Sole Trader vs Company NZ: Tax, Liability and When to Switch

Short answer: A sole trader pays tax on all business profit at personal rates of 10.5% to 39% and is personally responsible for every business debt. A company is a separate legal entity that pays 28% on its profit, and your liability is generally limited to the value of your shares. The 28% only applies to profit left in the company: anything you take out as salary or dividends is taxed at your personal rates, with credit for company tax already paid. A company tends to make sense once profit is well into the 33% or 39% brackets, or when liability, investors or selling the business matter.

Tax rates here are Inland Revenue’s for the 2027 tax year (1 April 2026 – 31 March 2027), and fees are from the Companies Office as at October 2026. Business.govt.nz’s guide to choosing the right business structure also covers partnerships and trusts. For the personal rates, see tax brackets NZ, and for setting up as a sole trader, how to become self-employed in NZ.

What is the difference between a sole trader and a limited company?

A sole trader is you, trading. A company is a separate legal person that you own through shares and run as a director.

	Sole trader	Limited company
Legal status	You and the business are the same person	Separate legal entity
Liability for business debts	Personal and unlimited	Generally limited to the value of your shares
Income tax rate	10.5% to 39% on all profit	28% on company profit; personal rates on what you take out
IRD number	Your personal number	The company’s own number
Set-up	Nothing to register	Incorporate with the Companies Office
Yearly admin	Your IR3	Company tax return and annual return, plus your own IR3 if you are paid a salary without PAYE
Paying yourself	You take drawings; tax is on profit, not drawings	Salary or dividends, each taxed
Selling or bringing in investors	Harder	Easier: shares can be sold or issued

Business.govt.nz sums it up: a sole trader has the most flexibility and is easy to start, but carries every debt personally; a company limits your risk by keeping business and personal finances separate.

What is the company tax rate in NZ?

The company tax rate is 28%, on Inland Revenue’s tax rates for businesses page. It has been 28% since the 2011–12 income year, when it came down from 30%. It is a flat rate: a company pays 28c on its first dollar of profit and on its millionth.

Set against the personal brackets that apply from 1 April 2025:

Slice of taxable income	Sole trader (personal rate)	Company
$0 – $15,600	10.5%	28%
$15,601 – $53,500	17.5%	28%
$53,501 – $78,100	30%	28%
$78,101 – $180,000	33%	28%
Over $180,000	39%	28%

Below $53,500 the personal rates are lower than 28%, and up to $78,100 the gap is two points. It only becomes significant at 33% and above.

Does a company pay less tax than a sole trader?

Only on profit that stays in the company. Profit you take out as a dividend is taxed at your personal rate, but the imputation system credits you with the 28% the company already paid, so overall it is taxed once, at your rate. A company can attach up to 28 cents of imputation credit to each $1 of gross dividend.

Worked example: $150,000 of profit, 2027 tax year, no other income.

	Sole trader	Company, keeping some profit in
Your salary from the company	n/a	$90,000
Personal income tax	$39,377.50 on $150,000	$19,577.50 on $90,000
Company tax: $60,000 left × 28%	n/a	$16,800.00
Total income tax this year	$39,377.50	$36,377.50
Left in the company after tax	n/a	$43,200

The company saves $3,000 this year: the $60,000 kept in the company is taxed at 28% instead of 33%. If you later pay that $43,200 out as a fully imputed dividend, it counts as $60,000 of income with $16,800 of credits attached. In a year when your other income is again $90,000, you pay 33% on it, less the credits, which is $3,000 more. The total ends up exactly where the sole trader started.

So a company mainly defers tax on retained profit. It saves tax for good only if you take the money out in a year when your personal rate is lower, or never take it out at all. Companies may also have to deduct resident withholding tax on dividends; Inland Revenue’s IR284 payer’s guide explains it.

Two more rules matter. A shareholder-employee salary can be paid without PAYE, in which case it goes on your own IR3 and can make you a provisional taxpayer; the company can deduct it only if it is paid during the income year or within the time allowed for its return. And Inland Revenue’s attribution rules for personal services income can tax a contractor’s company income as if the person earned it directly, mainly where most of the work goes to one client. Ask an accountant to model your figures, including ACC, before switching.

How does liability differ?

As a sole trader, you are personally responsible for every business debt, so an unpaid loan or supplier dispute can reach your house and savings. A company is its own legal entity: your liability is generally limited to the value of your shares, and losses are not usually held against the owners, as business.govt.nz’s guide to starting a company explains.

Limited liability has limits. If you sign a personal guarantee for a lease, a loan or a trade account, you are liable under that guarantee whatever the structure, and lenders and landlords may ask a small company’s directors for one. Directors also take on legal duties under the Companies Act 1993.

What does a company cost to set up and run?

