caught between the regulatory frameworks for SMEs and large corporations.
Adjustments to the General Data Protection Regulation (GDPR):
Several articles of the GDPR (Regulation (EU) 2016/679) are proposed for amendment to accommodate SMEs and, now, SMCs:
- Article 30(5) (Record of processing activities - RoPA): The threshold for exemption from the obligation to maintain a RoPA is to be raised from fewer than 250 to fewer than 750 employees. The obligation will not apply unless processing activities are likely to result in a 'high risk' to the rights and freedoms of data subjects, within the meaning of Article 35 GDPR. This is a significant simplification for many tech companies, especially scale-ups.
- Article 40(1) (Codes of conduct): The specific needs of SMCs are to be explicitly taken into account in the drawing up of codes of conduct.
- Article 42(1) (Certification): Similarly, the needs of SMCs are to be given greater consideration in the establishment of data protection certification mechanisms.
- Article 4 (Definitions): Definitions for SMEs and SMCs will be inserted, referencing the respective Commission Recommendations.
Digitalisation in Product Law and Simplifications:
Through omnibus acts, various product-specific Directives and Regulations will be updated in one go:
- The EU declaration of conformity will in future be drawn up in electronic form and made accessible via an internet address or a machine-readable code.
- Instructions for use may be provided in digital format; however, safety-critical information must still be available in paper form or on the product, particularly for consumers.
- Manufacturers will be required to indicate a "digital contact" (e.g., email, website) on products.
- The introduction of "common specifications" as an alternative to absent or insufficient harmonised standards is foreseen.
The "EU Startup and Scaleup Strategy": Outlook on Further Legislative Measures
In parallel with direct legislative amendments, the Commission's "EU Startup and Scaleup Strategy" outlines further planned legislative initiatives of significant importance to the digital economy, bu contains noteworthy changes in comparison to a leaked draft:
"European 28th regime"
The proposal for a "European 28th regime" aims to create a single, EU-wide set of rules to simplify the establishment and cross-border operation of companies. It is a direct response to the regulatory fragmentation across the 27 national legal systems in areas like company law, insolvency, and taxation, which are identified as a significant deterrent to investors and a burden for entrepreneurs. The regime would simplify rules in corporate, insolvency, labour, and tax law, for instance, by clarifying the taxation of employee stock options.
Noteworthy Change: While the leaked draft communication confidently announced this proposal with a target of Q1 2026, the more detailed Staff Working Document does not reiterate this specific timeline – perhaps it was viewed as too ambitious. Instead, it focuses on substantiating the problem and detailing the extensive stakeholder demand for such a regime.
"European Innovation Act" (Q1 2026):
This planned act is designed as a key legislative package to improve the innovation ecosystem. Its objectives include:
- Promoting the use of regulatory sandboxes by establishing a common legal definition and basic principles for their setup, including for cross-border experiments.
- Facilitating access for innovative companies to European research and technology infrastructures through new legislative measures.
- Introducing a harmonized legal definition of startups, scaleups, and innovative companies to enable better data collection and more targeted policies.
Noteworthy Change: The leaked draft set a clear target of Q1 2026 for this Act. This date is absent from the final Staff Working Document, suggesting the timeline may be subject to revision.
Revision of the Standardisation Regulation
The goal of this revision is to create a faster and more accessible standard-setting process, with a particular focus on the needs of SMEs and start-ups. This is intended to address the current process, which is described as too slow to keep pace with technological development , and to remedy the inconsistent standards and certification obligations that create significant barriers to market entry for new companies.
Noteworthy Change: A timeline of Q2 2026 was specified in the leaked communication, but this is not mentioned in the Staff Working Document.
Framework for IP valuation (Q2 2027):
A framework for the valuation of intellectual property is planned to facilitate its use as collateral for financing. This initiative directly confronts the major barrier of underdeveloped IPR-backed finance in Europe, where a lack of trustworthy and widely accepted valuation methodologies prevents knowledge-intensive startups from leveraging their most valuable intangible assets to secure funding.
Noteworthy Change: The leaked communication stated this framework would be developed in cooperation with the EUIPO by Q2 2027. This specific date and the mention of the EUIPO cooperation are not included in the actions list of the final Staff Working Document.
Tax harmonisation for Employee Stock Options (ESOs) and cross-border remote work
This action is a central part of the broader "Blue Carpet Initiative" aimed at attracting and retaining top talent. It addresses two distinct tax-related hurdles:
- For ESOs, the plan includes proposing "legislative measures to harmonise certain aspects of their taxation" to resolve inconsistencies across the EU regarding the timing of taxation and the classification of income.
- For cross-border remote work, the Commission intends to put forward a "recommendation to harmonise key taxation rules" to reduce the significant administrative burdens currently faced by innovative startups and their employees
Noteworthy Change: A timeframe of 2025-2026 for the Blue Carpet Initiative was included in the leaked communication, but is not specified in the Staff Working Document.
Significance for the IT, Tech, and Digital Economy
The announced measures have the potential to substantially improve the operating environment for digital companies in the EU. The increased thresholds for the GDPR RoPA obligation and the consideration of SMCs promise administrative relief. Digitalisation initiatives in product law align with the nature of technology-focused firms and reduce costs. The legislative proposals outlined in the Startup Strategy, such as the "28th regime", the "Innovation Act" with its focus on sandboxes, and the tax initiatives for ESOs and remote work, could address long-standing hurdles to growth and talent acquisition in the European tech sector. Companies should monitor these developments closely and prepare to adapt their compliance and business strategies accordingly.
