What is the company tax rate in New Zealand?
New Zealand companies pay a flat 28% corporate income tax rate on net profits. Special vehicles like PIE funds, look-through companies (LTCs), and qualifying companies are taxed differently. The imputation system prevents double taxation on dividends.
Detailed Explanation
## Company Tax Rate in New Zealand
New Zealand's standard corporate tax rate is a flat 28% on net taxable income. This rate applies to all resident companies and has been stable since the 2011-12 income year. It applies uniformly regardless of profit size.
### How Company Tax Is Calculated
A NZ company pays 28% on net taxable income — gross revenue minus allowable deductions (wages, rent, depreciation, interest, cost of goods sold). The company files an income tax return (IR4) each year. For example: revenue NZD 300,000, deductible expenses NZD 180,000, taxable income NZD 120,000, tax payable = NZD 120,000 x 28% = NZD 33,600.
### Portfolio Investment Entities (PIEs)
PIEs are collective investment vehicles (managed funds, KiwiSaver schemes) taxed at each investor's prescribed investor rate (PIR), ranging from 10.5% to 28%. Gains on listed shares within a PIE are taxed at the PIR and not the company rate, and there is no additional tax on distributions to investors.
### Look-Through Companies (LTCs)
An LTC is a company that elects to be tax-transparent: profits and losses flow through directly to shareholders and are taxed at their personal income tax rate (up to 39%). LTC status suits early-stage businesses with losses (shareholders can offset losses against other income, subject to loss limitation rules) or shareholders with a marginal rate at or below 28%. To elect LTC status, all shareholders must be natural persons and the company cannot have more than five shareholders (look-through counted owners). Loss limitation rules restrict how much loss a shareholder can claim — broadly limited to the amount they have economically invested.
### Qualifying Companies (QCs)
Qualifying companies are an older regime for closely-held companies. Like LTCs, dividends from QCs are taxed only at the shareholder level. New companies generally prefer LTC elections or standard companies with imputation credits. Existing QCs remain valid.
### Imputation Credits and Dividends
For standard companies, dividends paid to shareholders carry imputation credits equal to the 28% company tax already paid. Shareholders only pay the difference between their marginal rate and 28%. A shareholder on a 33% rate pays an additional 5% on the grossed-up dividend. A shareholder on 28% or below owes nothing further on a fully imputed dividend. The imputation credit account (ICA) must be maintained carefully — overdrawing it triggers a 10% penalty tax.
### Loss Carry-Back
From 2020-21, companies can carry losses back one year to generate a refund of tax already paid, subject to 49% shareholder continuity. Losses can also be carried forward indefinitely, subject to the same continuity test.
### Associated Person Rules
Transactions between associated companies or between a company and its controlling shareholders must be at arm's length (market value). Transfer pricing rules prevent profits being shifted to lower-taxed entities.
Source: https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/income-tax-for-companies
Real-World Examples
Standard company with profit and imputed dividend
TechCo NZ Ltd earns NZD 200,000 net profit. At 28% company tax, it owes NZD 56,000. It pays NZD 144,000 as a dividend to the sole shareholder with full imputation credits. The shareholder on a 33% marginal rate pays an additional 5% = NZD 10,200. Total tax: NZD 66,200 (effective 33.1%).
LTC early-stage loss
A software startup structured as an LTC makes a NZD 40,000 loss in year 1. The sole founder-shareholder can offset up to NZD 40,000 (subject to loss limitation) against their employment income from a day job, saving tax at their marginal rate — a real cash benefit unavailable to a standard company.
Choosing between LTC and standard company
A founder earning NZD 120,000 salary and NZD 80,000 company profit sits in the 33% personal tax bracket. As a standard company, profit is taxed at 28%. As an LTC, the same profit is taxed at 33%. The standard company structure saves 5% on business profits — NZD 4,000 per year in this example.
Common Mistakes to Avoid
- Assuming company profits can be left in the company tax-free — retained profits are taxed at 28% in the year they arise, not when distributed
- Electing LTC status without checking whether the founder's marginal rate exceeds 28% — if it does, an LTC costs more tax than a standard company on profitable income
- Forgetting that LTC losses are subject to loss limitation rules — you cannot claim more than your economic exposure in the company
- Overdrawing the imputation credit account by attaching more credits to dividends than the 28/72 maximum — this triggers a 10% penalty tax on the deficit amount
Frequently Asked Questions
Can a NZ company retain profits indefinitely without distributing them?
Yes. A company pays 28% tax on profits when earned but can retain after-tax earnings indefinitely without further tax. Retained earnings are only taxed again when distributed as dividends, and imputation credits offset most or all of the shareholder's liability on fully imputed dividends.
What is the tax rate for a sole trader versus a company in NZ?
Sole traders are taxed at personal income tax rates: 10.5% up to NZD 14,000; 17.5% up to NZD 48,000; 30% up to NZD 70,000; 33% up to NZD 180,000; 39% above NZD 180,000. A company pays a flat 28%, which is lower than the top personal rates. Incorporating can save tax on larger profits.
Is there a small business tax concession for NZ companies?
No. Unlike Australia, New Zealand does not have a reduced tax rate for small companies. All companies pay 28% regardless of revenue or profit size. Small businesses benefit from simplified provisional tax options (AIM method) and extended filing timelines via tax agents.
When does a company's tax year end in New Zealand?
The standard balance date is 31 March. Companies can apply to IRD for a non-standard balance date (e.g. 31 December to align with an offshore group) but this requires approval. Most NZ companies use the 31 March year end.
Can I offset a company loss against my personal income?
Not through a regular company — company losses stay in the company to carry forward. Only a Look-Through Company (LTC) allows losses to flow through to shareholders' personal returns, subject to the owner's basis (loss limitation) rules.
Practical Tips
- Use imputation credits correctly: every time you pay company tax, the imputation credit account is credited. Attach credits to dividends to prevent shareholders paying tax twice on the same income.
- Review your structure at NZD 70,000+ annual profit — at this level the gap between the 28% company rate and personal rates makes the decision between LTC and standard company financially meaningful.
- Consider a shareholder-employee salary to extract income at lower personal rates before paying company tax — but ensure the salary reflects genuine market value to avoid IRD scrutiny.
- Track your imputation credit account balance carefully. Overdrawing it (paying out more credits than you have) triggers an imputation penalty tax of 10% on the overdrawn amount.
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