A sole trader has nothing to register: you use your personal IRD number and start trading. A company has Companies Office fees from day one. The Companies Office schedule of fees lists:

Fee	Excluding GST	Including GST
Reserving a company name	$10.00	$11.50
Incorporating a company	$118.74	$136.55
Annual return, every year		$49.74

The bigger cost is admin: a company needs its own bank account, IRD number, income tax return, financial statements and annual return, and if it pays you a salary without PAYE you file your own IR3 too. Many owners pay an accountant for the year-end work, so get a quote before you incorporate.

To incorporate you need at least one share, one shareholder and one director. Under the Companies Office rules on who can be a director, at least one director must live in New Zealand, or live in Australia and be a director of a company incorporated there. People under 18 and undischarged bankrupts cannot be directors.

When does switching from sole trader to company make sense?

There is no fixed figure, but these are the usual signals.

A company is worth looking at when:

• your profit is regularly above about $78,100, so part of it is taxed at 33% or 39%, and you can leave some of it in the business
• the business carries real liability risk: large contracts, staff, stock, or credit from suppliers
• you want investors or to sell one day; business.govt.nz suggests a company structure from the start if so

Staying a sole trader usually makes more sense when:

• your profit is under about $53,500, where personal rates are below 28% and you need all of it to live on
• you work mainly for one client, where the attribution rules can remove the tax benefit
• you want the simplest possible admin

Business.govt.nz notes that if you start as a sole trader, you can still set up a company later.

How do I change from sole trader to limited company?

1. Reserve a company name with the Companies Office.
2. Incorporate the company online, with at least one director, one shareholder and one share.
3. Register for tax at the same time. The Companies Office tax registration option issues the company’s IRD and GST numbers with its certificate of incorporation; see GST registration in NZ.
4. Move the business across: a bank account in the company’s name, contracts, supplier accounts, and invoices issued by the company with its GST number.
5. Transfer your tools, vehicle and stock with your accountant’s help, because GST and depreciation both apply to assets that change hands.
6. Close the sole trader side. Your IR3 for the year includes your sole trader income up to the switch. If you cancel your own GST registration, your final GST return includes GST on business assets you keep.

Keeping clean records under either structure, and where does Keel fit?

Under either structure, your accountant works from your invoices, receipts and expenses, and in a company the company’s money and yours must stay separate.

Keel: Invoice Maker & Receipts, an iPhone app by Ilura Technology OÜ, keeps those records. You create quotes that become invoices in one tap, send PDF invoices, capture receipts and expenses, log business mileage, and keep each item under its job and customer. “Who owes you” shows unpaid invoices and prepares reminder drafts that you review and send yourself; nothing is sent automatically. Records stay on your iPhone, with no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected”.

Keel does not set up companies, calculate company or personal tax, file returns or connect to Inland Revenue or the Companies Office. It is free with no invoice limit (free invoices carry a small “Made with Keel” footer), and Keel Lifetime is a one-time purchase of $249.99 USD (the App Store shows your local price) that adds custom branding, signature, premium templates and accountant-ready exports and reports. Keel on the App Store. More guides are on the New Zealand hub, including self-employed taxes in NZ.

Frequently asked questions

What is the company tax rate in NZ? 28% of the company’s taxable income, a flat rate that has applied since the 2011–12 income year. Sole traders pay personal rates instead: 10.5%, 17.5%, 30%, 33% and 39% across the brackets from 1 April 2025. Company profit paid out to you is taxed again at your personal rate, with imputation credits for the 28% already paid.

Is it better to be a sole trader or a company in NZ? For most people starting out, a sole trader is simpler and cheaper, and pays less tax on profit under about $53,500. A company is worth considering once profit is regularly in the 33% or 39% bracket and some can stay in the business, or when limited liability, investors or a future sale matter. You can switch later.

Do I pay less tax with a company? Only on profit left in the company, which is taxed at 28% instead of your personal rate. When that profit is paid out as a dividend, it is taxed at your personal rate with a credit for the company tax, so the total is usually the same. The saving is mostly a deferral, and the extra admin and accountant costs come off it.

How much does it cost to set up a company in NZ? The Companies Office charges $11.50 including GST to reserve a name and $136.55 including GST to incorporate, plus an annual return fee of $49.74 including GST each year. The larger ongoing cost is usually accounting: a company files its own tax return and needs financial statements, and if it pays you a salary without PAYE you file your own IR3 as well.

Do company owners still file an IR3? Often, yes. If the company pays you a shareholder-employee salary with no PAYE deducted, you report it on your own IR3, and it can make you a provisional taxpayer. The company files its own separate income tax return.

---

This article is general information, not tax or legal advice. Consult a qualified New Zealand accountant or tax professional.