As we will see, the choice between the IR and the IS is correlated with the choice of legal status , each with a basic tax regime and option options that are unique to them. The forecast and the support of a professional are necessary to choose effectively.

Possible options: IR and IS

There are two ways of taxing the possible profits for a company: the IR or the IS . When starting a business, the entrepreneur must choose between one of these two tax systems (provided that the chosen status leaves him the choice).

IR taxation results in direct taxation of profits on behalf of the entrepreneur or on behalf of each partner in the event of a partnership.

On the other hand, the choice of the IS makes the imposition of profits directly on the company. The entrepreneur or the partners are personally taxed on the remuneration and dividends they receive. From the best Business  Advisors  Auckland this is the perfect deal.

Choice of tax system: the IR (income tax)

When the business is subject to income tax, the taxation applies directly to the entrepreneur and / or the partners. The company is not subject to any tax burden. Profits earned through the company are taxed in the category of the activity carried out: BIC, BNC or agricultural profits.

Choice of the tax system

When the company is subject to the IS, the taxation of the profits is applied directly to the name of the company. The IS is calculated at the normal rate (see HERE ) but a reduced rate of 15% on the first 38,120 euros of profits is possible under conditions. In this configuration, the entrepreneur or the partners are personally liable to the IR only on the remunerations and dividends they receive.

IR or IS? Our tips for choosing your tax system

First of all, it is important to remember that the financial forecast takes all its importance in the choice between the IR and the IS , and that it is advisable to be accompanied by a professional about the choices of creation.

The choice between the IR and the IS must be made with the aim of optimizing the taxation of the company and the founders as well. For this, several important parameters must be studied:

For an effective choice, the tax interest must be brought closer to the possible impact on social security contributions.

In the case of unprofitable activities at start-up (development time, start-up time of the farm, etc.) resulting in losses or weak results during the first exercises, the choice of IR can be interesting in order to to personally benefit from deficits.

The benefit of certain tax benefits also weighs on the choice of the tax system. For example, when the company benefits from a profit tax exemption for ZFU or innovative start-up status , the choice of IR may be appropriate. The entrepreneur or the partners thus benefit directly from the tax exemption.

About the Company: Ramesh, Chartered Accountant at Kiwi Tax Accountants, is based in Mt Roskill, Auckland, but thanks to Xero and the power of the cloud, we can help your business with accounting no matter where you are in New Zealand.