Article 63: Derogations for Specific Operators
Article 63 provides that the penalty framework in Article 99 must take into account the financial viability of SMEs and start-ups when setting fine amounts. The economic size and market position of the operator must be considered. The Commission and Member States must ensure penalty regimes provide for lower fine caps for SMEs, as specified in Article 99(2). This is the Act's explicit SME fine reduction provision — separate from the support measures in Article 62.
Who does this apply to?
- -SMEs and start-ups facing administrative fines under the AI Act, who benefit from reduced maximum fine caps and proportionality considerations
- -National authorities applying the penalty framework, which must consider the operator's economic size and financial viability when setting fine amounts
- -Courts assessing penalty proportionality for smaller operators in judicial review proceedings
Scenarios
A start-up with €2 million annual turnover commits an infringement that would attract the standard maximum fine of €15 million or 3% of global turnover under Article 99. The national authority applies Article 63 and Article 99(2), resulting in a maximum fine capped at the lower SME threshold rather than the standard ceiling.
A medium-sized enterprise (200 employees, €40M turnover) receives a fine for failing to implement adequate risk management under Article 9. The authority considers the company's market position, the seriousness of the violation, cooperation with the investigation, and the SME fine cap under Article 99(2) when determining the amount.
What Article 63 does (in plain terms)
Article 63 is a proportionality safeguard for the AI Act's penalty regime. It addresses a core concern: the standard fine ceilings in Article 99 — up to €35 million or 7% of global turnover for the most serious violations — could be existentially threatening to small operators.
Article 63 requires:
1. Financial viability consideration — when setting fine amounts, the financial viability of SMEs and start-ups must be taken into account. A fine that would bankrupt a start-up but merely inconvenience a tech giant is not proportionate. 2. Economic size and market position — the operator's actual economic size (not just legal status) must factor into penalty calculations. 3. Lower fine caps for SMEs — Article 99(2) specifies reduced maximum fine amounts for SMEs and start-ups across all infringement tiers. Article 63 reinforces that these lower caps must be applied.
This operates alongside the support measures in Article 62. Article 62 helps SMEs comply; Article 63 ensures that if an SME does face penalties, the amounts are proportionate to its means.
The penalty tiers and SME reductions
Under Article 99, the standard penalty tiers are:
| Infringement type | Standard maximum | SME/start-up maximum | |---|---|---| | Prohibited practices (Art. 5) | €35M or 7% turnover | Lower caps per Art. 99(2) | | Most other obligations | €15M or 3% turnover | Lower caps per Art. 99(2) | | Incorrect information to authorities | €7.5M or 1% turnover | Lower caps per Art. 99(2) |
The lower caps for SMEs are specified in Article 99(2). In every case, the fine ceiling for an SME or start-up is the lower of the percentage of turnover or the absolute euro amount — whichever produces the lesser fine. This inversion of the standard rule (which takes the *higher* amount) is a deliberate protection.
See the full text on EUR-Lex for the exact figures.
How Article 63 connects to the rest of the Act
- Article 62 — SME support measures (compliance assistance; Article 63 covers the penalty side).
- Article 99 — the full penalty framework including fine ceilings, aggravating/mitigating factors, and SME-specific caps.
- Article 90 — additional enforcement provisions relevant to penalty application.
- Article 113 — application dates and transitional provisions.
Compliance checklist
- Verify your organisation's SME or start-up status under the EU definition (Commission Recommendation 2003/361/EC) — this determines your eligibility for reduced fine caps.
- Understand the reduced fine ceilings applicable to SMEs under Article 99(2) for each tier of infringement — the lower-of rule applies.
- If facing an investigation, present evidence of your economic size, market position, and financial viability to the national authority for proportionality assessment.
- Document cooperation with authorities during any investigation — this is a mitigating factor under Article 99(3) that compounds the Article 63 reduction.
- Maintain financial records that clearly demonstrate SME status — turnover and balance sheet figures may be requested by authorities when applying penalty caps.
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Frequently asked questions
Does Article 63 mean SMEs can ignore AI Act compliance because fines are lower?
Absolutely not. Article 63 reduces maximum fine caps but does not eliminate penalties. SMEs are still subject to all AI Act obligations, and enforcement actions can include corrective measures, product withdrawal, and reputational damage beyond monetary fines. The reduced caps ensure proportionality, not impunity.
How do authorities determine whether I qualify as an SME for penalty purposes?
Authorities apply the standard EU SME definition: fewer than 250 employees and either turnover ≤ €50M or balance sheet ≤ €43M. They may also consider your actual economic size and market position to ensure the penalty is proportionate, even if you technically fall outside the strict SME thresholds.
Can a subsidiary of a large company claim SME fine reductions?
Generally no. The EU SME definition considers linked enterprises. If the subsidiary is controlled by a large parent company, the parent's headcount and financials are aggregated, typically disqualifying the subsidiary from SME status. Verify the 'partner' and 'linked enterprise' rules in Commission Recommendation 2003/361/EC.