Are you unsure whether it’s wise to convert your sole trader business to a limited company (bv)? It’s a question that occupies many business owners in Eindhoven and the surrounding area. A limited company offers interesting advantages in terms of tax and liability, but there are also drawbacks that you cannot afford to overlook.
Why do business owners consider making the switch?
As a business grows, the balance between income tax and corporation tax shifts. What was tax-efficient as a sole trader may no longer be so at higher profit levels. Liability also plays a major role: as a sole trader you are personally liable for all debts of the business, whereas a limited company in principle shields you from that risk.
There are therefore several reasons to consider making the switch. At the same time, it is not a decision to be made in haste. It pays to carefully weigh up the pros and cons.
The advantages of a limited company over a sole trader business
Tax advantages
One of the biggest drivers is the tax benefit. As a sole trader you pay income tax on your profits, with a top rate of over 49%. A limited company pays corporation tax, with a lower rate of 19% applying to the first band of profits. If you make a substantial annual profit, this difference in rate can quickly amount to thousands of pounds per year.
Profits left within the limited company that are not paid out as salary or dividends grow at the lower corporation tax rate. This makes a limited company attractive if you want to reinvest or build up wealth.
Limited liability
As a director and majority shareholder (dga) you are not in principle personally liable for the debts of the limited company. This is a significant difference from a sole trader business, where business debts can also affect your personal assets. Please note: there are exceptions, such as in cases of directors’ liability or personal guarantees. Make sure you seek proper advice for your specific situation.
Professional image and growth
A limited company is regarded by many clients, investors and lenders as more serious. If you want to attract external funding or work with larger organisations, a limited company structure can open doors that remain closed to a sole trader.
Pension and wealth accumulation
Through the limited company you can build up assets that later serve as a pension provision. You have greater flexibility in how you organise this, even though the rules around in-house pension arrangements have changed.
The disadvantages of a limited company that you should not underestimate
Greater administrative burden
A limited company brings more obligations than a sole trader business. Think of preparing annual accounts, maintaining a payroll for your own salary and complying with the customary salary requirement. The accounting complexity increases, which also leads to higher costs for your administration.
Customary salary obligation
As a director and majority shareholder you are required to pay yourself a salary that meets the customary salary requirement. In 2025 the standard is at least €56,000 per year, unless you can demonstrate that a lower amount is in line with market rates. You pay regular income tax and national insurance contributions on this salary. This limits the freedom to leave all profits within the limited company.
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprekFormation costs and ongoing costs
Forming a limited company involves one-off costs for the notary and registration at the Chamber of Commerce. After that you face higher annual costs for accountancy and advisory work. If profits are relatively modest, these costs may not be offset by the tax benefits.
Loss of sole trader tax reliefs
As a sole trader you benefit from deductions such as the self-employed allowance and the SME profit exemption. These provisions do not apply to a limited company. Depending on your profit level, this can actually work against you if you make the switch.
Practical tips for making the right choice
- Calculate the break-even point: at what level of annual profit does a limited company become more tax-efficient than a sole trader business? This varies by situation.
- Look beyond tax: liability, growth plans and financing needs all play a part.
- Compare the methods of conversion (tax-neutral transfer, taxable transfer or assets-and-liabilities transaction) and what they mean for you.
- Take into account recurring costs for payroll administration, annual accounts and tax advice.
- Plan the timing: a conversion can have tax implications that you want to take advantage of or avoid at the right moment.
- Seek advice on the customary salary requirement and what it means for your cash flow.
Would you like a complete picture of the entire process? On the page converting a sole trader business to a limited company you will find more information about the steps and options available.
Is a limited company always the best choice?
Not necessarily. For business owners with relatively modest profits, a sole trader business may still be more tax-efficient, particularly once the costs of a limited company are factored in. The decision depends strongly on your personal situation, profit expectations and future plans. General rules of thumb can be helpful, but they are never a substitute for a personalised consultation.
Why Belastingadviseur Eindhoven
At Belastingadviseur Eindhoven we understand that such a transition raises many questions. We help business owners in Eindhoven and the Brabant region every day in making this assessment: in concrete terms, without unnecessary jargon and always tailored to your specific situation. Whether you are just beginning to have doubts or are already seriously considering the switch, a no-obligation conversation will quickly give you clarity.
Please feel free to contact us. We are happy to think things through with you.
Frequently asked questions
From what level of profit is a limited company more tax-efficient than a sole trader business?
This depends on several factors, including the level of your profits, the costs of the limited company structure and your personal circumstances. As a general guideline, an annual profit of €100,000 or more is often cited, but a tailored calculation will give a more reliable answer.
Am I truly not personally liable as a director and majority shareholder?
In principle, a limited company protects your personal assets from business debts. However, there are exceptions, such as in cases of demonstrable mismanagement or if you have personally guaranteed a loan. Seek advice on this for your specific situation.
Do I lose my self-employed allowance if I switch to a limited company?
Yes. Business owner reliefs such as the self-employed allowance and the SME profit exemption are only available to sole traders taxed under income tax, not to a limited company. This is an important consideration in the decision.
What does it cost to convert a sole trader business to a limited company?
The costs consist of notary fees for the formation, registration fees at the Chamber of Commerce and advisory fees. After that there are ongoing costs for administration and tax guidance. The total costs vary depending on the situation and the chosen method of conversion.
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.
