Are you paying too much tax as a sole trader and wondering whether a limited company (bv) would work out cheaper? The difference between corporation tax and income tax is greater in 2026 than ever before. Whether a limited company is more advantageous for you depends on several factors — and a fair comparison requires an understanding of both systems.
Two systems, two rate structures
As a sole trader or self-employed person, you pay income tax on your profit. This works through a progressive system in Box 1. In 2026, three bands apply: 35.75% up to €38,883, 37.56% between €38,883 and €78,426, and 49.50% on everything above that. Once you turn a decent profit as a business owner, you quickly end up in that top band.
A limited company does not pay income tax, but corporation tax (CT) on the company’s own profits. In 2026, two CT rates apply: 19% on the first €200,000 of taxable profit and 25.8% on everything above that. These rates are unchanged compared to 2025. The maximum CT rate of 25.8% is therefore considerably lower than the top rate in Box 1 of 49.50%.
The deductions you do get as a sole trader
Comparing on the basis of rates alone is incomplete. As a business owner for income tax purposes, you are entitled to deductions that a limited company director does not have. The most important are the self-employed deduction and the SME profit exemption. In 2026, the self-employed deduction amounts to just €1,200 — a substantial reduction compared to previous years. The SME profit exemption remains stable at 12.7% of profit after entrepreneurial deductions. This exemption is applied automatically: you pay no tax on that portion of your profit.
For a sole trader with a profit of €80,000, these deductions noticeably reduce the taxable profit. At the same time, as profits rise, the relative importance of the exemptions diminishes and the 49.50% band becomes increasingly painful.
What you pay net as a director-shareholder of a limited company
A limited company pays corporation tax on its profits. What remains afterwards stays within the company. If you want that money personally, you pay out a dividend — and that is the point at which you, as a director-shareholder, again pay income tax, but this time through Box 2. In 2026, two bands apply in Box 2: 24.5% on the first €68,843 of income from a substantial interest and 31% on the remainder. When you add corporation tax and Box 2 together, on a profit of up to €200,000 you arrive at a combined burden of roughly 38% to 43%, depending on how and when you pay dividends. That is higher than the bare CT rate of 19%, but lower than the 49.50% you pay as a sole trader in the highest band.
Bear in mind that as a director-shareholder you are also required to draw a customary salary — in 2026, a minimum of €58,000. That salary is taxed in Box 1. The structure of a limited company is therefore a complete picture: CT on profits, Box 1 on your salary, and Box 2 when you pay dividends.
When is a limited company more tax-efficient?
There is no universal answer, but there are clear indications. At higher profit levels, the difference becomes apparent. Once you consistently fall into the 49.50% band of Box 1 as a sole trader, while being able to leave a large portion of the profit within the business, a limited company offers scope for tax deferral and a lower rate. That is the principle behind converting a sole trader business into a limited company: you shift the tax charge to the moment you actually withdraw the money.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekSome indications that a limited company may become more tax-efficient:
- You consistently earn more profit than you need personally to live on
- Your profit is consistently above €100,000 to €120,000 and you do not need to withdraw it all immediately
- You want to reinvest profits or build up capital within a tax-efficient structure
- You face liability risks where a limited company also provides legal protection
- You are planning ahead: pension accrual, an exit, or a holding structure
If you earn less profit and need all your income personally, the deductions available to a sole trader — such as the SME profit exemption — are often still attractive enough to make it the more cost-effective option. A tax adviser can produce a precise calculation based on your specific figures.
Retaining profit in the company or paying it out
A smart choice as a director-shareholder is to leave profit you do not immediately need inside the company. The company then pays 19% CT and you defer the Box 2 charge. Once you pay a dividend, you pay 24.5% Box 2 tax in 2026 on the first €68,843. Do you have a tax partner? Together you can distribute up to €137,686 at the lower rate. Spreading distributions wisely across the years can therefore make a considerable difference.
If your company pays dividends regularly and you deliberately make use of the lower Box 2 band, the combined burden of CT plus Box 2 is in many cases more favourable than the top rate in Box 1 for a sole trader. Make use of well-maintained bookkeeping to keep a firm grip on the cash flow from the company.
Practical tips for making the decision
- Calculate not just the corporation tax, but also the customary salary and the expected Box 2 charge together
- Compare the total tax burden over five years, not just the current year
- Take into account the declining self-employed deduction: just €1,200 in 2026, with further reductions to come
- Consider the annual costs of running a limited company: bookkeeping, accountancy fees, and any notarial costs
- Plan dividend distributions deliberately to make optimal use of the lower Box 2 band
- Factor in non-tax considerations too: liability, pension, and future plans
Why Belastingadviseur Eindhoven?
Whether a limited company is more advantageous for you than a sole trader business depends on your profit, personal drawings, and future plans. At Belastingadviseur Eindhoven, we make that assessment concrete: with real figures, your specific situation, and clear advice. We help business owners in Eindhoven and the Brabant region to make tax-smart decisions — without complicated jargon. Get in touch for a no-obligation consultation and discover what works best in your situation.
Frequently asked questions
From what level of profit is a limited company more advantageous than a sole trader business?
There is no exact tipping point that applies to everyone, but as a rule of thumb a limited company becomes more tax-efficient at a consistent profit of roughly €100,000 to €120,000 per year, particularly if you do not withdraw all the profit personally. Ask a tax adviser to produce a tailored calculation for your situation.
What is the difference between corporation tax and income tax in 2026?
A sole trader pays income tax in Box 1 on profits: in 2026, that rate rises to 49.50% in the highest band. A limited company pays corporation tax: 19% on the first €200,000 of profit and 25.8% above that. When the company pays a dividend, the director-shareholder also pays 24.5% or 31% Box 2 tax on that amount.
Do I lose the SME profit exemption as a director-shareholder of a limited company?
Yes. The SME profit exemption of 12.7% applies only to business owners who pay income tax on their trading profit. As a director-shareholder of a limited company, you do not pay income tax on the company's own profits, so the exemption does not apply to the company's profit.
Do I always have to pay a dividend as a director-shareholder?
No. You can retain profit within the company and only pay a dividend when it is tax-efficient to do so. Profit left in the company is subject only to corporation tax. The Box 2 charge arises only at the point of distribution. Spreading dividend payments intelligently across the years can significantly reduce the tax burden.
What does a limited company cost in terms of additional administration and tax obligations?
A limited company has more administrative obligations than a sole trader business: you are required to file annual accounts, submit a corporation tax return, and manage payroll administration for the customary salary. Allow for additional costs for bookkeeping and tax advice. These costs are, however, tax-deductible as business expenses.
We are happy to think along with you. For advice tailored to your situation we would gladly sit down with you. No rights can be derived from the content of this page and it may contain inaccuracies.
