Canada is a unique country indeed. It is not an offshore zone but foreigners registering companies there can legally avoid paying taxes. In particular, a Canadian-registered company can be tax-exempt on the income made abroad. You can make full use of this opportunity if you register a General Partnership in Canada. The company can be established within 2 or 3 weeks.
Reasons to open a company in Canada
There are multiple reasons why you should consider establishing a business entity in Canada. Below we list only the most important ones:
- An opportunity to do business globally while based in a reputable jurisdiction;
- Advanced banking, legal, and administrative systems in Canada;
- A legal opportunity to pay nothing in taxes on foreign income;
- An opportunity to manage your Canadian company from anywhere in the world.
A Canadian General Partnership is the optimal form of business ownership for foreign nationals. We must note, however, that corporate legislations are a bit different in different Canadian provinces. The province of Ontario seems the friendliest one as far as foreign business owners are concerned. Therefore, registering a General Partnership in Ontario is probably the first possibility that you should consider.
Taxes for General Partnerships in Canada
Canada charges taxes. At the same time, there are legal opportunities to bring your tax rate down to zero. There are opposing myths about the Canadian tax system. Some of them say that Canada is an offshore zone while others say that it charges extremely high taxes.
The truth is that all non-residents of Canada (including non-resident companies) can reduce their tax burden greatly if they do not perform any business operations inside the country. We will repeat: foreign income can be tax-exempt in Canada.
Why are Canadian GPs not taxed on their foreign income? Because the Government of the country assumes that the company is taxed in the jurisdiction where the income is earned. Thus, if you earn an income in a zero-tax jurisdiction, it can be totally tax-free.
It is important to realize that not only a natural person from a foreign country can act as a Partner in a Canadian Partnership: a foreign legal entity can also be a Partner. What is more, the legal entity can be registered offshore or in a low-tax jurisdiction (some restrictions apply, however). Therefore, you can make your offshore-registered company a Partner in a Canadian Partnership thus establishing a Canadian company with a Canadian bank account. And pay no taxes on incomes made abroad.
You have to bear an important factor in mind, however. Canadian General Partnerships are not covered by double taxation avoidance treaties that Canada has signed. Even though A General Partnership is a Canadian legal entity, it is not considered a taxable entity unless it makes an income in Canada. If it makes an income elsewhere, the jurisdiction where the income is made is responsible for taxing a Canadian GP.
Types of companies that foreigners can open in Canada
Foreign nationals can establish companies of different types in Canada but most often they choose one of the following company types:
- General Partnership;
- Limited Partnership;
- Limited Liability Partnership;
- Extra-Provincial Corporation (EPC).
You have to be aware of the specifics of the Canadian corporate legislation if you would like to register a company in the country. You have to first register an Extra-Provincial Corporation if you would like to make an offshore company or a company registered in a low-tax jurisdiction a General Partner in a Canadian Partnership. This means that if you want to legally avoid paying taxes, you have to have an offshore-registered company that is first registered as an EPC and then becomes a General Partner in a Partnership registered in Canada.
A Canadian GP is not an offshore company and opening a corporate bank account in Canada is quite possible. At the same time, you have to realize that Canadian banks will refuse to open an account for a company whose sole founder is an offshore-registered legal entity.
How can a foreigner open a GP in Canada?
Whether you want to take a trip to Canada and register a Partnership there yourself or you want to hire a trusted agent to do it for you, the first thing that you have to do is decide who the company founders are going to be. A Canadian Partnership has to have at least two Partners and at least one of them has to be a General Partner. A General Partner has unlimited liability.
Individuals and companies can act as Partners in a Canadian Partnership including foreign individuals and companies. A person/ company from any foreign country can establish a Partnership in Canada.
Depending on the nature of the Partners forming a Partnership in Canada, the following documents are required for company registration:
- Company founders’ passports – in all cases;
- Company statutory documents if a company acts as a Partner.
In addition, you will have to submit the following:
- Proof of your residential address;
- Several variants of the prospective company’s name.
You have to bear in mind that the name of the Partnership has to meet certain requirements in Canada:
- It cannot contain the founders’ personal names;
- It cannot be the same as the name of a corporate Partner;
- It cannot contain words such as ‘bank’, ‘government’, ‘trust’, and other words that are associated with the state or with licensed types of business activities.
As a rule, foreign nationals registering companies in Canada suggest 3 possible company names.
In addition, your Partnership will have to have a legal address in Canada. The provinces of Ontario and Quebec are especially popular with foreigners choosing where to have a legal address in Canada. There are 3 ways to solve this issue:
- You can buy an office in Canada;
- You can rent office space there;
- You can sign an agreement with a special agency and designate its address as the legal address of your Partnership in Canada.
The latter option is quite legal and it allows economizing on company maintenance costs. If you are not planning to engage in any business activities in Canada, this option is for you.
When your General Partnership is registered in Canada, the corporate documents will be sent to your legal address in the country.
Downsides of registering a GP in Canada
Even though the Government of Canada tries to do its best to simplify the administrative procedures, registering a GP in the country is a rather tough bureaucratic procedure. You will certainly need legal advice when drawing up the company’s statutory documents to be submitted to the Registrar.
A more important downside, however, is the fact that not all Canadian banks will open accounts for companies found by offshore-registered legal entities. This is the reality of the day: a global de-offshorization campaign is in full swing.
Rizwan Ali