Sole trader or company: which costs less in New Zealand?
The short answer: a company is not a general tax-saving shortcut. With $100,000 of taxable profit and no other income, a sole trader pays $22,877.50 of income tax (about 22.9%), while an ordinary company keeping all of that profit pays $28,000 (28%). In this simple model the company figure only becomes the lower one at about $190,205 of profit. A company also costs more to keep compliant each year. What it can offer is limited liability, a clearer line between you and the business, and the choice to keep profit in the business at the company rate. Compare the whole result before you decide. (Official rates checked 2 November 2026.)
We help business owners in Rosedale, Auckland's North Shore and throughout New Zealand compare their options. Discuss your business structure or call 021 202 4028. English and Mandarin.
What are the tax rates?
Sole trader. You are taxed as an individual on your total income for the year. The rates from 1 April 2025 are:
- Up to $15,600: 10.5%
- $15,601 to $53,500: 17.5%
- $53,501 to $78,100: 30%
- $78,101 to $180,000: 33%
- $180,001 and over: 39%
Ordinary company. Most companies pay 28% on taxable profit, which is income after allowable expenses. This article compares an ordinary company, not a look-through company, which follows different rules.
How does money reach you?
Sole trader. You pay income tax on the profit, including whatever you draw. Drawings are not a deductible expense, so taking more or less out does not change the tax on the profit.
Company. The profit belongs to the company, and there are three usual ways to pay it out:
- Salary with PAYE. Deductible to the company and taxed as your income.
- Shareholder-employee salary. You draw money during the year, then the company works out a salary amount at year end. You pay income tax on that amount.
- Dividends. Paid from profit that remains after tax.
A company may attach imputation credits to dividends. These credits represent tax the company has already paid. The dividend and credits count as your income, and the credits reduce your tax, so the same profit is not taxed twice. Up to 28 cents of credit can be attached to each $1 of gross dividend, and the company generally must deduct resident withholding tax (RWT) to bring the total up to 33% of the gross dividend. If your credits are more than your total tax for the year, the excess is not refunded. It carries forward to the next year.
Taking money from a company is not automatically a salary or a dividend. Drawings are recorded in your shareholder current account until your income is worked out. An overdrawn balance means the company is lending you that money, which may have tax consequences.
Worked comparison: all profit kept in the company
This assumes the sole trader has no other income, credits or reliefs, and the company pays no salary or dividends. ACC levies and compliance costs are excluded.
$60,000 profit. Sole trader: $10,220.50 (about 17.0%). Company at 28%: $16,800. Lower in this model: sole trader, by $6,579.50.
$100,000 profit. Sole trader: $22,877.50 (about 22.9%). Company at 28%: $28,000. Lower in this model: sole trader, by $5,122.50.
$150,000 profit. Sole trader: $39,377.50 (about 26.3%). Company at 28%: $42,000. Lower in this model: sole trader, by $2,622.50.
$200,000 profit. Sole trader: $57,077.50 (about 28.5%). Company at 28%: $56,000. Lower in this model: company, by $1,077.50, before any tax on later payments to you.
On these assumptions, the two figures meet at about $190,205 of profit. At $180,000 the sole trader still pays less ($49,277.50 against $50,400).
What if the company pays you a salary?
A deductible salary is not taxed twice. The company pays 28% on the profit left after the salary, and you pay personal tax on the salary. Here is $150,000 of profit with an $80,000 salary, no other income and ACC levies excluded:
- Sole trader: $39,377.50 in total.
- Company, profit left in the company: $16,277.50 of personal tax on the salary plus $19,600 of company tax on the remaining $70,000, a total of $35,877.50. That is $3,500 less so far, with $50,400 still inside the company.
- Company, the $50,400 paid out in the same year as a fully imputed dividend: the $70,000 gross dividend is taxed at 33% ($23,100), less $19,600 of credits, leaving $3,500. The total becomes $39,377.50, the same as the sole trader.
In this example the $3,500 is timing, not a permanent difference. The final result depends on when the money comes out and what your income is that year.
Two limits apply. Pay to a shareholder or a relative must reflect the services actually provided, and excessive amounts can be challenged. If most of a company's income comes from your personal services to one client, the attribution rule can also tax that income as yours.
What does compliance cost for each?
Set-up. Sole trader: usually no formal registration process, and you use your personal IRD number. Company: Companies Office online fees of $118.74 +GST to incorporate and $10 +GST to reserve the name, and the company has its own IRD number.
Annual accounts and tax return (our published prices). Sole trader: personal income tax return from $700 +GST. Company: annual accounts and company tax return from $900 +GST. A company owner usually also files a personal return. We confirm the fixed fee in writing before we start.
Companies Office annual return. Sole trader: not applicable. Company: a government fee of $49.74 +GST every year when filed online.
