Economy of New Zealand
New Zealand has an advanced market economy, ranked 16th in the 2018 Human Development Index and third in the 2018 Index of Economic Freedom. It is a high-income economy with a nominal gross domestic product (GDP) per capita of US$36,254. The currency is the New Zealand dollar, informally known as the “Kiwi dollar”.
New Zealand is a highly developed free-market economy
New Zealand’s diverse economy has a sizable service sector, accounting for 63% of all GDP activity as of 2013. Large-scale manufacturing industries include aluminium production, food processing, metal fabrication, wood and paper products. Mining, manufacturing, electricity, gas, water, and waste services accounted for 16.5% of GDP as of 2013. The primary sector continues to dominate New Zealand’s exports, despite accounting for only 6.5% of GDP as of 2013. The information technology sector is growing rapidly.
Taxation in New Zealand
Taxes in New Zealand are collected at a national level by the Inland Revenue Department (IRD) on behalf of the Government of New Zealand. National taxes are levied on personal and business income, and on the supply of goods and services. There is no capital gains tax, although certain “gains” such as profits on the sale of patent rights are deemed to be income – income tax does apply to property transactions in certain circumstances, particularly speculation. There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty. These are collected by a range of government agencies such as the New Zealand Customs Service. There is no social security (payroll) tax.
New Zealand went through a major program of tax reform in the 1980s. The top marginal rate of income tax was reduced from 66% to 33% (changed to 39% in April 2000, 38% in April 2009 and 33% on 1 October 2010) and corporate income tax rate from 48% to 28% (changed to 30% in 2008 and to 28% on 1 October 2010). Goods and services tax was introduced, initially at a rate of 10% (then 12.5% and now 15%, as of 1 October 2010). Land taxes were abolished in 1992.
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Starting a business
There are few restrictions on establishing, owning and operating a business in New Zealand. In fact, by using the Government’s online portals, the process of reserving a name and incorporating your company can be completed in a matter of hours.
Businesses in New Zealand generally use one of these three structures – Sole trader, Partnership, or Limited Liability.
1. Sole trader
A sole trader operates a business on their own. They can employ people, but the trader controls, manages and owns the business and is entitled to all profits. The trader is also personally liable for all business taxes and debts. Usually, a sole trader business can be established without any paperwork. Many New Zealand businesses start as sole traders and then move to a limited liability company structure as the business grows. Others choose to start as companies to take advantage of the protection and other benefits the structure offers.
Partnerships are most common for professional people and in the farming industry. Partnerships can be an effective way to share business operation costs where, for example, several professional people work out of a joint office. The partnership itself does not pay income tax. Instead it distributes the partnership income to the partners. The partners then pay tax on their own share.
Many partnerships are established with a formal partnership agreement. It must be well thought-out to cover all contingencies and possible conflicts. No registration is required to start a partnership. Partnerships were once the automatic option for lawyers, doctors, accountants and other professionals. Today however partnerships are not as popular because professionals can now opt for a company structure which may offer better protection.
3. Limited liability
A company is a formal and legal entity in its own right and separate from its shareholders or owners. Shareholders’ liability for losses is limited to their share of ownership of the company. This does not apply when company directors have given personal guarantees for company debts, where a company has been trading while insolvent or is considered to be ‘trading recklessly’.
The limited liability company is New Zealand’s most successful business structure. It fosters confidence in the business by governing the relationships between investors/shareholders, directors and creditors and by giving customers, investors and other stakeholders a clearer picture of who and what they are dealing with. In New Zealand, you can register (incorporate) a company online through the Companies Office. There is a small fee, currently NZ$115 (plus GST).
Sourcing market information
Obviously you will want to know as much as you can about the market and opportunities for your business. Statistics New Zealand has a wide range of online information tables and tools that can help.
Check local authority rules
Before setting up with premises, check with your local council. Each territorial authority has its own rules and regulations about what business activity is allowed in different areas. For instance, it is unlikely that you would be able to run an automotive repair business in a residential area.
Set up tax numbers
Depending on the business structure you use, you will either need individual tax numbers or a company tax number. For more information visit Inland Revenue.
Get a lawyer, accountant and bank
Any New Zealand bank can help you with setting up bank accounts for business purposes, and many can also help you with transferring funds from overseas and other specialist migrants’ services. You may also want to seek legal and financial advice.
To learn more about starting or buying a business in New Zealand visit business.govt.nz.