If you are considering moving from a sole trader structure to a limited company (bv), you will quickly encounter an uncomfortable truth: the self-employed deduction and the SME profit exemption are reserved for entrepreneurs subject to income tax. The moment you switch to a limited company, those benefits fall away. Nevertheless, that need not be a reason to avoid making the move — there are fully-fledged alternatives that, on balance, work out more favourably for many business owners.
What exactly do you lose in the transition?
As a sole trader or freelancer, you benefit from two substantial tax advantages under income tax. The self-employed deduction is a fixed deductible amount (being phased down to approximately €2,470 in 2025) that reduces your profit. On top of that, the SME profit exemption applies: 13.31% of your remaining profit after deductions falls outside the scope of taxation.
The moment you transfer your business into a limited company, you shift from income tax to corporation tax. This means both deductions cease to exist. For business owners with a modest profit, this can feel like a step backwards. But the complete picture is more nuanced than it first appears.
When to convert a sole trader business to a limited company: the tipping point
The question of when to convert a sole trader business to a limited company is not purely a tax calculation, but also a matter of risk, growth and structure. As a rule of thumb, a limited company becomes more tax-efficient at a profit of roughly €100,000 to €150,000 per year, though this depends strongly on your personal circumstances and how much you need to draw privately.
At lower profit levels, the lost deductions weigh more heavily than the benefits of the lower corporation tax rate. As you move into higher profit territory, the rate differences and the ability to retain profit within the company become considerably more attractive. You can read more about the considerations on the page Converting a sole trader business to a limited company.
The tax alternatives within a limited company
When you lose the self-employed deduction and the SME profit exemption, other tools become available in return. The limited company has its own toolkit of tax planning options.
Lower corporation tax rate
On the first €200,000 of profit, your limited company pays 19% corporation tax. Compare that with the highest income tax rate of 49.5%: the difference is substantial. As long as you leave the profit within the company — for reinvestment or building up a reserve, for example — you benefit from this lower rate.
Making smart use of the customary salary
As a director and majority shareholder (dga), you are required to pay yourself a customary salary. That salary is deductible for the company and therefore reduces its taxable profit. You can align the salary with what you need personally, allowing you to influence the tax burden at two levels.
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Plan een gesprekPension accrual and other provisions
Although pension accrual within the company itself has been abolished, there are still opportunities to save tax-efficiently through a limited company structure, such as annuity solutions or bank savings schemes. A tax adviser can help you set this up correctly.
Holding structure for dividend distributions
Through a holding company, you can transfer dividends between group companies free of tax (participation exemption). This provides flexibility in timing when you draw profit privately, and therefore also in when you pay tax.
Practical tips for offsetting the tax loss
- Map out the conversion thoroughly using a multi-year comparison of your net disposable income in both scenarios.
- Set your salary as a director-shareholder deliberately based on your personal needs, rather than automatically defaulting to the statutory minimum customary salary.
- Use the limited company as a savings vehicle: leave profit in the company to reinvest later or draw as dividends in stages.
- Consider a holding structure if you have multiple activities or wish to protect what you have built up.
- Ensure your administration is in order well in advance so that you choose the optimal moment for the switch from a tax perspective.
- Consider a phased approach: it is sometimes sensible to continue growing as a sole trader before making the move.
Don’t overlook: the transitional period
The year of conversion is fiscally complex. During that year you will be dealing with two tax regimes: the period as a sole trader (income tax) and the period as a limited company (corporation tax). This brings its own points of attention for the tax return, the cessation of your sole trader business, and any cessation relief that may apply.
Depending on the chosen method — silent or non-silent transfer — there may also be moments at which you are required to settle tax on hidden reserves or goodwill. Seek timely advice on this so that you are not caught off guard.
Why Belastingadviseur Eindhoven
At Belastingadviseur Eindhoven, we understand that losing the self-employed deduction and the SME profit exemption can feel like giving something up. But we always look at the complete picture: what suits your profit level, your personal situation and your plans for the future? Whether you are just beginning to consider a limited company or are already actively working towards the move, we are happy to think it through with you.
Would you like to know whether the switch makes financial sense for you? Feel free to contact us without any obligation. We are here for business owners in Eindhoven and the wider Brabant region.
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.