GST returns. The same registration test applies to both: you must register if turnover was at least $60,000 in the last 12 months, you expect it to be at least $60,000 in the next 12 months, or you add GST to your prices. Our current GST fees are on the services page.
Records. Sole trader: business records, with business and private transactions kept separate. Company: financial records, company records such as meeting minutes, a share register, and a shareholder current account.
Provisional tax. Both generally pay it in the following year when the tax to pay at year end on the last return was more than $5,000.
At our starting prices, a company costs a few hundred dollars a year more to keep compliant. See our Auckland accounting fee guide and company compliance services.
What does a company give you that a sole trader does not?
- Limited liability, with limits. A sole trader is personally responsible for all business debts and taxes. A company is a separate legal entity responsible for its own debts, which generally limits what shareholders can lose. Personal guarantees and directors' duties can still make you personally liable.
- Retained profit. An ordinary company generally pays 28% on taxable profit it keeps for business use. Further tax depends on how the money is later paid to owners.
- Separation and credibility. The government's business.govt.nz guide says companies generally have more credibility, and are easier to grow, attract investment to and sell. Shares give you a clear way to bring in another owner.
- A different rule for paying a spouse or partner. In either structure the person must provide real services and the pay must not be excessive. A sole trader needs Inland Revenue's prior approval to claim the deduction, and that approval cannot be backdated. A company does not need that approval. This is about paying for real work, not moving income around.
When is switching worth considering?
These are prompts for a conversation, not Inland Revenue thresholds.
- Staying a sole trader can suit you if you have no staff and no premises lease, your risk of being sued is low, and you use most of the profit to live on.
- Consider a company if you take on staff or a lease, your work could lead to large claims, you plan to bring in another owner or sell, or you regularly leave profit in the business. Your personal rate on each extra dollar only passes 28% once income is over $53,500, so the company rate only starts to matter on profit above that level that genuinely stays in the business.
- Model the total before incorporating for the 28% rate. Include salary, dividends, imputation credits, shareholder current account balances and the extra compliance cost. The headline rate alone does not show a saving.
We can model the numbers first through business advisory and cash flow forecasting, and look after the yearly filings through company and trust compliance.
Frequently asked questions
Do companies pay less tax than sole traders in NZ?
There is no universal answer. With no salary and all profit retained, the sole trader's tax is lower until about $190,205 of profit in our example. A salary and dividends change the result, because owner-level tax then applies to what is paid out. Special company regimes and the attribution rule can change it again.
How much does it cost to set up a company in New Zealand?
The Companies Office charges $118.74 +GST ($136.55 including GST) to incorporate online and $10 +GST ($11.50 including GST) to reserve a name. The annual return is then $49.74 +GST ($57.20 including GST) each year. Annual accounts and a company tax return come on top, which we prepare from $900 +GST.
Can I switch from sole trader to company later?
Yes. A company is a separate entity, so business assets, GST treatment, registrations, contracts, banking and any employees need to be planned rather than assumed to move across automatically. When business assets are sold together, the price allocated to each class of asset should be documented. A balance date may be a convenient time to switch, but the best date depends on the facts.
Does a company protect my house?
It can reduce the risk, but it does not remove it. Company debts are generally the company's own. You can still be liable under a personal guarantee you sign, for example for a bank or landlord. A director can also become personally liable for reckless trading or for continuing to trade while insolvent.
What is the company tax rate in NZ in 2026?
Most ordinary companies pay 28% on taxable profit. Individual rates run from 10.5% to 39%, with 39% applying to income of $180,001 and over. These rates were checked on 2 November 2026. The right comparison also includes deductions, owner payments and any special regime that applies.
Starting out or changing structure?
Tell us what the business does, your expected income and costs, and whether profits will be used privately or kept for the business. We can discuss the comparison and the scope of work before you commit. Request an initial consultation, call 021 202 4028 or email info@optimalaccountants.co.nz. For Chinese, visit our Chinese service page. See our services.
Optimal Accountants Limited, Rosedale, Auckland. Team member Ted Liang is a CA ANZ Chartered Accountant.
General information, not individual tax advice. Updated 2 November 2026. Sources checked 2 November 2026: IRD Smart business IR320, August 2026, pages 6, 7, 10, 28, 30, 31, 33 and 45; IRD Imputation IR274, April 2024, page 12; IRD Company tax return guide IR4GU, April 2026, page 45; IRD Individual tax return guide IR3G, August 2026, pages 42 and 45; IRD Employer's guide IR335, page 59; IRD QB 19/01; IRD tax rates for individuals; IRD tax rates for businesses; IRD provisional tax; IRD shareholder current account; IRD attribution rule; Companies Register schedule of fees; Companies Register: what it means to be a director; Business.govt.nz: choosing a business structure.