A sole trader in NZ
is one of the simplest ways to start a business. Essentially, this business form means that the entrepreneur runs the business by himself and he obtains all of the profits, although it also means that he will be liable for the debts and obligations.
Registering as a sole trader in NZ with the government agencies is not needed, as may be the case to register other business forms, such as a limited liability company.
Before you start a business on your own as a sole trader, you will need to be aware of the conditions, the requirements and the liabilities that will arise as a result.
Sole trader characteristics
The sole trader is the simplest business form that you can set up in New Zealand and it can be common for entrepreneurs to start as a sole trader when they first decide to work on their own. Essentially, it is a one-man business that is easy to set up and manage, but for which the owner bears all responsibility.
- Registering as a sole trader in NZ is not a complex process and there is no mandatory registration unless you wish to obtain the New Zealand Business Number;
- Low costs: compared to opening a corporation, the set up costs are low as there are no registration fees or legal fees;
- Control: as the sole owner of the business, you are the only one to enjoy the profits and the losses can be offset against other income;
- Liability: an important issue to keep in mind when running this business is that the founder is fully liable for the debts; because there is no distinction between the business and the owner, you can be liable with your personal assets.
Requirements for the sole trader in NZ
Opening a sole trader is simple, however, you do need to keep in mind the following:
IRD number: the IRD number is mandatory for having a sole trader; this number is linked to all the tax, entitlements and personal details; applying for this number is possible even if the applicant is not in the country, however, in this case he will need a New Zealand bank account;
Licenses: depending on the business field in which you will activate, you may need to apply for special government
licenses and permits;
Qualifications: you will need to register for your trade or profession and have all the required qualification that allow you to perform before you engage in commercial activities;
Taxation: income tax applied on the net profit; sole traders are required to file an income tax return at the end of the tax year.
In some cases, the sole trader will be required to pay provisional tax. Claiming back part of the daily business expenses can help sole traders reduce their tax due. Our team of New Zealand company formation agents can give you more information on what you can deduct.
You will need to keep complete records of the banking information, proof of income (including cash income), expenses and invoices for at least seven years.
Some of the taxes
to keep in mind are the following:
- 10.5% tax rate for taxable income between 0-14,000 NZD;
- 17.5% for income between 14,001 and 48,000 NZD;
- 30% for taxable income between 48,001 and 70,000 NZD;
- 33% for income between 70,001 – 180,000 NZD and 39% for income over 180,000 NZD.
Other information about the sole trader
A sole trader in NZ can have employees, however, in this case you will need to keep in mind that this includes additional costs and steps for registering with the Inland Revenue as an employer. You will also have to meet all of the employer responsibilities.
As previously mentioned, registering as a sole trader in NZ is not needed in the same sense as it is with other business forms that have legal capacity. This means that you will not register the sole trader to obtain a company number unless you wish to do so to speed up part of the processes. However, you will need to register with the Inland Revenue for GST (the goods and services tax, the New Zealand equivalent of the value-added tax) if your annual income is more than $60,000.
Our team can give you more details about taxation and the option to obtain a New Zealand Business Number (NZBN), the unique identifier for your sole trade business.
if you want to set up a sole trader in NZ
. We will guide you throughout the process, help you with information about taxation, and help you apply for and obtain any additional licenses that may be required for the type of business you plan on setting up.