Article · business-setup · May 2026
Sole Trader vs Limited Company NZ — When Each Makes Sense
TL;DR
For 80%+ of new service operators in NZ — sole trader is the right starting point. It's free, instant, and tax-simpler. Move to a limited company once you're confidently above the $60k GST threshold, want to ringfence personal assets, or you're bringing on partners. You can always upgrade later. Most lawn mowing, cleaning and trade operators stay sole traders permanently.
The decision in one paragraph
If you're starting a service business in NZ and your first-year revenue is likely under $100,000, register as a sole trader and stop reading. If you're earning meaningfully more, have personal assets to protect, or are bringing on partners — incorporate. The detail below is for the in-between cases.
What's actually different
Setup cost and time
- Sole trader: $0, ~10 minutes. Send IRD a message via myIR. Done.
- Limited company: $136.55 incl. GST + 30–60 minutes of paperwork. Companies Office filing.
Liability
This is the biggest practical difference.
- Sole trader: there is no separation between you and the business. If the business owes money or is sued, your personal assets — your house, savings, car — are on the line.
- Limited company: the company is a separate legal entity. Your personal assets are normally ringfenced from business debts. The company's debts are the company's, not yours.
For most low-risk service businesses (lawn mowing, cleaning, dog walking), the practical liability exposure is small — public liability insurance covers most of what could realistically go wrong. The asset-protection benefit of a limited company is much more relevant for trades like building, electrical, or anything involving substantial customer property.
Tax
This is the tax treatment that actually matters at the operator scale.
- Sole trader: profit goes on your personal IR3 return, taxed at your marginal personal rate. NZ rates 2026: 10.5% to $14k, 17.5% to $48k, 30% to $78k, 33% to $180k, 39% above. ACC levy applied separately based on your business activity classification.
- Limited company: flat 28% company tax rate on profit. To get money out for personal use you either pay yourself a salary (PAYE applies, taxed at personal rates) or pay a dividend (with imputation credits crediting the 28% already paid).
The actual tax math for a typical operator: sole trader earning $60k–$80k of profit pays a blended ~24% personal tax. Limited company at the same profit level pays 28% as the company, then more on extraction. The company structure rarely beats sole trader on tax until you're earning above $100k of profit and can defer extraction for retained earnings.
GST
Same threshold ($60,000 turnover in any 12-month period) for both. Doesn't drive the decision.
Compliance overhead
- Sole trader: one IR3 return per year. Optional GST returns if registered. Maybe an accountant for $400–$1,200/yr at scale.
- Limited company: annual return to Companies Office (~$45/yr). Income tax return (IR4). Shareholder current account tracking. PAYE if you pay yourself a salary. Probably an accountant — $1,500–$3,500/yr.
When to actually incorporate
Honestly: most service operators don't need to incorporate, ever. The Boomer-generation builder, the family lawn mowing business, the local cleaner — most of them stay sole traders for their whole working life and it's the right call.
Incorporate when one of these is clearly true:
- Profit above $100k/yr. The retained-earnings tax deferral starts to matter. You're paying for the compliance overhead with real tax savings.
- Significant personal assets to protect. A house with substantial equity. Other investments. The peace-of-mind value of liability separation justifies the overhead.
- Bringing on a partner or external shareholder. Equity is much cleaner with a company structure — you can issue shares, do shareholder agreements, and keep things tidy.
- Bidding on commercial contracts. Some larger commercial customers explicitly require their suppliers to be limited companies. You won't beat that without incorporating.
- Real estate exposure. If your business owns property or substantial fixed assets, the company structure simplifies inheritance and exit.
Mr Mow's call
Isaac at Mr Mow started as a sole trader. He's still a sole trader now, with revenue well into six figures and one staff member. Why? Because the lawn mowing business is low-liability (public liability insurance covers most realistic risks), the tax math is fine at his scale, and the compliance overhead saves him 20+ hours a year vs running a company. He'll incorporate when he hits $300k revenue or buys his first commercial truck — whichever happens first.
That's the right pattern for most service operators. Start sole trader. Re-evaluate at year 2.
If you're going to incorporate
You can DIY at companiesoffice.govt.nz for the $136.55 fee, or Self Made files it for you for $50 + the Companies Office fee — $186.55 total, 24-hour turnaround. Either way, the steps are the same: name reservation, director details, file the incorporation, apply for the company IRD number.
Related reading
If you're on a benefit and weighing up self-employment, there's specific funding to help: three WINZ programmes stack to up to NZ$21,800+ — see the WINZ self-employment funding guide for the realistic timeline + how to apply. If you're transitioning from a displaced white-collar role and want to understand which kinds of work are AI-resistant, read Jobs AI can't replace in NZ — and how to get one.
Common questions
Can I switch from sole trader to limited company later?
Yes. It's straightforward — you incorporate the company, transfer the business assets, novate the customer contracts, update IRD on the new structure, and the sole trader account is wound down. Most operators do this at year 2 or 3 once they've proven the model. Cost: $186.55 + a few hours of admin. Plenty of time later.
What's the tax difference between sole trader and limited company in NZ?
Sole traders pay personal income tax on business profit at their marginal rate (10.5%–39%). Limited companies pay a flat 28% on profit, then more if you take dividends. For most operators earning $60k–$100k profit, sole trader is slightly more tax-efficient. Above $100k, the company structure starts to win on retained earnings.
Do I need an accountant?
Sole traders earning under $80k/yr can usually self-file an IR3 — Sole App, our NZ accounting partner (NZ launch June 2026), is purpose-built for sole traders and makes this dead simple at a price below Xero, or you can pay $300–$600 once a year to an accountant for peace of mind. Limited companies effectively need an accountant — the compliance is too time-consuming to DIY for most non-accountants. Budget $1,500–$3,500/yr.
Can a sole trader hire staff?
Yes. You register as an employer with IRD (a quick form inside myIR), set up payroll software (IPayroll or Smartly are the NZ standards), and you can hire people. The business stays a sole trader entity but gains employer obligations — PAYE, KiwiSaver, ACC employer levies, etc.
What happens if I'm sued as a sole trader?
Your personal assets — house, savings, vehicle — are exposed. This is why public liability insurance is essential for any service business ($30–$50/mo for $1M cover). For most operators this covers the realistic risks. The asset-protection benefit of a limited company is most valuable for trades that handle valuable customer property or have higher inherent risk.
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By Self Made team. Last updated 6 May 2026.