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 are applied, such as the self-employed deduction. Then the SME profit exemption of 12.7% is applied to what remains.
With the exemption, the effective rate is lower. A sole trader in the second bracket pays 37.56% on 87.3% of the profit. That is about 32.8% of the whole profit. The self-employed deduction has an hours requirement. The SME profit exemption applies regardless of hours.
The exemption was 14% in 2023 and was reduced to 12.7% from 2025. The self-employed deduction is also being reduced. As a result of both changes, a BV becomes the better choice at a lower profit level.
The SME profit exemption is part of the income tax on business profit. A BV pays corporate income tax on its profit. The owner pays box 1 tax on the salary and box 2 tax on the dividend. You can find the break-even point between both forms 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% is €11,278. She pays box 1 tax on €77,522.
The figures
Every rate for 2026 is listed in Netherlands tax rates 2026, and the figures for 2027 are in Netherlands tax rates 2027.
Questions people ask
Does the exemption also apply to a loss?
Yes. A loss is reduced 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. We keep this definition in line with our Dutch and German glossaries, and the figures are those for the tax year 2026. Updated 30 September 2026.
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