Chapter 3|Due Diligence Obligations - Online Marketplaces|📖 11 min read
1. This Section shall not apply to providers of online platforms allowing consumers to conclude distance contracts with traders that qualify as micro or small enterprises as defined in Commission Recommendation 2003/361/EC. This Section shall also not apply to such providers of online platforms that previously qualified as micro or small enterprises during a period of 12 months following the date on which they ceased to qualify, except where those providers are very large online platforms in accordance with Article 33.
2. By derogation from paragraph 1, this Section shall apply to providers that qualify as very large online platforms pursuant to Article 33, irrespective of whether they qualify as micro or small enterprises.
Understanding This Article
Article 29 of the Digital Services Act establishes a proportionality-based exemption for micro and small enterprise marketplace platforms from the specialized marketplace obligations contained in Section 4 of Chapter III (Articles 30-32). This provision recognizes that imposing trader verification, traceability, compliance-by-design, and regulatory reporting obligations on very small marketplace operators would create disproportionate compliance burdens relative to their scale, potentially preventing small businesses from operating viable marketplaces and stifling innovation in the digital marketplace ecosystem.
The exemption applies specifically to Section 4 obligations, which impose marketplace-specific requirements beyond general intermediary service and platform obligations. These Section 4 obligations include: Article 30's 'traceability of traders' requirements mandating Know Your Business Customer (KYBC) systems verifying trader identities, collecting business documentation, and maintaining trader databases; Article 31's 'compliance by design' obligation requiring online interfaces designed to enable traders to comply with EU product safety, consumer protection, and regulatory requirements; and Article 32's obligation to provide information to consumer protection authorities and submit data about dangerous products to EU-wide safety databases. While these requirements are manageable for large marketplaces like Amazon or eBay with sophisticated compliance infrastructure, they would be economically prohibitive for small startups or individual entrepreneurs operating niche marketplaces.
The SME definition follows Commission Recommendation 2003/361/EC, which establishes EU-wide standardized criteria for enterprise classification. Under this framework: micro-enterprises have fewer than 10 employees and annual turnover or balance sheet totals below EUR 2 million; small enterprises have fewer than 50 employees and annual turnover or balance sheet below EUR 10 million; medium-sized enterprises have fewer than 250 employees and annual turnover below EUR 50 million or balance sheet below EUR 43 million. Article 29 exempts only micro and small enterprises (not medium-sized), reflecting that enterprises with 50+ employees or EUR 10+ million turnover have sufficient resources to implement marketplace compliance systems.
The 12-month grace period in Article 29(1) addresses growth transition challenges. When a marketplace exceeds SME thresholds (hiring the 50th employee or surpassing EUR 10 million annual turnover), immediate compliance with complex trader verification and traceability systems would be operationally disruptive. The grace period enables growing marketplaces to build necessary compliance infrastructure (implementing KYBC systems, developing interface design compliance features, establishing regulatory reporting processes, training staff on verification procedures) without immediate enforcement pressure. This transition period supports business growth and prevents regulatory cliffs where crossing thresholds triggers immediate, potentially crushing compliance obligations.
Paragraph 2's critical exception prevents VLOP designation circumvention through corporate structuring. If a marketplace platform reaches 45 million average monthly active EU users (the Article 33 VLOP threshold), Section 4 obligations apply regardless of enterprise size. This prevents scenarios where large-scale marketplaces could evade trader verification and product safety obligations by maintaining small corporate structures or dividing operations across multiple small entities. A marketplace with 50 million users but technically qualifying as a small enterprise based on employee count or direct revenue cannot claim Article 29 exemption - its user scale triggers full marketplace obligations reflecting the systemic importance and consumer protection needs of high-reach platforms.
The policy rationale balances multiple objectives. First, proportionality requires regulatory burdens matched to provider scale and impact. Small marketplaces connecting local artisans with buyers pose fundamentally different risks than global marketplaces selling millions of products from thousands of traders. Second, supporting SMEs and startup innovation remains a European policy priority. Excessive early-stage regulatory burdens could prevent innovative marketplace models from launching or force them to locate outside the EU. Third, consumer protection remains paramount - the VLOP exception ensures high-reach marketplaces face full obligations regardless of corporate structure, protecting consumers on platforms with significant market presence. Article 29 thus creates graduated obligations reflecting scale while maintaining protections where consumer reach warrants them.
The relationship with Article 19 is instructive. Article 19 provides parallel SME exemptions from Section 3's general platform obligations (transparency reporting, recommender system disclosure, advertising transparency, terms of service requirements) for micro and small platforms. Together, Articles 19 and 29 implement comprehensive proportionality across platform types: general platforms benefit from Article 19 exemptions; marketplaces benefit from Article 29 exemptions; platforms that are both general platforms and marketplaces benefit from both exemptions. However, baseline obligations in Sections 1-2 (points of contact, terms of service basics, notice and action mechanisms) apply universally regardless of size, ensuring fundamental accountability standards apply to all providers.
