If you run your business through a company in New Zealand, its profit is taxed twice over in a sense: once in the company, and again when it reaches you as a dividend. The imputation system stops this becoming double tax. The tax the company has paid travels with the dividend as a credit, so overall the profit ends up taxed at roughly your own personal rate.
This guide explains the company tax rate, how imputation credits work, and what a shareholder keeps at each personal tax rate. The examples are worked out by the NZ company tax calculator.
The company tax rate
Most New Zealand companies pay income tax at a flat 28% of their taxable profit: their income minus deductible expenses. There are no bands and no tax-free amount. Māori authorities pay a lower rate. Self-employed people aren’t taxed as companies at all: they pay the individual rates on their profit.Inland Revenue
| Taxable profit | Company tax | Profit after tax |
|---|---|---|
| $50,000 | $14,000 | $36,000 |
| $100,000 | $28,000 | $72,000 |
| $250,000 | $70,000 | $180,000 |
| $1,000,000 | $280,000 | $720,000 |
In its first year a business usually pays its tax in one amount after the end of the year. After that it generally pays provisional tax in instalments during the year, often alongside its GST payments.
Why dividends carry imputation credits
Without imputation, a shareholder would pay personal tax on a dividend that had already been taxed in the company. Imputation fixes this. When a company pays tax, it records the amount in its imputation credit account. When it pays a dividend, it can attach those credits, and the shareholder claims them against their own tax.Inland Revenue
There’s a limit on how many credits a dividend can carry, called the maximum imputation ratio. It is written 28:72: up to 28 cents of credit for every 72 cents of cash dividend. That matches the company rate, so a dividend paid from fully taxed profit can carry all of the tax the company paid on it. A dividend with the maximum credits attached is called fully imputed.Inland Revenue
The shareholder is taxed on the gross dividend: the cash dividend plus the credits. They then subtract the credits from the tax on it.
Inland Revenue’s example
Inland Revenue’s imputation guide uses a company with $1,000 of profit, paid out in full to a shareholder whose tax rate is 33%. The calculator reproduces it exactly:
- company tax: $280;
- cash dividend: $720, with $280 of imputation credits attached;
- gross dividend: $1,000;
- further tax for the shareholder, after the credits: $50;
- what the shareholder keeps: $670.
So the whole $1,000 of profit ends up taxed at the shareholder’s rate, not at the company rate plus the shareholder’s rate on top. Without imputation, the same shareholder would keep much less.
What a shareholder keeps at each tax rate
Here a company makes $100,000 of taxable profit and pays all of it out as a fully imputed dividend. The calculator applies the shareholder’s rate to the whole gross dividend:
| Line | Amount |
|---|---|
| Taxable profit | $100,000 |
| Company tax (28%) | -$28,000 |
| Profit after tax | $72,000 |
| Cash dividend | $72,000 |
| Imputation credits (28/72) | $28,000 |
| Shareholder tax at 33% on $100,000, less credits | -$5,000 |
| Shareholder keeps | $67,000 |
| Shareholder’s tax rate | Further tax on the dividend | Shareholder keeps |
|---|---|---|
| 10.5% | $0 | $72,000 |
| 17.5% | $0 | $72,000 |
| 30% | $2,000 | $70,000 |
| 33% | $5,000 | $67,000 |
| 39% | $11,000 | $61,000 |
For shareholders on rates above the company rate, the further tax is the gap between their rate and the company rate, applied to the gross dividend. At the two lowest rates, there’s no further tax at all: the credits are larger than the tax on the dividend, as the next sections explain.
In real life a large dividend usually spans more than one personal band, so the shareholder’s actual tax is a blend of rates. Choose the rate that applies to most of the dividend, or use the NZ income tax calculator on your total income, including the gross dividend.
RWT on dividends
When a company pays a dividend to a New Zealand resident, it must also deduct resident withholding tax (RWT) so that the credits withheld add up to 33% of the gross dividend. For a fully imputed dividend, the imputation credits already cover the company rate, so RWT only makes up the difference. Shareholders who hold an RWT exemption certificate have nothing deducted.Inland Revenue
The company gives each shareholder a dividend statement showing the cash dividend, the imputation credits and the RWT deducted, and these go into the shareholder’s tax return.Inland Revenue RWT is not an extra tax. Like PAYE, it is a payment towards the shareholder’s tax for the year, and it’s claimed in their return. For a shareholder at 33%, imputation credits plus RWT settle the tax on the dividend in full, which is why the further tax in Inland Revenue’s example is the same amount as the RWT.
