How it works
Sole traders and partners in a partnership pay income tax in box 1 on their profit. Before the tax is calculated, the profit is lowered in two steps: first the entrepreneur deductions, such as the self-employed deduction, then the SME profit exemption of 12.7% over what remains.
The exemption lowers the effective rate. A sole trader in the second bracket pays 37.56% on 87.3% of the profit, which comes to about 32.8%. There is a hours requirement for the self-employed deduction, but none for the SME profit exemption itself.
The exemption was 14% in 2023 and was reduced to 12.7% from 2025. Together with the phase-down of the self-employed deduction it lowers the profit level at which a BV becomes the better choice.
The SME profit exemption belongs to the income tax on business profit. A BV pays corporate income tax on its profit, and the owner pays box 1 on the salary and box 2 on the dividend. The break-even point between both forms is on the Holdwise Threshold page.
Example
A freelance developer makes €90,000 profit in 2026. After the self-employed deduction of €1,200 the base is €88,800. The SME profit exemption of 12.7% takes off €11,278. She pays box 1 tax on €77,522.
The figures
All 2026 figures: Netherlands tax rates 2026 · the 2027 figures: Netherlands tax rates 2027.
Questions people ask
Does the exemption also apply to a loss?
Yes. The exemption lowers a loss by the same percentage, so a smaller loss is set off against other income.
Does a DGA get the SME profit exemption?
A DGA receives salary and dividend, and both fall outside the exemption. The exemption is for sole traders and partners who pay income tax on business profit.
Holdwise, Hoofddorp. Definition and explanation maintained with the Dutch and German glossaries; figures from the central rates source, year 2026. Updated 16 September 2026.
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