Determining classification raises practical questions. Enterprise size depends on employee headcount (full-time equivalents, including affiliated/partner enterprises under EU calculation methodologies) and financial thresholds (turnover or balance sheet). For marketplace platforms, determining whether they 'allow consumers to conclude distance contracts with traders' (the Section 4 marketplace definition) requires assessing whether the platform facilitates transaction conclusion or merely enables communication or advertising. A classified advertising platform where buyers and sellers communicate but conclude contracts off-platform might not qualify as Article 30-32 marketplace; a fully integrated e-commerce marketplace with on-platform payment and order processing clearly does. These definitional questions affect Article 29 applicability.
The temporal dimension creates compliance planning requirements. Marketplaces must monitor their enterprise status, tracking employee counts, financial performance, and user numbers. When approaching SME thresholds or VLOP designation criteria, marketplaces should begin compliance preparations. The 12-month grace period isn't a surprise extension - prudent platforms will anticipate threshold crossings and use the grace period for implementation rather than starting from zero. Similarly, marketplaces exceeding thresholds but subsequently contracting below them might regain exemptions, though frequent threshold oscillations create compliance complexity.
Key Points
Micro and small enterprise marketplace platforms exempt from Section 4 marketplace-specific obligations (Articles 30-32)
Section 4 obligations include trader verification (Article 30), compliance-by-design (Article 31), and product safety reporting (Article 32)
Micro-enterprises: <10 employees, <EUR 2 million turnover/balance sheet; Small enterprises: <50 employees, <EUR 10 million turnover/balance sheet
12-month grace period continues exemption after exceeding SME thresholds, enabling transition and compliance system implementation
VLOP designation eliminates exemption regardless of enterprise size - platforms with 45+ million monthly EU users face full obligations
Prevents circumvention through corporate structuring - large-scale marketplaces can't evade obligations by maintaining small company structures
Parallel to Article 19's SME exemption for general platform obligations, creating comprehensive proportionality framework
Baseline obligations in Sections 1-2 still apply - points of contact, terms of service, notice and action mechanisms remain mandatory
Enterprise classification follows Commission Recommendation 2003/361/EC with standardized EU-wide criteria
Affiliated/partner enterprises' employees and financials aggregate for threshold calculations, preventing fragmentation circumvention
Voluntary compliance permitted and often prudent - exemption is floor not ceiling, platforms can implement higher standards
DSCs monitor threshold approaches, verify exemption eligibility, and can investigate claims during consumer protection investigations
Practical Application
For Handcraft Marketplace Startup: An entrepreneur launches a marketplace connecting independent artisans selling handmade jewelry, textiles, and crafts with consumers. The business has 8 employees, EUR 1.5 million annual turnover, and 50,000 monthly active users. As a micro-enterprise, it qualifies for Article 29 exemption from Section 4 obligations. The marketplace doesn't need to: implement Article 30 KYBC systems verifying artisan identities and collecting business documentation; design Article 31 compliance features ensuring products meet EU safety standards; or submit Article 32 dangerous product reports to consumer protection authorities. However, the marketplace still must comply with: Article 11 authority points of contact; Article 12 user contact information; Article 14 terms of service provisions; Article 16 notice and action mechanisms for illegal content; Article 17 internal complaint handling; and other non-Section-4 obligations. The exemption is targeted and proportionate - relieving the startup from marketplace-specific verification burdens while maintaining fundamental platform accountability.
For Growing Marketplace - Crossing Thresholds: A sustainable fashion marketplace grows from 35 employees and EUR 6 million turnover (small enterprise, exempt) to 55 employees and EUR 12 million turnover over two years. Upon crossing the 50-employee or EUR 10 million threshold, the marketplace no longer qualifies as a small enterprise. However, Article 29(1) provides a 12-month grace period. During this year, the marketplace: implements Article 30 KYBC systems collecting trader identification, business registration documents, and tax information; develops verification procedures using national business registries, VAT databases, and document authentication; designs Article 31 interface features requiring traders to specify product categories, certify compliance with applicable regulations, and provide safety information; establishes Article 32 reporting procedures for dangerous products; and trains staff on verification, compliance monitoring, and regulatory reporting. At the grace period's end, the marketplace operates full Section 4 compliance, having used the transition period to build necessary systems without operational disruption.
For Large-Scale Marketplace - VLOP Exception: A peer-to-peer marketplace platform facilitates transactions between individuals selling used goods, vehicles, real estate, and services. The platform is structured as a small enterprise (40 employees, EUR 8 million revenue) to keep operations lean. However, the platform has 55 million monthly active EU users, exceeding the Article 33 VLOP threshold of 45 million. Despite qualifying as a small enterprise, Article 29(2) eliminates the Section 4 exemption because VLOP designation applies. The marketplace must implement full Article 30-32 obligations: KYBC verification of millions of traders, compliance-by-design features for diverse product categories, dangerous product reporting systems, and regulatory database submissions. The VLOP exception prevents circumvention - high user reach triggers obligations regardless of corporate size, ensuring consumer protection on systemically important platforms.
