Business Articles

NACE Codes: What Are They and Why Do They Always Matter?

April 7, 2022

If you are doing business within the European Union, you will probably have heard of NACE codes. If not, this article is for you.

Find out why they matter for all businesses.

In this article, you will find out everything there is to know about them. We will explore:

  • What a NACE code is
  • What they are used for 
  • What the main characteristics of the NACE regulations are
  • How to read them
  • How they are classified
  • And how they can help you

What are NACE codes?

The acronym NACE, Nomenclature of Economic Activities (or in French; classification des activités économiques), designates the integrated classification system for products and economic activities.

It designates the various statistical nomenclatures of economic activities developed since 1970 in the European Union. 

The NACE codes are a standard classification system of similar European industries in function to Standard Industry Classification (SIC) and North American Industry Classification System (NAICS) for classifying business activities.

NACE codes provide a framework for the collection and presentation, based on economic activity, of a wide range of statistics in economic fields such as production, employment, national accounts, and others.

The statistics produced on the basis of NACE codes are comparable at the European level and more generally at the global level. The use of NACE codes is compulsory within the European statistics system.

The United Nations supported the development of an integrated system of statistical classifications and this is the reason why STATISTICS BASED ON NACE codes are globally similar.

What are NACE codes used for?

NACE codes are the standard European nomenclature of productive economic activities.

They break down the universe of economic activities in such a way that a NACE code can be associated with a statistical unit carrying out the activity it designates.

There is an economic activity when resources – such as capital goods – are combined to produce specific goods or services.

All activity is characterized by the input of resources, a production process and an output of products (goods or services).

Visual of Different industries for NACE codes

An activity thus defined may consist of a single process (e.g. weaving), but can also include different sub-processes each relating to another classification category. 

If the production process is organized to constitute an integrated series of elementary activities within a single statistical unit, the combination of all these activities is considered as one activity.

NACE codes are not intended to offer categories for particular types of unit statistics.

The units can carry out several economic activities and can be defined in different ways depending on specific characteristics (the location in particular).

The main characteristics of NACE regulations

Member States and the Commission have made the use of NACE codes compulsory within the European Union. The regulations establishing NACE codes, therefore, contain provisions to this effect. 

The statistics collected by the Member States and broken down by economic activity must be established on the basis of the NACE codes or a national nomenclature derived from it.

NACE regulations allow Member States to use, for national purposes, a national nomenclature derived from the NACE codes. However, this national version must correspond to the structural and hierarchical framework of the NACE codes. 

Most Member States have developed their own version of the NACE codes.

They usually add a fifth digit to meet their national needs.

The Commission and a committee of representatives of the Member States are responsible for ensuring the proper implementation of the regulations, making minor changes.

They also ensure contact with international organizations in charge of the classification of economic activities.

How to read a NACE code?

Visual of How to read NACE codes

The NACE code is subdivided into a hierarchical structure with four levels. The highest level categories are called sections:

  • The first two numbers of the code indicate the division
  • The third number indicates the group
  • The fourth number indicates the class

NACE uses four levels:

  • Level 1: 21 sections identified by alphabetical letters A to U;
  • Level 2: 88 divisions identified by two-digit numerical codes (01 to 99);
  • Level 3: 272 groups identified by three-digit numerical codes (01.1 to 99.0);
  • Level 4: 615 classes identified by four-digit numerical codes (01.11 to 99.00).

The first four numbers of the code which correspond to the first four tiers of the classification system are the same in all the European states. Individual countries may decide to add more levels.

The fifth number might be different depending on the country and further numbers are sometimes added by database suppliers.

Here is an example to make it easier to understand:

Section (Q) Human health and social work activities

Division (86) Human health activities

Group (86.2) Medical and dental practice activities

Class (86.23) Dental practice activities

What countries use NACE codes?

NACE codes are used within the European Community (Communauté Européenne).

Here is a list of all the countries that use them:

CZCzech RepublicLVLatvia
HRCroatiaSKSlovak Republic
HUHungaryUKUnited Kingdom
Countries using NACE codes

The characteristics of statistical nomenclatures

Describing observations in statistical terms cannot be done without systematic nomenclature.

The nomenclature breaks down the universe of statistical observations into different sets that are as homogenous as possible with respect to the characteristics of the object of the statistical survey.

Statistical nomenclatures are characterized by:

  • Exhaustive coverage of the area under observation;
  • Mutually exclusive categories: each element can only be classified in one single category;
  • Methodological principles ensuring the consistent classification of elements in the different categories of the nomenclature.

Hierarchical nomenclatures are more particularly characterized by subdivisions of finer and finer categories.

This allows to collect and present information to various levels of aggregation.

NACE codes class definition criteria

Visual of International trade NACE codes

Criteria for how activities are combined into the units of production and distributed among them are fundamental for the definition of classes.

Classes are the most detailed categories of the NACE code. 

They must ensure that the classes of the NACE codes allow the sectoral classification of units and that the units under a given class carry out activities as similar to each other as possible.

NACE Rev. 2, which takes into account the fourth revision of ISIC, grants generally more value to the production process in defining the different classes.

Differently, activities are put together when they include a common process for the production of goods and services that use similar technologies.

