Business in Canada
Canada is one of the richest countries in the world with a high per capita income. In addition to being a member of the Organization for Economic Cooperation and Development (OECD) and the G8 (Big Eight), NATO, WTO, the Commonwealth of La Francophonie, the OAS, APEC and the UN, it is rightfully one of the ten largest trading countries in the world. You will be offered good taxation conditions, and the reputation of the country will not allow anyone to doubt the legitimacy of the business. Following the signing of the North American Free Trade Agreement (NAFTA), a trilateral trade bloc was created between Canada, Mexico, and the United States of America to remove barriers to trade and investment between these countries. This, in turn, provides not only a good logistics network, over 451 million consumers, but also time zones adapted for trading on US quotes.
Owning a business in Canada can be a good help in obtaining a residence permit. Therefore, it is not surprising that such a service as registering a company in Canada has been gaining popularity lately.
Legal system of Canada
In Canada (with the exception of the province of Quebec), the common law system prevails. The Canadian provinces have their own legislation, including corporate, except for industries subject to the federation. Canada did not participate in the Hague Convention, which abolishes the requirement of legalization for foreign public documents of 05.10.1961. Therefore, the country does not have the concept of "apostille" on official documents, and documents intended for use abroad are legalized at the consulate.
Advantages of Canada
Canada is a stable jurisdiction with a very good reputation.
The required paid-in capital is only 1 Canadian dollar.
In Canada, there are no reporting requirements for doing business outside the country.
In the province of Ontario, general meetings of shareholders are not required.
Companies in Canada
In Canada, there are 4 organizational and legal forms of business:
Limited partnership (LP)
Limited Liability Partnership (LLP)
Extra Provincial Corporation (EPC)
Corporation
The most common form is the limited partnership (LP). You can do business anywhere in Canada. However, you will have to pay for a license in the province in which the activity will be carried out, and 25% of the directors must be residents of Canada (have a valid Permanent Resident of Canada card). Another feature is the highest protection of the name throughout the country. Canadian citizenship is not required for directors, but a local registered agent is required in such provinces as British Columbia, New Brunswick, Nova Scotia, Prince Edward Island and Quebec. Business is permitted within the province in which the company is registered.
LP - Limited Partnership
Canadian law makes it possible to use companies with a zero tax rate - LP (Limited Partnership). LPs are not legal entities, but they have their characteristics: they can open bank accounts, enter into transactions with counterparties as part of their activities, etc. Canadian LP partnerships with foreign founders who do not conduct commercial activities and do not receive income in the territory of the country are exempt from taxes.
An LP company in Canada is not a separate subject of taxation, and its founders (Partners) pay taxes on their profits at their place of residence according to their interests in the LP (provided that this is provided for by the legislation of a particular country). A company in Canada can conduct business with English and Scottish partnerships, as well as with US companies, in a tax-free regime (similar to offshore companies). Naturally, provided that the partners of the LP company are non-residents of Canada and the company does not have activities within the country. In some provinces of Canada, such as Alberta, the company register is closed, which allows you to maintain the confidentiality of the owner.
Features of Canadian LP partnerships:
- The company name must end with a word, phrase, or abbreviation that indicates the limited liability of the company
- The minimum authorized capital is 1000 CAD, but there are no specific requirements for its payment.
- The founders can be at least 2 partners, individuals or legal entities, whose residency requirements are absent.
- One of the partners, resident of any country, must be appointed as the general partner. He has unlimited liability for the obligations of the LP and manages the partnership. The LP does not have a director, the management is carried out by the general partner.
- Corporate general partners are allowed. If a corporation is incorporated outside of Canada, it must first be registered as an extra-provincial corporation (EPC) in order to be designated as a general partner.
- A limited partner, resident in any country, is responsible for the obligations of LP by his contribution to the partnership, but does not participate in the management of the company. It can be any natural or legal person. In the event that a non-Canadian corporation is designated as a limited partner, there is no need to register it as an extra-provincial corporation in Ontario.
- An individual can be a general partner and a limited partner at the same time. Thus, one natural person is enough to register an LP.
- Relations between partners are governed by a partnership agreement, which is drawn up depending on their needs and wishes.
- LP companies must have a local secretary.
- LP companies are not required to file an annual financial statement unless they do business in Canada.
- In the event that the activities are carried out domestically, the LP company is required to file provincial financial statements and federal statements.
- The form confirming the registration of the LP must indicate the address of the registration office. It must contain copies of all resolutions of the partners and a copy of the Partnership Agreement. The registration office also receives official correspondence from the Government of Ontario.
- Limited Partnerships are not taxed. Therefore, an LP company does not have to file a tax return and pay income tax. All profits received by the Limited Partnership are distributed among the partners. Partners who are not residents of Canada have no tax liability in it. If the partner is a resident of Canada, he is obliged to include his part of the profits received as a result of the activities of the LP in his personal tax return and pay income tax.
- Canadian partnerships are an ideal choice for business that involves the purchase of goods in EU countries and their export to other countries (including Ukraine). When using a company registered in any EU country for this purpose, the seller of the goods is not always sure whether this operation is an export from the EU (and thus exempt from VAT procedures). When using a Canadian company, exports from the EU are obvious.
- Also, partnerships in Canada are suitable for IT developers whose main customers are located in Canada, the US and the EU. In addition, partnerships will help implement online business (website development, marketing, auctions, online stores, etc.).
