Company vs sole trader in NZ — 2026 comparison
The five factors that actually differ between the two structures — tax, ACC, set-up cost, compliance, liability — with a worked example using the current IRD brackets. Sourced from IRD and Companies Office.
This is a comparison, not advice. The right structure for you depends on your specific income, liability exposure, family circumstances, KiwiSaver setup and exit plans. The numbers below show how the two structures differ — use them to ask better questions of a Chartered Accountant.
All tax rates verified against IRD on 2026-06-06. Set-up costs from Companies Office.
Side by side
| Factor | Sole trader (IR3) | Company (IR4) |
|---|---|---|
| Income-tax rate | 10.5% – 39% progressive (personal scale) | 28% flat |
| ACC earners' levy (FY 2026) | 1.67% on liable earnings | Paid via PAYE if you take a salary; not on dividends |
| Liability | Unlimited personal liability for business debts and claims | Limited to share capital — directors can still be liable for personal guarantees and certain statutory breaches |
| Set-up cost | No registration fee — just register an IRD number / GST if relevant | Companies Office incorporation fee + NZBN fee (see Companies Office fees page; under $200 currently). Plus optional CA fees for the structure work. |
| Annual compliance | IR3 with a business schedule | IR4 + Companies Office annual return + financial statements (special-purpose for owner-operated companies) |
| Losses | Offset against other personal income in the same year (subject to ring-fencing rules for rentals) | Carried forward inside the company subject to shareholder-continuity rules |
| Tax planning options | Limited — income hits the personal scale in the year it's earned | Salary vs dividend mix, imputation credits, retained earnings — broader toolkit but each has its own rules |
| Credibility / contracting | Some larger NZ contracting parties (govt, listed corporates) prefer to contract with a company | Often required for B2B work above a certain size |
Sources: IRD — individual tax rates, IRD — company income tax, ACC — levies, Companies Office — fees. Verified 2026-06-06.
Worked example — $100,000 of business profit (FY 2026)
Uses the post-31-July-2024 personal tax brackets, ACC earners' levy 1.67%, and the 28% company tax rate. Ignores GST, KiwiSaver, secondary-tax codes and any deductions — this is a structural illustration, not a return.
Sole trader on $100,000
- Business profit
- $100,000
- Income tax (personal scale)
- −$22,878
- ACC earners' levy (1.67%)
- −$1,670
- After-tax
- $75,453
Income tax = 10.5% × $15,600 + 17.5% × $37,900 + 30% × $24,600 + 33% × $21,900.
Company retaining $100,000
- Company profit
- $100,000
- Company tax (28%)
- −$28,000
- After-tax retained
- $72,000
Plus dividend / salary tax if extracted: a dividend at 33% personal rate adds 5 percentage points (imputation credits offset the 28% already paid).
Reading the example: the headline "company saves money" comparison only holds if you can leave profit in the company. The moment you take it as a dividend at a 33% or 39% personal rate, the saving compresses. The structure choice depends on whether you need the cash personally or can retain it for investment. This is the conversation a Chartered Accountant should have with you before you incorporate.
Considerations by situation
Where sole trader tends to fit
- Income roughly in the 17.5% – 30% bracket band where the personal scale is below the 28% company rate.
- Single-operator service work with low public-liability exposure.
- Testing a new business idea before incurring structure costs.
- Profits used for personal expenses each year (retention not needed).
- Losses you'd like to offset against PAYE income from a day-job.
Where a company tends to fit
- Profit consistently above the 33% personal bracket and retention is realistic.
- You employ staff or take on contractors.
- Material public-liability exposure (trades, manufacturing, hospitality).
- Contracts that require a registered company counterparty (govt, listed corporates).
- Planning to raise capital or sell the business as a going concern in future.
Related
- NZ tax calculator — work out personal scale tax under the current brackets.
- Small business tax deductions 2026 — what either structure can claim.
- Tax agent vs accountant — who can actually file your IR3 / IR4.
Which structure fits your situation?
A Chartered Accountant will look at your income, liability exposure, KiwiSaver and exit plans and tell you which structure actually fits — not which one is theoretically cheapest on paper. We refer every quote request to Lynch & Associates, our Auckland partner firm, who will reply within one business day.
Get a quote — free for usersSources
- IRD — individual tax rates (current brackets)
- IRD — company income tax (28% rate)
- ACC — levies (earners' levy 1.67% for FY 2026)
- Companies Office — fees and charges
Editorial note: The worked example uses round numbers and ignores GST, KiwiSaver, ESCT, FBT, schedular payments and any deductions — it is a structural illustration of the two systems, not a return. Verified 2026-06-06; we re-check the cited rates quarterly. See our sources page for our broader source list.
Disclosure: TaxAccountants.co.nz is an introduction service. Quote requests are referred to Lynch & Associates Chartered Accountants.