Taxation of Sole Proprietorships in 2026

What is the taxation for a sole proprietorship?

Taxation of Sole Proprietorships from the First Euro

There is no tax-free threshold for sole proprietorships. Taxation starts from the first euro. For a sole proprietorship that declares losses or zero profits, the business owner is taxed based on imputed income criteria (e.g., the minimum living expense allowance for a single person of €3,000, car, residence, loan, etc.).

Profits from business activities are taxed after being added to any income from salaries and pensions, while the tax reduction applicable to employees and pensioners does not apply.

For individuals who registered the commencement of their business activity for the first time on or after 01/01/2025, the first tax rate of 9% is reduced by 50% for the first three (3) years of their business activity, provided that their annual gross income from business activities does not exceed €10,000.

Profits from an individual agricultural business are taxed separately, and the tax arising from agricultural income is eligible for a tax reduction, but only for professional farmers, provided that at least 50% of their income comes from agricultural activities.

IMPORTANT: Do not confuse VAT with income tax. VAT is a tax added to every transaction carried out by the business. The VAT amounts do not belong to us and are paid to the State every three months.

Income tax is calculated based on the annual tax return forms E3 and E1, in which all income and expenses from the previous year are declared.