EU Commission Recommendation on Innovative Startups: A New Definition Takes Shape

The European Commission published its long-awaited recommendation on defining innovative enterprises, startups, and scaleups as part of efforts to better support high-growth companies.

Defining the Future: EU Commission Sets Out What Makes a Startup 'Innovative'

The European Commission published Commission Recommendation (EU) 2026/720 on March 18, 2026, laying out for the first time a formal EU-level definition of innovative enterprises, innovative startups, and innovative scaleups. The recommendation, which applies across member states and informs how public support, tax treatment, and regulatory frameworks interact with high-growth companies, addresses a longstanding gap in European innovation policy: the absence of a common framework for identifying the companies that European economies most need to nurture.

The definition criteria distinguish between enterprises at different stages of their growth trajectory. Innovative startups are characterised by their age — typically less than five years in operation — their growth orientation, their research and development intensity relative to turnover, and whether they are working on technologies or business models with significant novel elements. Innovative scaleups are defined by their proven growth trajectory — typically demonstrating at least 10 percent annual growth in revenue or employment — combined with continued innovation intensity. The framework is intended to guide member state tax authorities, state aid administrators, and public procurement offices in identifying companies that merit preferential treatment without creating artificial categories that can be gamed by companies that look the part but lack genuine innovation activity.

European startup founders and venture investors broadly welcomed the recommendation as a step toward more coherent and predictable treatment of high-growth companies across the single market. The Financial Times noted in a separate analysis that the parallel 'EU Inc' corporate legal framework proposal remains controversial, with critics arguing it represents a missed opportunity for more radical simplification of European company law that would genuinely incentivise startups to stay in Europe rather than incorporating in Delaware or in UK holding company structures.