Limited Liability Partnership (LLP)
Founders.
Quantity: minimum - 2. Status: individuals or legal entities. Residence: can be residents of any country. Information about the founders: stored in the register of enterprises of the respective province. Nominee founders: allowed.
Directors.
LLP law provides that the management of the enterprise is carried out by partners who may also act as directors.
Secretary.
There are no secretary requirements.
Authorized capital.
The standard declared capital is 1000 CAD. Minimum paid up capital – no requirements.
Company name.
Must end with the words “Limited Liability Partnership” or the abbreviation LLP. It is not allowed to register names containing the words “Bank”, “Insurance”, “Trust”, etc.; also will not be registered a name which, in the opinion of the Registrar, is “too general” (i.e. lacks personality).
Information about the real owner of the company.
Provided only to the registered agent and are confidential.
Reporting.
There are no requirements for the submission of financial statements, but this does not exempt companies of this type from compiling and storing them.
Extra Provincial Corporation (EPC)
The director, employees and founders of the EPC can have any citizenship, there are no clear requirements for it. A business license is required for a specific province. An extra-provincial corporation operates as a branch, so a parent company is needed to register the EPC in Canada. Any offshore company can be registered as an EPC. There is no tax on income earned outside of Canada.
An extra-provincial corporation can open a Canadian bank account and an office to manage affairs in the US and other countries. This legal form is especially popular in Europe for selling goods and services abroad.
Corporation
In tax planning, such an organizational form as a corporation is most often used. A Canadian corporation has the following structure:
Shareholders.
The minimum quantity is one; may be an individual and legal entity, a resident of any country. Usually, an individual resident of a tax-free jurisdiction is used as a shareholder.
Director.
The minimum quantity is one; must be physical. a person over 19 years of age, may be a resident of any country. Usually, an individual resident in a tax-free jurisdiction is used as a director.
Officials.
A corporation must have a president, treasurer and secretary. Typically, they are appointed directors of the corporation.
Annual shareholders meetings are mandatory and may take place outside of Canada. But the registration office of the corporation must certainly be located on the territory of the country. Bearer shares are not allowed in Canada.
The name must contain a distinctive element (for example, 007Bond), an element for describing the line of business (for example, Detective Agency) and an element indicating the legal form of the enterprise (ending) - 007Bond Detective Agency Inc.
Taxation in Canada
Companies in Canada are subject to federal, provincial and municipal taxes. Tax rates in each province are set by the local government independently.
In addition, there is a special tax of 5% on goods and services, but a wide range of food, goods and services in the field of health, as well as education, are exempt from it.
The general income tax rate is 25%. Companies are required to pay taxes on all their profits, regardless of the source of its origin.
The tax is levied on the profits received, minus the costs associated with the operation of the company. Partnerships that do not operate in Canada are exempt from paying taxes in Canada.
It is also worth noting that Canadian resident companies pay income tax regardless of where they do business, be it Canada or any other jurisdiction.
Non-resident companies pay income tax only on profits received as a result of doing business directly in Canada.
Reporting and audit
The preparation and submission of the financial report is mandatory. The report is prepared annually and must be submitted within 6 months from the end of the financial year.
The preparation and submission of the financial report is mandatory. The report is prepared annually and must be submitted within 6 months from the end of the financial year.
Taxes are calculated on the basis of a tax return and must be paid within 2 months from the end of the financial year.
Currency control in Canada
Missing
Canada's international tax treaties
To date, Canada has entered into about 90 bilateral double tax treaties with the following countries:
- Australia
- Austria
- Azerbaijan
- Алжир
- Аргентина
- Armenia
- Bangladesh
- Barbados
- Belgium
- Bulgaria
- Brazil
- Great Britain
- Hungary
- Venezuela
- Vietnam
- Gabon
- Guyana
- Germany
- Hong Kong
- Greece
- Denmark
- Dominican Republic
- Egypt
- Zambia
- Zimbabwe
- Israel
- India
- Indonesia
- Jordan
- Ireland
- Iceland
- Spain
- Italy
- Kazakhstan
- Cameroon
- Kenya
- Cyprus
- Kyrgyzstan
- China (PRC)
- Colombia
- Korea
- Kuwait
- Latvia
- Lithuania
- Luxembourg
- Malaysia
- Malta
- Morocco
- Mexico
- Moldova
- Mongolia
- Nigeria
- Netherlands
- New Zealand
- Norway
- UAE
- Oman
- Pakistan
- Papua New Guinea
- Peru
- Poland
- Portugal
- Republic of Cote d’Ivoire
- Russia
- Romania
- Сенегал
- Serbia
- Singapore
- The Slovak Republic
- Slovenia
- United States
- Thailand
- Taiwan
- Tanzania
- Trinidad and Tobago
- Tunisia
- Turkey
- Uzbekistan
- Ukraine
- Philippines
- Finland
- France
- Croatia
- Czech Republic
- Chile
- Switzerland
- Sweden
- Sri Lanka
- Ecuador
- Estonia
- South Africa
- Jamaica
- Japan
In addition, Canada has signed 24 tax information exchange agreements with a number of offshore jurisdictions. The state is a party to the Convention on Mutual Administrative Assistance in Tax Matters (as amended by Protocol 2010) and from September 2018 will participate in the automatic exchange of information on financial accounts (under BEPS).
