Sole Trader or Company in NZ: Which Costs Less? (2026)
Sole trader or company — which actually costs less in New Zealand?
The short answer: below roughly $180,000 of profit, a company does not pay less tax than a sole trader on money you take out to live on — the company rate is a flat 28%, while a sole trader's average rate at $100,000 profit is about 22.9%. A company costs more to run (our accounts from $900 +GST versus a personal return from $700 +GST, plus a $49.74 +GST Companies Office annual return). What a company buys is limited liability, a cleaner split between you and the business, and the ability to leave profit in the business at 28%. (Rates read from IRD and the Companies Office, 3 September 2026.)
This is the most common question we get from new business owners, and the honest answer surprises most of them.
What are the tax rates?
| Structure | How profit is taxed (from 1 April 2025) |
|---|---|
| Sole trader | Personal brackets: 10.5% to $15,600 · 17.5% to $53,500 · 30% to $78,100 · 33% to $180,000 · 39% above $180,000 |
| Company | Flat 28% on company profit; salary paid to you is taxed at your personal rates; dividends carry imputation credits for the 28% already paid |
The company rate looks lower than the top personal rates. The catch: the 28% is not the end of the story. When profit comes out to you as salary it is taxed at your personal rates. When it comes out as a dividend, the imputation credit covers the 28% and you pay the difference up to your personal rate. A company defers tax on profit left in the company; it does not reduce tax on profit you spend.
Worked comparison: what does each structure pay?
Tax on profit, assuming the sole trader has no other income and the company retains all profit (the best case for the company):
| Profit | Sole trader tax | Average rate | Company tax at 28% | Cheaper on tax |
|---|---|---|---|---|
| $60,000 | $10,220.50 | 17.0% | $16,800 | Sole trader by $6,579.50 |
| $100,000 | $22,877.50 | 22.9% | $28,000 | Sole trader by $5,122.50 |
| $150,000 | $39,377.50 | 26.3% | $42,000 | Sole trader by $2,622.50 |
| $200,000 | $57,077.50 | 28.5% | $56,000 | Company by $1,077.50 — only on retained profit |
Calculations use the individual brackets in force from 1 April 2025 and the 28% company rate, ACC levies excluded. Once the company pays the owner a market salary, the personal tax on that salary applies on top and the gap closes further. The crossover only appears above roughly $180,000, and only for profit the business does not need to distribute.
What does compliance cost for each?
| Cost item | Sole trader | Company |
|---|---|---|
| Set-up | Nil (IRD number you already have) | $118.74 +GST Companies Office incorporation, plus $10 +GST to reserve the name |
| Annual accounting (our published prices) | Personal income tax return from $700 +GST | Annual accounts and tax return from $900 +GST; the owner's personal return is usually still needed |
| Companies Office annual return | Not applicable | $49.74 +GST every year |
| GST returns (if registered) | From $110 +GST per period | From $110 +GST per period |
| Record-keeping | Xero recommended | Xero, plus shareholder current account tracking, minutes and resolutions |
| Provisional tax | Applies once residual income tax exceeds $5,000 | Applies to the company on the same $5,000 test |
Roughly, a company costs a few hundred dollars more per year to keep compliant, before any extra bookkeeping to keep the owner's and the company's money separate.
What does a company give you that a sole trader does not?
- Limited liability. A sole trader's personal assets — house, car, savings — stand behind business debts. A company's do not, except where you have signed a personal guarantee (banks and landlords usually ask for one) or breached director's duties.
- Retained profit at 28%. Money left in the company to fund growth, stock or equipment is taxed at 28% until it is drawn.
- Separation and credibility. Some customers, suppliers and lenders prefer dealing with a company. Bringing in a partner or selling later is simpler with shares to transfer.
- Income splitting within limits. Paying a working spouse a market salary is available to both structures, but a company makes the split cleaner to evidence.
When is switching to a company worth it?
Our rule of thumb from around 150 businesses:
- Stay a sole trader if profit is under about $80,000, you have no staff, no premises lease, and low risk of being sued.
- Consider a company when any of these appears: you take on staff or a lease, you carry meaningful risk (construction, trades, food, transport), profit is consistently above $100,000 and part of it stays in the business, or you plan to bring in a partner or sell.
- Do not incorporate just for the 28%. If every dollar comes out as your living costs, the company saves nothing on tax and adds compliance.
Switching mid-year is possible but has tax consequences for assets, GST and any existing contracts. We handle the restructure as part of company and trust compliance, and model the numbers first through business advisory and cash flow forecasting.
FAQ
Do companies pay less tax than sole traders in NZ? Only on profit left in the company, and only once profit is high enough. The company rate is a flat 28%; a sole trader's average rate at $100,000 profit is about 22.9%, and only passes 28% above roughly $180,000. Money paid out to the owner is taxed at personal rates either way.
How much does it cost to set up a company in New Zealand? The Companies Office charges $118.74 +GST to incorporate and $10 +GST to reserve a name, then $49.74 +GST for the annual return each year. On top of that come annual accounts and a company tax return, which we prepare from $900 +GST, and usually a personal return for the owner.
Can I switch from sole trader to company later? Yes, and many of our clients do once the business has proved itself. Assets, GST registration, bank accounts, contracts and any staff move across, and the timing affects both tax years. Planning the switch for a balance date keeps it clean; we run the numbers first.
Does a company protect my house? Generally yes, because company debts are the company's, not yours. The exceptions are personal guarantees you sign for a bank, landlord or supplier, and breaches of director's duties such as trading while insolvent. Insurance still matters under either structure.
What is the company tax rate in NZ in 2026? 28% on company profit. This is the rate shown on Inland Revenue's business tax rates page as at 3 September 2026. Individual rates for the same period run from 10.5% up to 39% above $180,000, so the comparison depends on how much profit you make and how much you draw.
Talk to us
Bring your last year's figures to a free 15-minute consultation and we will show you the comparison for your actual numbers. Call 021 202 4028, email info@optimalaccountants.co.nz, or use our contact page. Optimal Accountants Limited, Rosedale, Auckland — Chartered Accountant, CA ANZ member, English and Mandarin. See our services.