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Where do SMEs have the best business climate?
SME Business Climate Index (SMEB 2019)
Small- and medium-sized enterprises (SMEs) are crucial for economic growth and prosperity worldwide.
They represent about 90% of global businesses and more than 50% of total employment. In the EU, they represent 99% оf all businesses and more than 60% of the value added. However, several reports and surveys have revealed that SMEs face disadvantages in accessing finance, failures in competition and excessive regulatory burdens relative to big companies.
2019 SME Business Climate Index (SMEB) assesses the business environment for SMEs in 13 selected economies.
SMEB is based on six components: red tape, tax policy, labor market flexibility, financing, export opportunities and competition.
The most favorable business environment for SMEs is in Canada, followed by Hong Kong, the U.S., the Netherlands and Singapore
These five economies have in common a flexible labor market in terms of hiring and firing procedures and a low level of red tape. The top three also enjoy favorable tax policies and relatively good financing conditions.
The other eight economies are ranked as follows: Belgium, UK, Germany, Poland, Ireland, France, Slovakia and Czechia.
In the UK, Germany and France, SMEs experience a below average business climate (within our sample). While in the UK and Germany, tax policy is the main constraint, in France, the lack of labor market flexibility, the lack of enough financial information on SMEs and red tape are the main drags.
The Netherlands – Best in class for SMEs in Europe
The Netherlands ranks first in terms of the SME business climate among European countries, thanks to a high score in terms of export opportunities, low red tape, supportive financing conditions and labor market flexibility. On the ex- port side, 9.2% of total SMEs are export- ing, against 5.5% on average for peers. Trading across borders is very easy in terms of time (one hour) and documents. The cost of exporting is close to 0 against more than 170 USD for advanced economies. In terms of financing, although SMEs in the Netherlands face a slightly higher cost compared to Germany or France (2.4% vs. 2.0% and 1.6%, respectively), finance availability is considered to be excellent/good for 40% of SMES and only 14% of SMEs registered a loan rejection in the past 12 months (against 19% on average for peers).

On the negative side there are two components: competition and tax policy. Dutch companies would describe corporate activity as intense (a score of 5.2 over 7, which is considered extremely intense). This is similar to Germany, but higher than Belgium and France for example. In terms of tax, Dutch SMEs benefit from a special regime with a corporate tax at 20%, 5pp less than the base tax rate. However, the gap is smaller when compared to Belgium (9pp) or France (16pp), for example. Hence, reducing the corporate tax on SMEs further, as planned in the 2020 Budget (to 15% in 2021), is a positive move as it would give 1pp of additional margin to Dutch SMEs.