When a business’s profit increases, a private limited company (BV) may become more tax-efficient than a sole proprietorship. A profit of approximately €90,000 is often mentioned as a possible tipping point. However, this is not a fixed threshold. The actual tipping point depends on your personal circumstances and on how much profit you withdraw for private use or retain within the business.
Taxation of a sole proprietorship
With a sole proprietorship, the entrepreneur pays personal income tax on the taxable profit. In 2026, the following rates apply to individuals who have not yet reached the Dutch state pension age (AOW age):
- 35.75% up to and including €38,883;
- 37.56% between €38,883 and €78,426;
- 49.50% above €78,426.
Entrepreneurs who meet the hours criterion may claim a self-employed person’s tax deduction of €1,200 in 2026. Subject to certain conditions, start-up entrepreneurs may also be entitled to an additional start-up deduction of €2,123.
After applying the entrepreneur’s deductions, an SME profit exemption of 12.7% applies. In addition, the entrepreneur generally pays the income-dependent contribution under the Dutch Health Insurance Act (Zvw). In 2026, this contribution amounts to 4.85% on a maximum contribution income of €79,409.
Taxation of a private limited company
A private limited company pays corporate income tax on its profits. In 2026, the applicable rates are:
- 19% up to and including €200,000;
- 25.8% on the excess.
The director and major shareholder (DGA) also receives a salary from the company. Under the customary salary rules, this salary must generally amount to at least €58,000 in 2026. A higher or lower salary may apply depending on the circumstances.
If the remaining profit is distributed as a dividend, the DGA pays Box 2 tax on this distribution:
- 24.5% up to and including €68,843;
- 31% on the excess.
The 15% dividend withholding tax generally withheld by the company may be offset against the Box 2 tax due. It is therefore not an additional tax on top of the Box 2 levy.
Example calculation based on a profit of €120,000
The example below is based on an entrepreneur who:
- is younger than the Dutch state pension age;
- has no other income or personal tax deductions;
- meets the hours criterion;
- does not receive the start-up deduction;
- applies a customary DGA salary of €58,000;
- distributes the company’s entire remaining profit as a dividend.
The additional administrative costs of operating a private limited company have not been included. All amounts have been rounded.
Sole proprietorship
| Calculation | Amount |
|---|---|
| Profit | €120,000 |
| Self-employed person’s tax deduction | − €1,200 |
| SME profit exemption | − €15,088 |
| Taxable Box 1 income | €103,712 |
| Personal income tax after tax credits | − €40,429 |
| Health Insurance Act contribution | − €3,851 |
| Net amount available | €75,720 |
Private limited company
| Calculation | Amount |
|---|---|
| Profit before DGA salary | €120,000 |
| Customary salary | − €58,000 |
| Company’s taxable profit | €62,000 |
| Corporate income tax | − €11,780 |
| Available for distribution as a dividend | €50,220 |
| Box 2 tax | − €12,304 |
| Net dividend | €37,916 |
| Net DGA salary after personal income tax and Health Insurance Act contribution | €40,290 |
| Total net amount available | €78,206 |
Based on these assumptions, the entrepreneur retains approximately €2,486 more by operating through a private limited company.
Does this mean that a private limited company is always more advantageous?
No. The example does not yet include the higher annual costs associated with a private limited company. These may include payroll administration, preparation of annual accounts, filing with the Chamber of Commerce and the corporate income tax return.
If these additional costs amount to €2,000 to €3,000 per year, the tax advantage at a profit of €120,000 may largely disappear. At a profit of €100,000, the calculated advantage of a private limited company under the same assumptions is only approximately €310 before taking the additional company costs into account.
A private limited company may become more attractive if part of the profit is retained within the company. Corporate income tax will already have been paid on this profit, but Box 2 tax will generally not become due until the profit is distributed as a dividend at a later date. This leaves more funds available for investment. The main benefit in this situation is the deferral of tax.
Liability considerations, attracting investors and a potential future sale may also be reasons to choose a private limited company.
Conclusion
In 2026, there is no fixed profit level at which a private limited company automatically becomes more advantageous. From a structural annual profit of approximately €90,000, it may be advisable to compare both legal forms. This comparison should also take into account the DGA salary, private withdrawals, tax credits and annual costs.
Would you like to know which legal form is most suitable for your situation? TaxAble can compare the tax burden and administrative implications of a sole proprietorship and a private limited company for you. We can also assist you with the conversion process, bookkeeping and preparation of your tax returns.
