Sole trader, partnership, company or look-through company in NZ: liability, tax rates (28% company rate), paying yourself and shareholder current accounts.
By the Find an Accountant NZ team · Facts checked against the sources listed below on 18 October 2026.
Before you send your first invoice, you need to decide how the business is owned. In New Zealand, most businesses are sole traders, companies or partnerships, according to business.govt.nz. The choice affects your personal risk, how you are taxed, how you pay yourself, your paperwork, and how easy the business is to sell later. This guide sets out the facts for each structure so you can have a sharper conversation with an adviser. It does not tell you which structure to choose.
A sole trader is one person in business on their own. It is the simplest and cheapest way to start. You do not register with the Companies Office. You use your own IRD number and tell IRD you are self-employed, according to business.govt.nz. You file an individual IR3 return and pay tax on your net profit at the individual rates. From 1 April 2025, those rates are:
The main drawback is that you are personally responsible for all the business's debts. business.govt.nz also notes that a sole trader business can be harder to sell or raise investment for. You pay yourself by taking drawings. IRD taxes a self-employed person on the business's {a('self_emp','net profit')}, not on the amount drawn.
A partnership is two or more people or organisations running a business together and sharing profits and losses. It files a partnership return (IR7) but does not pay income tax itself. Each partner pays tax on their share in their own return, according to IRD's partnership page. Each partner can be held liable for the partnership's debts, so personal assets can be at risk. business.govt.nz recommends a clear written partnership agreement.
A company is a separate legal person. Shareholders' liability is generally limited to the value of their shares, and you will often see 'Ltd' at the end of company names, according to business.govt.nz. A company pays tax on its profit at a flat 28% and files a company return (IR4). It must have at least one director, one share and one shareholder. It is registered (incorporated) with the Companies Office online, using a RealMe login: you reserve a name, then incorporate. It must also file an annual return every year to stay on the register, and a small fee applies. A company is more complex and has extra rules to follow, but business.govt.nz notes it is easier to sell and to attract investment.
Owner-operators usually pay themselves in one or more of these ways:
Your shareholder current account records what you have lent to the company and what you have taken out. If you take out more than you have put in, the account is overdrawn, which means the company is effectively lending you money. If interest is not charged at the prescribed rate or a market rate, IRD says there can be fringe benefit tax or dividend consequences. An overdrawn account is one of the most common reasons small-company owners get an unexpected tax bill.
A look-through company is a company in law but is treated like a partnership for income tax. Its profits and losses flow through to the owners, who pay tax at their own rates. Owners can generally use LTC losses against their other income. To be eligible, a company must have no more than 5 look-through counted owners, who must be natural persons or trustees (related shareholders can count as one), and it must be New Zealand tax resident. An LTC files an IR7 and must continue to meet the eligibility criteria. If it stops meeting them, it automatically stops being an LTC. LTCs are often discussed for property, and IRD's ring-fencing rules apply to LTC shareholders. See our rental property tax guide.
There is no single income level at which you should switch. The factors people usually weigh are:
business.govt.nz notes that you can start as a sole trader and form a company later, and recommends professional advice before starting a company. Whatever structure you choose, check the GST rules and plan for provisional tax from your second year.
An accountant is most useful before you incorporate, when you start paying yourself a shareholder salary or dividends, when your shareholder current account looks like going overdrawn, and when you bring in a partner or investor. business.govt.nz lists choosing a structure, registering for GST and setting up accounting systems among the first jobs an accountant can help with.
Look for a firm that does this work every week, not once a year. Some questions are worth asking before you sign up:
Compare local firms on our small business accountants in Hamilton page, and read how to choose an accountant for a fuller checklist.
This guide is general information, not tax or financial advice. Talk to an accountant about your situation.
You do not register with the Companies Office. You need an IRD number and should tell IRD you are working for yourself. You may also need to register for GST and set up a MyACC business account.
Most companies pay income tax at 28% on their profit.
A company that is a separate legal entity but is treated like a partnership for income tax, so profits and losses flow through to its owners. It can have no more than 5 look-through counted owners.
The company is effectively lending you money. If interest is not charged at the prescribed or market rate, there may be fringe benefit tax or dividend consequences. An accountant can help you manage this.
All 1671 firms, ordered by the same published criteria.