What is income tax?
Income tax is the tax you pay on your income, whether you are employed or self-employed. Everyone in the Netherlands has to submit annual tax returns to the Tax Administration, which then determines how much tax you have to pay.
As a self-employed person or entrepreneur with a sole proprietorship, you pay income tax on your profit (turnover minus expenses). That profit falls under "profit from business" and is taxed in box 1, just like salary.
Income tax is used to fund public services such as healthcare, education and infrastructure.
Income tax rates 2025
In the Netherlands, you pay income tax on your income. How much tax you pay depends on the amount of your income and the type of income you have. The tax is calculated on the basis of fixed percentages or increasing brackets, depending on the type of income.
Rates are adjusted annually. Below you can read what rates will apply in 2025. We briefly discuss how the tax is calculated for each category.
Note that for people who will reach or have already reached the state pension age (67) in 2025, slightly lower rates moneys.
Box 1 - Work and home
Box 1 deals with income from work, such as wages, business profits and benefits. As a self-employed person, your profit falls into box 1 by default. You pay tax on your taxable income according to an increasing (progressive) rate. In 2025, there are three tax brackets:
Disc | Income | Rate |
Disc 1 | Up to €38,441 | 35,82% |
Disc 2 | €38.441 - €76.817 | 37,48% |
Disc 3 | From €76,817 | 49,50% |
Your profit from business is added to other box 1 income. AOWs are subject to a lower rate in bracket 1.
Example:
You are self-employed and make €50,000 profit in 2025. On that you pay:
- 35.82% on the first €38,441 = €13,773 tax
- 37.48% on the remaining €11,559 = €4,331 tax
Total: ~€18,104 in gross tax (without deductions and tax credits).
Box 2 - Significant interest
Box 2 is about income from a so-called "substantial interest": you have this if you own at least 5% of the shares in a PLC. You pay tax on dividends or gains from the sale of shares. In 2025, a two-disc rate applies:
Disc | Dividend amount | Rate |
Disc 1 | Up to €67,804 | 24,5% |
Disc 2 | Above €67,804 | 31% |
Note that the PLC withholds 15% dividend tax. You may offset that against what you yourself still have to pay in Box 2.
Box 3 - Wealth
Up to €57,684, your assets are exempt. Above that amount, you pay 36% on a notional return. Savings count more lightly than investments. Investments are taxed more heavily (5.88% notional return), savings more lightly (~1.44%).
Deductions and schemes for self-employed workers
As a self-employed person, you may reduce your profits by several deductions. This is advantageous: you pay income tax on your taxable profit, so the lower it is, the less tax you pay. There are a number of schemes especially for entrepreneurs that can give you a considerable advantage, especially if you are just starting out or investing in your business.
Below are the main deductions applicable in 2025.
Self-employment deduction and start-up deduction
When you get to the hours criterion (1,225 hours per year), you are entitled to the self-employed deduction of €2,470. Start-ups may deduct a further €2,123 on top of that via the start-up deduction (maximum 3 times in first 5 years). Both schemes significantly reduce your taxable profits and thus provide direct tax benefits.
SME profit exemption
After deductions, you may deduct an additional 12.7% from your remaining profit. This is called the SME profit exemption. This exemption applies even if you do not meet the hour criterion. For high incomes (above €76,817), a deduction limitation applies: entrepreneurial benefits then yield less.
Small-scale investment deduction (KIA)
For investments above €2,900 (more than €450 each), you can deduct up to 28% of the amount. This falls under the small-scale investment deduction. For higher investment amounts, a fixed or decreasing amount applies. If you sell the asset within 5 years, you may have to repay part of it.
Am I an entrepreneur for income tax purposes?
Only if the tax authorities consider you an entrepreneur are you allowed deductions. Important criteria: hour criterion, expected profit, independence, risk, multiple clients and investments. If you do not meet these criteria, your income will fall under "other activities" without entrepreneurial benefits. You can easily check whether you count as an entrepreneur via the Entrepreneur check from the Inland Revenue.
Income tax calculation
The calculation proceeds in steps:
- Determine your profit from business (turnover minus expenses).
- Deduct entrepreneurial deductions such as self-employment deduction, start-up deduction and KIA.
- Apply the SME profit exemption (12.7% of profit after deductions).
- Calculate tax according to the box 1 brackets.
- Deduct tax credits, such as the general tax credit and employment tax credit.
Use our calculation tool that makes it easy:
Doing income tax yourself or outsource?
If your records are simple and you use an accounting programme, you can do the return yourself just fine. This saves costs, provides insight into your figures and many self-employed people find it instructive and clear. Yet outsourcing to a accountant make sense: it saves time, prevents errors and ensures optimal use of deductions. Especially in complex situations, this is recommended. The costs can often pay for themselves.
Requesting an extension for your tax return
The deadline is 1 May. You can apply for digital postponement via My Tax Office by 30 April at the latest. You will then be granted a postponement until 1 September. If you do not apply for a postponement and are late, you risk a fine of at least €385. If you have an accountant apply for the postponement, they can often get a postponement until 1 May of the following year. They do have to request this before 1 September. After that, this longer period is not always possible.
Avoid tax interest on late filing
From July 1 after the tax year, the Inland Revenue charges 6.5% interest (in 2025). File your return before May 1 or apply for a provisional assessment in time to reduce interest. File your return as soon as you are ready, waiting costs money.
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?
It depends on your profits and deductions. Up to around €31,000, you effectively pay no tax. Reserve about 30% of your profit, more at high profits.
What are the rates in box 1 in 2025?
35.82% up to €38,441, 37.48% up to €76,817, 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?
At 1,225 hours per year, profit expectation, self-employment, multiple clients, risk and Chamber of Commerce registration. In doubt? Do the entrepreneur check or ask for advice.
