The month procurement called me a high-risk AI provider at $57K MRR

That sentence arrived in a procurement questionnaire on a Tuesday morning, item 41 of 96, from a German logistics company that wanted to put us in front of four hundred hiring managers. We were doing $57,000 MRR. I had seven people. Nobody on the team had ever read a conformity assessment, and I was fairly sure we did not have one.

Quick answer (2026): This is a composite founder diary. The company, the customer and the questionnaire are assembled from several real situations rather than reported from one, and the MRR figure marks a point on a narrative arc, not a specific business. The legal text quoted below is real and quoted verbatim from the Official Journal. The short version of what I learned: the number everyone repeats about the EU AI Act, EUR 35 million or 7% of turnover, is almost certainly not your number, because Article 99(6) inverts the arithmetic for small companies. And the exemption I spent two weeks trying to qualify for turned out to have a price tag nobody had mentioned.

The number that made me stop sleeping

I did what everyone does. I searched, and the first thing I found was the penalty. Every guide leads with it. Fines of up to EUR 35 million or 7% of global annual turnover, whichever is higher.

Whichever is higher. I ran that against our numbers. Seven percent of $684,000 is $47,880, so the higher of the two was EUR 35 million, and EUR 35 million is roughly fifty-one years of our revenue. I read that at 11pm and then read it again.

It took me another day to find out that this was the wrong tier and the wrong sentence.

What Article 99 actually says

The penalties article has three monetary tiers, not one. I am quoting from the Regulation as published in the Official Journal, because at this point I had stopped trusting summaries.

Paragraph 3 is the one everybody quotes. It applies to "Non-compliance with the prohibition of the AI practices referred to in Article 5", which is the banned-practices list: social scoring, manipulation, that category. It carries "up to EUR 35 000 000 or, if the offender is an undertaking, up to 7 % of its total worldwide annual turnover for the preceding financial year, whichever is higher."

We were not doing any of those things. So paragraph 3 was never our tier.

Paragraph 4 is the tier a normal SaaS company actually lands in. It covers, among others, "obligations of providers pursuant to Article 16", and it carries "up to EUR 15 000 000 or, if the offender is an undertaking, up to 3 % of its total worldwide annual turnover".

Paragraph 5 covers supplying "incorrect, incomplete or misleading information" to authorities, at EUR 7 500 000 or 1%.

Then comes paragraph 6, which I have never once seen quoted in a vendor guide, and which is four lines long:

Article 99(6), verbatim: "In the case of SMEs, including start-ups, each fine referred to in this Article shall be up to the percentages or amount referred to in paragraphs 3, 4 and 5, whichever thereof is lower."

Whichever thereof is lower.

For everybody else the cap is the higher of the flat amount and the percentage. For an SME it is the lower. That single word reverses the entire calculation, and it applies to all three monetary tiers.

The arithmetic, done properly

Here is what the three tiers meant for a company at $57K MRR, which is $684,000 of annual revenue.

The tier we could plausibly breach was paragraph 4. The exposure was $20,520, not EUR 15 million and certainly not EUR 35 million. Against the headline number I had been carrying around for two days, that is a factor of roughly 1,706.

One honest caveat on that table: our revenue is in dollars and the caps are in euros, so those rows are not a precise currency conversion. They do not need to be. The percentage figure is smaller than the flat amount by three orders of magnitude, so no plausible exchange rate changes which side of the comparison wins. That is the useful property of the clause. Below a certain size, the percentage is always the lower one, and you can stop worrying about the eight-figure number entirely.

$20,520 is still real money for a company our size. It is not a company-ending event, which is what I had believed for forty-eight hours.

Then the harder question: were we even high-risk?

Penalties only matter if the obligations attach. Article 6(2) says systems "referred to in Annex III shall be considered to be high-risk", and Annex III point 4(a) covers systems "intended to be used for the recruitment or selection of natural persons, in particular to place targeted job advertisements, to analyse and filter job applications, and to evaluate candidates".

We filter job applications. That is literally the product. So on the face of it, yes.

But Article 6 has a derogation in paragraph 3, and it is genuinely wide. An Annex III system "shall not be considered to be high-risk where it does not pose a significant risk of harm to the health, safety or fundamental rights of natural persons, including by not materially influencing the outcome of decision making", where any one of four conditions is met. The first is that the system "is intended to perform a narrow procedural task".

