As soon as you switch from a sole tradership to a limited company (bv), a great deal changes from a tax perspective. One of the most frequently asked questions is: what happens to my self-employment deduction? The short answer is yes, you lose this deduction — but that needn’t always be a disadvantage. Whether the switch works out favourably on balance depends on your specific situation.
What exactly is the self-employment deduction?
The self-employment deduction is a tax relief for entrepreneurs who qualify as a sole trader for income tax purposes. As a freelancer or sole trader, you can deduct this amount from your profit, which means you pay less income tax. The deduction only applies if you meet the hours criterion: spending at least 1,225 hours per year on your business.
Important to know: the self-employment deduction has been gradually reduced for years. In 2023, the deduction was still €5,030, and the government is reducing this figure further towards €900 in 2027. The value of this deduction is therefore already steadily declining.
Why does the self-employment deduction disappear with a limited company?
In a limited company, you are no longer a sole trader for income tax purposes, but a director-major shareholder (dga). You effectively work as an employee of your own company. This means you no longer fall under income tax as an entrepreneur, but instead receive a salary from which payroll tax is withheld.
The self-employment deduction, the SME profit exemption, and other entrepreneurial tax reliefs are specifically linked to the income tax sole trader. As a director-major shareholder, you are no longer entitled to these. Instead, the limited company itself pays corporation tax on its profits, and you pay income tax on your salary and any dividends.
What other deductions do you lose?
In addition to the self-employment deduction, there are further tax advantages reserved for sole traders. It is worth being aware of these before taking the step towards a limited company. You lose, among other things:
- SME profit exemption: an exemption of 13.31% on your profit after deductions — this also applies only to income tax sole traders.
- Start-up deduction: an additional deduction on top of the self-employment deduction in your first years as an entrepreneur.
- Research and development deduction (R&D deduction): for entrepreneurs engaged in recognised innovative work.
- Fiscal old-age reserve (FOR): this scheme has since been abolished, but anyone who had already built up a FOR must take this into account when converting.
What do you gain with a limited company?
Although you lose the entrepreneurial tax reliefs, a limited company has its own tax advantages. The question is therefore not what you lose, but what the overall picture yields. With a limited company you benefit from:
Plan een vrijblijvend gesprek en ontdek wat we voor je kunnen betekenen.
Plan een gesprek- Lower corporation tax rate: on profits up to €200,000 you pay 19% corporation tax (2026), above that amount 25.8%.
- Flexibility in remuneration: you can leave profits in the company and only pay dividend tax when you distribute them.
- Participation exemption: advantageous if you structure multiple limited companies via a holding company.
- Limitation of personal liability: debts of the limited company do not, in principle, fall on you personally.
Via the page converting a sole tradership to a limited company you can read more about the entire process and the tax consequences.
When does the loss of the self-employment deduction not outweigh the benefits?
For many entrepreneurs in Eindhoven and the surrounding area, the rule of thumb is: at a higher profit, the limited company structure works out more favourably from a tax perspective, even without the self-employment deduction. A rough guideline is that at an annual profit above €100,000 to €150,000, a limited company can become attractive — but this depends strongly on your personal situation, desired salary, and investment plans.
Practical points to consider:
- How high is your current profit and do you expect it to grow?
- Do you wish to retain profits within the business for future investments?
- Do you need additional protection for your personal assets?
- Are you considering building a holding structure or working with other shareholders?
- What are the implications for your pension accrual and social security?
A good tax adviser can calculate, based on your figures, whether the switch is advantageous on balance.
The transition moment: the impact of the self-employment deduction upon conversion
At the moment of conversion itself, the loss of the self-employment deduction can also have a direct impact. Depending on the chosen conversion method — with or without rollover relief — certain profits or reserves are settled. Bear in mind that in the transitional year you may partly be assessed as a sole trader for income tax purposes. The timing of the conversion therefore influences how many deductions you can still utilise.
Would you like to know how to ensure a smooth transition of your administration during a conversion? We can help you with that too.
Why Belastingadviseur Eindhoven
At Belastingadviseur Eindhoven, we understand that the step from sole tradership to limited company is not only a legal, but also a personal decision. We look beyond the numbers and help you gain a clear picture of the complete tax situation — including what you lose and what you gain.
Are you curious whether converting is worthwhile for you? Feel free to contact us without obligation. We are happy to think things through with you, with no strings attached.
Frequently asked questions
Do I lose the self-employment deduction immediately upon conversion to a limited company?
Yes, as soon as you work as a director-major shareholder through your limited company, you are no longer entitled to the self-employment deduction. That deduction only applies to income tax sole traders who meet the hours criterion.
Do I also lose the SME profit exemption with a limited company?
Yes, the SME profit exemption is also a relief for income tax sole traders and does not apply to a limited company. The limited company instead pays corporation tax on its profits.
Is the loss of the self-employment deduction always a disadvantage?
Not necessarily. At higher profits, the limited company structure can be more tax-efficient, even without entrepreneurial reliefs. It depends on your profit, salary arrangements, and plans for the profit reserves.
Can I still use the self-employment deduction in the year of conversion?
Partly, depending on how and when the conversion takes place. In the transitional year, you are sometimes still partly assessed as a sole trader for income tax purposes. Have this properly calculated by an adviser.
What is the tipping point at which a limited company becomes more tax-efficient than a sole tradership?
A rough guideline is an annual profit of €100,000 to €150,000, but this varies considerably depending on the situation. Always have your situation calculated on a personal basis before making a decision.
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.
