NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
regimes that apply within this framework, in particu - lar in relation to employee benefits and remuneration. These include the employment tax collection regimes (pay as you earn, or PAYE) and the fringe benefit tax that applies in respect of non-cash benefits provided to employees. These regimes require separate reg - istration and impose reporting and withholding or tax payment obligations on employers. Employers can also be required to withhold tax in relation to an employee’s superannuation contributions, and to make payment of certain levies calculated by refer - ence to employee wages to fund New Zealand’s acci - dent compensation regime (known as “ACC”). 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Most businesses in New Zealand adopt the corpo - rate form, operating through a limited liability com - pany. According to the New Zealand Companies Office, there were more than 744,000 incorporated companies in New Zealand as of 31 December 2025. Companies that meet certain requirements (including having no more than five shareholders) may elect into There is a difference in New Zealand between the cor - porate tax rate (28%) and the highest marginal indi - vidual tax rate (39%). Individual professionals are entitled to determine the trading structure of their business, including whether to use a company or to trade as a partnership or in their own name. However, in doing so, such individu - als must consider the general anti-avoidance provi - sion found in New Zealand’s Income Tax Act (see 7.1 Overarching Provisions ). This is an issue that has been considered by the courts, and case law outlines how New Zealand’s general anti-avoidance provision should be interpreted in light of individual profession - als structuring their businesses to gain a tax advan - tage. If an arrangement to derive income utilising a com - pany structure has tax avoidance as its purpose or the LTC rules to enable tax transparency. 3.2 Individual and Corporate Rates
effect, it will be considered void as against the Com - missioner, who may act to counteract any tax advan - tage obtained from or under such an arrangement. New Zealand also has a specific anti-avoidance provi - sion which, subject to certain thresholds, operates to attribute income from personal services to a person in circumstances where an associated entity of that person contracts with a third party to provide servic - es and those services are performed by that person. Essentially, this is designed to ensure that the relevant person cannot interpose a company between them - selves and the third party with which they are con - tracting to reduce their tax liability. 3.3 Restrictions on Retention of Earnings by Closely Held Corporations There are no specific rules in the Income Tax Act that prevent the accumulation of earnings by closely held companies for investment purposes or otherwise. However, the accumulation of earnings by a company may be a relevant factor taken into account in deter - mining whether an off-market share cancellation (ie share buy-back) by a company should be treated as a dividend (rather than a tax-free capital transaction) for New Zealand tax purposes. 3.4 Taxation of Individuals on Shares in Closely Held Corporations Receipt of Dividends New Zealand’s Income Tax Act provides that a divi - dend paid by a New Zealand resident company to an individual is income of that individual, and is taxable at that individual’s marginal tax rate (as discussed in 1.4 Applicable Corporate and Individual Tax Rates ). This tax may be imposed and collected via withholding, under New Zealand’s resident withholding tax rules or non-resident withholding tax rules. New Zealand has an imputation regime that is designed to eliminate the double taxation of corpo - rate earnings that are subsequently distributed to a company’s shareholders. Imputation credits arise when a company pays tax on its income at 28%. The company can then attach up to NZD0.28 of imputation credits to each NZD0.72 of cash dividend it pays to its shareholders, to avoid double taxation. The share -
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