We spent eleven days building the argument that we performed a narrow procedural task. We deduplicated applications, parsed CVs into structured fields and flagged missing right-to-work documents. A human read every candidate. We genuinely believed it.

Then I got to the last line of paragraph 3.

Article 6(3), final subparagraph, verbatim: "Notwithstanding the first subparagraph, an AI system referred to in Annex III shall always be considered to be high-risk where the AI system performs profiling of natural persons."

Always. Not "unless", not "subject to". We had shipped a feature eight months earlier that scored candidates for likely fit against previous successful hires. Sales loved it. It was profiling, and it closed the derogation regardless of how narrow everything else was.

The exemption is not free, which nobody mentions

This is the part I would most want a founder to know, because we nearly got it wrong in the other direction.

While we were still arguing we qualified for the derogation, I assumed that concluding "we are not high-risk" meant there was nothing to do. Write the memo, file it, move on.

Article 6(4) says otherwise. A provider who considers an Annex III system is not high-risk "shall document its assessment before that system is placed on the market or put into service", and "shall be subject to the registration obligation set out in Article 49(2)".

And Article 49(2) requires that before placing such a system on the market, the provider "shall register themselves and that system in the EU database".

So claiming the exemption is itself a compliance regime. You document the assessment in advance, and you put yourself and your product in a public EU database announcing that you decided you were not high-risk. That is not nothing, and it is auditable later by exactly the authority you were hoping not to meet.

There is a further wrinkle I could not resolve, and I am flagging it as unresolved rather than pretending otherwise. Article 16, which lists provider obligations, requires providers to "comply with the registration obligations referred to in Article 49(1)". That is 49(1), the high-risk registration. It does not reference 49(2), the self-exemption registration. Since Article 99(4) hangs its 3% tier on Article 16, the penalty route for a missed 49(2) registration is not the clean path you would assume from reading either article alone. It presumably falls to national rules under Article 99(1). I do not know, and neither did the two people I asked.

The relief we did not qualify for, because we raised money

There is one more provision aimed squarely at companies our size. Article 63 lets microenterprises satisfy parts of the Article 17 quality management system "in a simplified manner". On headcount and revenue we were a microenterprise: the Commission's SME definition puts micro at fewer than 10 staff and turnover at or below EUR 2 million, and we were seven people on $684,000.

The condition is in the same sentence: the simplification applies "provided that they do not have partner enterprises or linked enterprises". The Commission's own guidance notes that the ceilings "apply to the figures for individual firms only" and that a firm which is part of a larger group may have to count the group's figures too.

We had raised a seed round eighteen months earlier. Our cap table has institutional investors on it. Whether that made us linked or partnered was a question for our lawyer, and her answer was that it was arguable and that she would not want to argue it. We had traded the microenterprise simplification for the seed round without anyone at the table knowing that was one of the terms.

Article 63(2) closes the door on any wider reading anyway. It says paragraph 1 "shall not be interpreted as exempting those operators from fulfilling any other requirements or obligations laid down in this Regulation", and then lists nine articles by number.

The date I had wrong too

I had told my board we had until 2027. I was reading the wrong subsection. Article 113 says the Regulation "shall apply from 2 August 2026", with a carve-out at point (c) for "Article 6(1) and the corresponding obligations", which apply from 2 August 2027.

Article 6(1) is the route for AI embedded in regulated physical products. Ours is Article 6(2), the Annex III route. The 2027 date was never ours. The obligations had been live for five weeks by the time procurement asked.

What actually happened

We answered item 41 honestly: yes, high-risk, conformity assessment in progress. We lost the quarter. We did not lose the customer, and their legal team was noticeably more relaxed dealing with a company that said yes than they would have been with one that said no and got it wrong.

The one thing I would tell you

Read the paragraph after the one everyone quotes. Every genuinely useful thing I found was one subparagraph below the scary sentence. The 35 million became $20,520 in paragraph 6. The derogation I was counting on died in the last line of the paragraph that granted it. The exemption I thought was free came with a registration duty in the paragraph after that.

The summaries are not lying to you. They stop early. And the place where a regulation tells you what it actually costs a company your size is almost never in the sentence that made the headline.