What is the SME profit exemption?
The SME profit exemption is a fixed percentage of your profits that you can deduct before paying taxes. You apply this exemption after you have calculated entrepreneurial deductions. This reduces your taxable profit and leaves you with more. The scheme is part of your income tax and is automatically included in your tax return. You don't have to fill in anything separately for this. In practice, it works as a standard reduction in your profits for all entrepreneurs who have profits from business.
Who is the SME profit exemption for?
The SME profit exemption applies to anyone who is an entrepreneur for income tax purposes. This is the case when you work independently, make a profit and run an entrepreneurial risk. This applies to most self-employed people, but also to partners in a vof or partners in a partnership. You do not have to be a full-time entrepreneur to get this exemption. The exemption does not apply to income that does not fall under profit from business, such as income from other activities. So the benefit really belongs to your business and not to other forms of income.
Conditions for SME profit exemption
The conditions of the SME profit exemption are straightforward. You don't have to do much to avail of it. The scheme is automatically applied if you are an entrepreneur and have profits from business.
- You are entrepreneur for income tax purposes
- You have profits from business
- The Inland Revenue assesses whether you are an entrepreneur
- The exemption follows automatically once your profit has been determined
Hours criterion not needed
For the SME profit exemption, you don't have to meet the hours criterion of 1225 hours to be met. You get the exemption even if you work fewer hours or combine your business with salaried employment. You do not have to keep a record of hours. All that matters is that you are an entrepreneur and have profits from business.
SME profit exemption rate 2025
The SME profit exemption rate sometimes changes due to new regulations. In 2025, the percentage will be 12.70%. You calculate the exemption by applying this percentage to your profits after entrepreneurial deductions. The benefit has narrowed in recent years by lowering the percentage. Below you can see how the percentages have developed. This gives you a clear picture of the changes.
| Year | Percentage of SME profit exemption |
| 2022 | 14% |
| 2023 | 14% |
| 2024 | 13,31% |
| 2025 | 12,70% |
| 2026 | 12,70% |
Calculate SME profit exemption
You calculate the exemption by first determining your business profits. Then you deduct entrepreneurial deductions if you are entitled to them. The amount remaining is the basis for the SME profit exemption. Then you take 12.70% from that amount. You subtract the outcome from your profit, reducing your taxable profit. This process is carried out automatically in your tax return, but it is useful to already understand the effect yourself. That way you can plan better and know exactly what the benefit does for your situation.
Example
Your profit after entrepreneurial deduction is €50,000. The SME profit exemption is then 12.70% of this. That is EUR 6,350. Your taxable profit therefore becomes 43,650 euro. You pay income tax on that amount. Your benefit arises because you pay tax on a lower amount. The higher your profit, the bigger the effect of this exemption becomes.
Applying for SME profit exemption
You do not have to apply for anything to use the SME profit exemption. In your income tax return, you enter your profit from business. The tax programme automatically calculates how much SME profit exemption you will receive. The amount will be visible in the overview of deductions and in the calculation of your taxable profit. It is important that your profit calculation is correct so that the exemption is applied to the correct amount. Other than that, you don't have to do anything extra.
SME profit exemption at a loss
The exemption is also applied if you made a loss. In that case, it can be disadvantageous because your loss becomes smaller. A smaller loss means you can offset less against profits in other years. This can lead to less tax benefit in a future year. It is an automatic application, so you cannot adjust this yourself. Even without a profit, the exemption is processed. Take this into account if you make a loss and want to use your loss for set-off.
Example
Suppose your loss is 10,000 euros. The SME profit exemption is then 12.70% of this. That is 1,270 euros. Your tax loss thus becomes 8,730 euros. You can therefore offset fewer losses against profits in other years. This reduces your tax benefit at a later date. So the exemption does not work out favourably in a loss year, but continues to be applied automatically.
Other forms of entrepreneurial deduction
Besides the SME profit exemption, there are other deductions for entrepreneurs. These reduce your profits before you apply the exemption. The main ones are:
These deductions first reduce your profit. Then you calculate the SME profit exemption on the amount remaining. This creates a stacking of benefits. By carefully monitoring which deductions apply to you, you can further reduce your tax burden. It is wise to check all your deductions annually so that you don't miss out on any benefits.