In addition, the NACE classes are defined in such a way that, as far as possible, the following two conditions are fulfilled:

  • the production of the category of goods and services that defines a given class represents the majority of the production of units belonging to this class;
  • the class contains the units which produce the major part of the category of goods and services that identify it.

Another major aspect taken into account in defining the NACE classes is the relative importance of the activities to be included.

In general, individual classes are provided for activities currently carried out in most countries of the Union or for activities of particular importance in the global economy.

For the sake of international comparison, it was necessary to introduce a number of classes in ISIC and, therefore, in the NACE codes also.

Basic classification rules

Visual of Basic NACE code classification rules

Each unit appearing in a statistical business directory is associated with a NACE code according to its main economic activity.

The main activity is that which contributes the most to the added value of the unit. 

The allocation of NACE codes is helped by NACE explanatory notes, decisions taken by the NACE management committee.

In addition to that, it is taken also by the correspondence tables as well as references to other classification systems (such as ISIC, CPA, HS, CN, etc.)

In the simple case where a unit carries out only one activity, the classification is determined by the section of NACE covering the activity of this unit.

When a unit exercises several activities, the main activity is determined according to the added value corresponding to each activity.

Added value is the basic concept used to determine the classification of a unit according to the economic activity.

Gross value added is, by definition, the difference between the production of the unit and its intermediate consumption.

It constitutes an additional measure of the contribution of each economic unit to gross domestic product (GDP).

Statistical Classification of Economic Activities in the European Community Rev. 2

This is a statistical classification of economic activities of the 21 codes in Level 1 according to the European Union.

  1. Agriculture, Forestry and Fishing
  2. Mining and Quarrying
  3. Manufacturing
  4. Electricity, Gas, Steam and Air Conditioning Supply
  5. Water Supply; Sewerage, Waste Management and Remediation Activities
  6. Construction
  7. Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles
  8. Transportation and Storage
  9. Accommodation and Food Service Activities
  10. Information and Communication
  11. Financial and Insurance Activities
  12. Real Estate Activities
  13. Professional, Scientific and Technical Activities
  14. Administrative and Support Service Activities
  15. Public Administration and Defence; Compulsory Social Security
  16. Education
  17. Human Health and Social Work Activities
  18. Arts, Entertainment and Recreation
  19. Other Service Activities
  20. Activities of Households as Employers; Undifferentiated Goods and Services Producing Activities of Households for Own Use
  21. Activities of Extraterritorial Organisations and Bodies

Here is a full list of the NACE codes.

Differences between NACE Rev. 1.1 to NACE Rev. 2

NACE Rev. 1.1NACE Rev. 2
AAgriculture, Hunting and ForestryAAgriculture, Forestry and Fishing
CMining and QuarryingBMining and Quarrying
EElectricity, Gas and Water SupplyDElectricity, Gas, Steam and Air Conditioning
EWater Supply, Sewerage, Waste Management and Remediation Activities
GWholesale and Retail Trade: Repair of Motor Vehicles, Motorcycles and Personal and Household GoodsGWholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles
HHotels and RestaurantsIAccommodation and Food Service Activities
ITransport, Storage and CommunicationsHTransportation and Storage
JInformation and Communication
JFinancial IntermediationKFinancial and Insurance Activities
KReal Estate, Renting and Business ActivitiesLReal Estate Activities
MProfessional, Scientific and Technical Activities
NAdministrative and Support Service Activities
LPublic Administration and Defence; Compulsory Social SecurityOPublic Administration and Defence; Compulsory Social Security
NHealth and Social WorkQHuman Health and Social Work Activities
OOther Community, Social and Personal Services ActivitiesRArts, Entertainment and Recreation
SOther Service Activities
PActivities of Private Households as Employers and Undifferentiated Production Activities of Private HouseholdsTActivities of Households as Employers; Undifferentiated Goods- and Services- Producing Activities of Households for Own Use
QExtraterritorial Organisations and BodiesUActivities of Extraterritorial Organisations and Bodies

How NACE codes can help you on CONNECTS

Within business,  it is always crucial to properly segment your sales outreach efforts.

You should make sure that your products and services are put in front of a relevant audience, that is able to see the value in what you offer.

This is where NACE codes can be a valuable tool, as they make it easier to directly identify what segments of industry or what companies you want to target. 

Once you have done this, CONNECTS allows you to find relevant companies which you can then contact to do business. 

CONNECTS is a global business matchmaking platform.

Working with Chambers of Commerce, the platform provides access to trustworthy leads, suppliers, partnerships, skills, and business communities.

Indeed, every user on CONNECTS has been vetted and validated by a local Chamber of Commerce.

The CONNECTS search engine enables you to conduct a search based on industry.

Once you have used the NACE codes to identify target industries, you can then use CONNECTS to find companies within those industries.

Interested? Then start your free trial now! This offer includes:

  • The opportunity to connect with all our members
  • Validation by a moderator
  • Access to the companies and member search tool
  • View and create business opportunities
  • Online training on how to use the platform

Already a member of a participating chamber? Join our Business Matchmaking Platform for free.

Want to learn more about CONNECTS? Find us on Google maps! For more information, don’t hesitate to contact us or request a demo

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