What is income tax?
Income tax is paid on your taxable income. Self-employed is not a fiscal status: income from your activities can be profits from a business, wages, or result from other activities. For entrepreneurs, taxable profit falls into box 1, together with any other income from work and home. Deductions, tax credits and tax already paid also help determine what you ultimately have to pay.
Income tax rates 2026
How much income tax you pay depends on the amount of your income and the box it falls into. For entrepreneurs, box 1 is the most important. The rates and brackets are adjusted annually. Below are the rates that apply in 2026. For people who will reach or have already reached the state pension age in 2026, lower rates in the first tranche.
Box 1: Work and home
Box 1 includes income from work, such as wages and profits from business. As a self-employed person, your profits are taxed here by default. The tax works with increasing brackets. So you do not pay one rate on your entire income, but per section.
Table box 1 rates 2026
| Disc | Taxable income | Rate |
|---|---|---|
| Disc 1 | Up to and including €38,883 | 35,75% |
| Disc 2 | More than €38,883 up to and including €78,426 | 37,56% |
| Disc 3 | More than €78,426 | 49,50% |
Your profit from business is added to any other Box 1 income. Only the part that falls in a higher bracket is taxed at that higher rate.
Example:
In 2026, you have €50,000 of taxable box 1 income and have not yet reached the state pension age (AOW).
- €38,883 falls in bracket 1 at 35.75%
- €11,117 falls in bracket 2 at 37.56%
This only shows the tax per tax band, before tax credits. €50,000 here is the taxable income after applicable deductions have been processed, not the business profit.
Box 2: Significant interest
Do you hold a substantial interest, for example at least 5% of the shares in a private limited company? If so, dividends and capital gains may be taxed under Box 2. Profits from a sole trader business are not included in this. Read the separate explanation of tax bands and boxes.
Box 3: Wealth
Box 3 relates to private assets, such as savings and investments. The tax-free allowance in 2026 is €59,357 per person. For investments and other assets, the flat-rate calculation uses 6%; the percentages for bank balances and debts are still provisional. A lower actual return may lead to a different outcome. See the official calculation for box 3 in 2026.
Deductions and schemes for self-employed in 2026
As a self-employed person, you are allowed to reduce your profits with entrepreneurial deductions. As a result, you pay less income tax. These schemes are especially important if you are starting or investing in your business.
Self-employment deduction and start-up deduction
For self-employed deduction do you have to be an entrepreneur for income tax purposes and meet hours criterion satisfy. The deduction amounts to €1,200 in 2026. If you had already reached the state pension age on 1 January, half of that applies. The additional start-up grant of €2,123 has its own conditions; simply starting a business is not enough.
SME profit exemption
The SME profit exemption will amount to 12.7% of the profit after the entrepreneur’s allowance in 2026. There is no hourly criterion for this, but you must be classified as an entrepreneur for income tax purposes. In the event of a loss, the allowance reduces the loss that can be set off. In 2026, the tax relief will be capped at a rate of 37.56%.
Small-scale investment deduction
For the Small-scale investment credit counts the total of qualifying investments in the calendar year. In 2026 the table starts at €2,901. Assets worth less than €450 do not count; exclusions and an upper limit apply. KIA reduces taxable profit and is not part of the self-employed deduction.
Am I an entrepreneur for income tax purposes?
The Tax and Customs Administration assesses criteria such as independence, profit expectation, clients and entrepreneurial risk in conjunction. A Chamber of Commerce registration or 1,225 hours worked does not automatically confer entrepreneur status. The hours criterion is an additional condition for certain deductions. Use the Entrepreneur check from the Inland Revenue as a helper. In the case of income from other activities, business expenses may be deductible, but entrepreneurial schemes do not apply.
Income tax calculation
- Determine the taxable profit: turnover minus deductible costs, with tax adjustments and any investment allowance.
- Deduct the entrepreneurs' allowance to which you are entitled.
- Calculate the SME profit exemption.
- Process other Box 1 income and personal deductions. For example salary alongside your business counts as well.
- Calculate tax and applicable tax credits.
- Settle withholding taxes and provisional assessments. Assess the income-related Health Insurance Act (Zvw) contribution separately.
Calculate your estimated income tax as a sole trader. Check the tax year and the starting points; an estimate does not replace your personal tax return.
How much do you set aside?
There is no general profit threshold below which every sole trader pays no tax and no reserve percentage that is always sufficient. Draw up an annual forecast including your profit, other income, deductions, tax credits and Zvw (Healthcare Insurance Act) contribution. Deduct any amounts already paid and divide the expected remainder across the remaining months. Update your provisional assessment if your expectations change.
Do income tax yourself or outsource?
For simple bookkeeping, you can prepare the tax return yourself. With multiple sources of income, investments or special arrangements, help can be useful. Would you like help processing your business figures and personal tax return details? View which activities are included in the package and discuss what we need from you.
Requesting an extension for your tax return
You will file the tax return for 2026 in 2027. Check the filing deadline in your invitation. If you need more time, apply for an extension before that date and check the confirmation. An extension does not automatically prevent tax interest.
Avoid tax interest
Whether you pay tax interest depends, amongst other things, on when your tax return or request for a provisional assessment is received and whether the Tax and Customs Administration has to deviate from it. The rate applicable for the period over which interest is calculated is decisive. Since 1 January 2026, the rate for income tax has been 5%; this is not a forecast for 2027. Please check the current overview of tax interest.
Frequently Asked Questions
When do I pay my income tax?
After your tax return, you will receive an assessment. Pay within the prescribed period to avoid penalties and interest. In case of postponement, the assessment will follow later.
How much tax do I pay as a self-employed person?
There is no general profit threshold below which every self-employed person pays no tax. Your profit, other income, deductions, tax credits and healthcare insurance act (Zvw) contributions together determine the outcome. Make a personal annual calculation and adjust your reservation if your figures change.
What are the rates in box 1 in 2026?
35.75% up to €38,883, 37.56% up to €78,426 and 49.50% above that. Thanks to deductions and tax credits, your effective rate is usually lower.
What if I turn a loss?
You can offset losses against other income or other years. The tax authorities determine whether you are really an entrepreneur; structural losses may mean you do not have a business.
When am I an entrepreneur for tax purposes?
The Tax and Customs Administration assesses independence, profit expectations, entrepreneurial risk and other circumstances together. A Chamber of Commerce registration or working 1,225 hours does not grant entrepreneur status in itself. The hours criterion is a separate condition for certain deductions.