For Niche Marketplace Below Thresholds: A specialized marketplace connecting vintage book collectors has 5 employees, EUR 800,000 annual turnover, and 10,000 users. As a micro-enterprise, it's exempt from Section 4. The marketplace argues it shouldn't need to verify the identity of book sellers or report dangerous products (books rarely pose product safety risks). This illustrates proportionality benefits: the marketplace focuses on connecting enthusiasts in a low-risk category without disproportionate regulatory infrastructure. However, if the marketplace expanded to include other product categories with higher consumer protection concerns (electronics, children's products, cosmetics), it would face pressure to implement voluntary safety measures even if technically exempt, demonstrating that exemptions don't eliminate prudential risk management responsibilities.
For Marketplace Operating Multiple Platforms: A company operates three separate marketplace platforms: one for local food products, one for handmade furniture, and one for digital goods/services. Each platform has separate branding and operations but shares backend infrastructure and staff. For Article 29 purposes, are they separate enterprises or one combined enterprise? Under EU SME definition rules, affiliated or partner enterprises' employees and financials are aggregated. If the three platforms collectively have 60 employees and EUR 15 million combined turnover, the company exceeds small enterprise thresholds despite each individual platform being small. The entire company must comply with Section 4 obligations across all marketplaces after the 12-month grace period. This prevents circumvention through artificial fragmentation.
For Cross-Border Marketplace Establishment Questions: A marketplace is established in Estonia (EU Member State) with 15 employees and EUR 4 million turnover, qualifying as a small enterprise. The marketplace primarily serves users in Germany, France, and Spain. Which Member State's interpretation of Article 29 applies? As an EU Regulation, the DSA applies uniformly, and the SME definition in Commission Recommendation 2003/361/EC is EU-wide standardized. The marketplace's establishment in Estonia doesn't affect exemption eligibility - the classification is objective based on EU-wide criteria. Estonian DSC has primary supervisory responsibility, but the marketplace's exemption status is determinable by any Member State authority using the same criteria, ensuring cross-border consistency.
For Contracting Back Below Thresholds: An economic downturn causes a marketplace to reduce from 65 employees and EUR 14 million turnover to 42 employees and EUR 8 million turnover, falling back into small enterprise classification. Does it regain the Article 29 exemption? The text doesn't explicitly address downward threshold crossing, but regulatory logic suggests the exemption would reapply once the marketplace qualifies as a small enterprise again. However, practical considerations arise: dismantling already-implemented KYBC and compliance systems might be operationally unwise, consumer protection benefits would be lost, and frequent threshold oscillations create compliance uncertainty. Many marketplaces that built Section 4 compliance infrastructure continue voluntary compliance even if technically eligible for exemption, maintaining trader verification and safety systems for consumer trust and risk management.
For Voluntary Compliance Despite Exemption: A small marketplace with 30 employees voluntarily implements Article 30 trader verification even though exempt under Article 29. Motivations include: building consumer trust through verified trader programs; differentiating from less trustworthy competitors; preparing for anticipated growth that will trigger obligations; reducing liability risks by vetting traders; and demonstrating responsible platform operation to regulators. The exemption is a floor, not a ceiling - exempt platforms can choose higher compliance standards. This voluntary compliance might also position the marketplace favorably if it seeks investment, partners with larger platforms, or expands into markets where trader verification is competitive necessity.
For DSC Supervision and Verification: A national DSC receives consumer complaints about unsafe products on a marketplace claiming Article 29 exemption. The DSC investigates and requests documentation of employee count, annual turnover, and financial statements proving small enterprise qualification. The marketplace provides audited financials showing 45 employees and EUR 9.2 million turnover - within small enterprise thresholds. The DSC verifies the exemption is legitimate. However, the DSC notes the marketplace is approaching thresholds and reminds it of the 12-month grace period upon exceeding them, suggesting proactive compliance preparation. This illustrates DSC roles in verifying exemption claims, monitoring threshold approaches, and providing regulatory guidance.
Real-World Challenge - Balancing Growth and Compliance: A successful marketplace faces a strategic dilemma. It currently has 45 employees and EUR 9 million turnover (just within small enterprise limits) but has opportunities for rapid expansion that would push it past 60 employees and EUR 15 million turnover. However, crossing thresholds triggers Section 4 obligations requiring significant compliance investment: implementing KYBC systems costs EUR 200,000-500,000 in software, integration, and staff training; compliance-by-design interface redesigns require EUR 100,000+ in development; ongoing verification operations need 3-5 additional compliance staff costing EUR 150,000-300,000 annually. The marketplace must weigh expansion benefits against compliance costs. The 12-month grace period helps but doesn't eliminate the fundamental question: does growth justify compliance investment? Some marketplaces deliberately maintain operations below thresholds (limiting hiring, capping revenue growth) to preserve exemptions - a regulatory phenomenon where threshold effects influence business decisions. This illustrates how proportionality exemptions, while well-intentioned, create strategic considerations affecting marketplace development and market structure.