Shareholders on lower rates
If your personal rate is below the company rate, the imputation credits on a dividend are more than the tax on it. You can use the extra credits against tax on your other income for the year, such as salary. But imputation credits are never paid out as cash. Any you can’t use are carried forward to your next tax return.Inland Revenue
RWT is treated differently from imputation credits, and RWT deducted from a dividend counts towards your tax like any other tax paid. That is why the table shows a lower-rate shareholder keeping the whole cash dividend once their return is filed, even though the company deducts RWT when it pays.
Keeping profit in the company
A company doesn’t have to pay out all its profit. Profit kept in the company has been taxed at the company rate only, and the credits stay in its imputation credit account until a later dividend uses them. If the company in the earlier example pays out half its after-tax profit, it keeps $36,000, and a shareholder at 33% keeps $33,500 from a dividend of $36,000.
The company tracks this in its imputation credit account, which records the tax it has paid and the credits it has passed on to shareholders.Inland Revenue
Keeping profit in the company defers the shareholder’s further tax; it doesn’t remove it. The further tax is paid when the profit is eventually paid out.
Company or sole trader?
People setting up a business often compare the company rate with the top personal rate and conclude a company always pays less tax. Imputation makes the picture more even than that. A sole trader with $100,000 of profit and no other income pays income tax of $22,877.50, worked out band by band at the personal rates. A company with the same profit pays $28,000, but that is not the end of it: once the profit reaches the owner as a dividend, it is taxed again at the owner’s rates, with the company’s tax counted as a credit.
So for profit that is paid out, the tax tends towards the owner’s own personal tax, whichever structure is used. Two differences remain. The company’s tax is paid up front at the company rate, and if the owner’s rates are lower, the extra credits are only carried forward, not refunded. And profit kept in the company is taxed only at the company rate until it is paid out. Both figures above are income tax only; the comparison leaves out the ACC levies and the costs of running a company.
What the calculator leaves out
The calculator assumes the company has enough imputation credits to fully impute each dividend, and that the shareholder’s rate is a single rate. It doesn’t cover:
- the timing of provisional tax payments;
- tax losses carried forward, which reduce taxable profit;
- look-through companies, whose profit is taxed in the owners’ hands;
- the benchmark dividend rule, under which the first dividend in a tax year sets the credit ratio for later ones;
- salaries paid to shareholder-employees, as an alternative to dividends.
For any of these, talk to a tax adviser or read Inland Revenue’s imputation guide.
Work out company tax
Enter the company’s taxable profit, how much of the after-tax profit is paid out, and the shareholder’s tax rate.
$28,000
- Profit after tax
- $72,000
- Cash dividend
- $72,000
- Imputation credits
- $28,000
- Gross (taxable) dividend
- $100,000
- Further tax for the shareholder
- $5,000
- Shareholder keeps
- $67,000
- Retained in the company
- $0
- Most New Zealand companies pay 28% tax on taxable profit. A fully imputed dividend carries 28 cents of imputation credit for every 72 cents of dividend, so the shareholder is taxed on the gross dividend and credited with the company's tax.
- The company deducts resident withholding tax (RWT) of 33% of the gross dividend less the credits ($5,000) before paying it, unless the shareholder has an RWT exemption. RWT counts towards the shareholder's final tax.
- Assumes the company has enough imputation credits to fully impute the dividend, and leaves out provisional tax timing, losses and look-through companies.
Company tax: $28,000 at 28% on $100,000 profit
Show the breakdown
| Line | Amount |
|---|---|
| Taxable profit | $100,000 |
| Company tax (28%) | −$28,000 |
| Profit after tax | $72,000 |
| Cash dividend | $72,000 |
| Imputation credits (28/72)Tax already paid by the company | $28,000 |
| Shareholder tax at 33% on $100,000, less credits | −$5,000 |
| Shareholder keeps | $67,000 |
- Shareholder keeps$67,00067%
- Company tax$28,00028%
- Shareholder tax$5,0005%
If your company is registered for GST, the GST calculator adds or removes GST, and GST in New Zealand explains returns and registration. For the personal rates that apply to dividends, see NZ tax brackets 2026–27.
