As a self-employed person or entrepreneur, you pay income tax on the profit you make from your business. Fortunately, there are several schemes that help you pay less tax. One such scheme is the SME profit exemption. What exactly does it entail, how much does it pay off and what do you have to do for it? We explain it to you step by step.
Who is the SME profit exemption for?
This scheme is for anyone who is an entrepreneur for income tax purposes. So it applies not only to SMEs, but also to:
- self-employed and freelancers
- sole proprietors
- partners of a general partnership
So you don't need staff, don't have to achieve a certain turnover and don't have to follow an hours criterion. As long as the tax authorities see you as an entrepreneur and you make a profit. Then you will automatically get this exemption.
What is the SME profit exemption?
The SME profit exemption is a tax benefit for entrepreneurs. This exemption allows you to keep a percentage of your profits (after other entrepreneurial schemes) tax-free. For 2024, this percentage is 13.31%, and for 2025 it will be 12.7%.
This is a standard arrangement: you do not have to do anything else for it and you do not have to meet the hour criterion. However, you do have to be an entrepreneur for income tax purposes.
How exactly does it work?
Say you make €40,000 profit in a year. You are then entitled to the self-employed deduction and the start-up deduction. You first deduct these benefits from your profits. The amount remaining after that is reduced by the SME profit exemption. As a result, you pay less tax on your profits.
Calculation example
| Description | Amount |
| Business profit | €40.000 |
| - Self-employment deduction | €2.470 |
| - Start-up deduction | €2.123 |
| Profit after deduction | €35.407 |
| - SME profit exemption (12.7%) | €4.502 |
| Taxed profit | €30.905 |
Because of the SME profit exemption, you therefore pay less tax on (almost) €5,000. This can quickly save you hundreds of euros.
Update 2025: percentage and tax benefit adjusted
The Inland Revenue has also adjusted the percentages and rates for this year. Namely, in 2025, the SME profit exemption will be 12.7%, while it was 13.31% in 2024. The tax benefit is not calculated with your highest tax rate, but with a flat rate of 37.48%.
| Year | Percentage exemption | Rate charged |
| 2023 | 14% | 36,93% |
| 2024 | 13,31% | 36,97% |
| 2025 | 12,7% | 37,48% |
This makes the benefit more equitably distributed, but less favourable for higher-income entrepreneurs.
When are you entitled to the SME profit exemption?
You may use the SME profit exemption if:
- you are an entrepreneur for income tax purposes (the tax authorities then consider your company to be a business)
- you make a profit from your business
So you do not have to work a minimum of 1,225 hours a year, as is a requirement for the self-employed deduction.
Note: also applicable in case of loss
The SME profit exemption applies even if your business makes a loss. This seems convenient, but there is a downside:
- Your loss is made slightly smaller by the exemption (12.7% less)
- This allows you to use less loss later to reduce your profit.
Summary
The SME profit exemption is a nice perk for entrepreneurs. In 2025, you are allowed to deduct 12.7% from your profits after applying other benefits. So you pay less tax and keep more. And that could just save you hundreds of euros. Do you make a loss? Then that loss will be slightly smaller, which means you can deduct less later.
