There is a legal opportunity to open a company in Canada and pay nothing in taxes on income earned in other countries. It may sound as if Canada were an offshore jurisdiction but it is not. It is one of the most reputable jurisdictions in the business world. The company can be established within 3 weeks.
4 reasons to open a company in Canada
There are at least four reasons why you should consider registering a company in Canada:
- An opportunity to do business globally;
- Advanced banking, legal, and state management systems;
- A legal opportunity not to pay any taxes;
- Remote business management opportunities.
A Canadian General Partnership (GP) is an optimal form of company ownership for a foreigner. While registered in Canada, the Partnership is not taxable in the country if it makes profits in foreign jurisdictions.
What you need to know about taxes in Canada
Taxes are comparatively high in Canada. However, there are legal mechanisms for reducing your tax burden. Non-residents of Canada including non-resident companies can pay 0% taxes in Canada.
When charging nothing in taxes, the Canadian authorities presume that the taxes are paid in the countries where the profits are made. If the profits are made in a zero-tax jurisdiction, no taxes are payable at all.
A natural person or a legal entity can act as a Partner in a GP including a company registered in a low-tax or zero-tax jurisdiction. Thus, you can perform international business operations as a Canadian-based company and use a Canadian bank account while legally paying nothing in taxes.
If you register a General Partnership in Canada and make an offshore company one of the Partners, you will have a company domiciled in a reputable jurisdiction and pay nothing in taxes on the profits derived from sources outside Canada.
You have to bear in mind, however, that the double taxation avoidance treaties signed by Canada do not apply to Canadian Partnership. Even though it’s a Canadian legal entity, it has to pay the taxes in accordance with the rules applied in the jurisdiction where the income has been earned.
Types of Canadian Partnership
The following forms of company ownership are optimal for foreigners in Canada:
- General Partnership;
- Limited Partnership (you can find details of registering a Limited Partnership in Canada by following the link);
- Limited Liability Partnership;
- Extra-Provincial Corporation (EPC).
If it were easy to register a GP in Canada and pay nothing in taxes, Canada would have to be referred to as an offshore zone because the term ‘offshore zone’ refers to a country that does not tax foreign income. In reality, things are a bit more complicated in Canada. If you would like to establish a Partnership in the country, you have to learn about some specifics of the process.
If you are to make an offshore company one of the Partners in a Canadian Partnership, you first have to register it as an Extra-Provincial Corporation. Thus, you have to have an offshore-registered company that you register in Canada as an EPC and then make it a General Partner in a Canadian GP. This allows being tax-exempt in Canada.
How a foreigner can open a GP in Canada
Whether you are registering a Partnership on your own or with the help of an agent, the first thing to do is to decide what people and companies are going to act as Partners. The minimum required number of Partners is two in Canada. At least one of them has to be a General Partner with unlimited liability. Other Partners can have limited liabilities.
Both natural persons and legal entities can act as Partners including companies registered in other jurisdictions. The Canadian authorities do not discriminate between nationalities: a citizen of any country can register a Partnership in Canada.
Depending on the nature of the Partners, the following key documents are required:
- Partners’ passports if they are natural persons;
- Corporate documents if a company is going to be a Partner.
Besides, you will have to supply the following additional documents:
- Proof of address;
- Several variants of the Partnership name.
The following documents are also important:
- Application for Partnership formation;
- A receipt certifying payment of the registration fee;
- Resolutions of the General and Limited Partners;
- Partnership agreement.
Please note that you have to come up with a unique name for your Canadian Partnership and some restriction apply:
- The name of the company cannot contain personal names of the Partners;
- It cannot be identical to the name of the company acting as a Partner;
- It cannot contain words such as ‘government’, ‘bank’, ‘trust’ or other words that could associate the Partnership with the state or with a sphere of business operations where a license is required.
Normally, three variants of the Partnership name have to be suggested.
Your Canadian Partnership will have to have a legal address in Canada. The provinces of Ontario and Quebec are the most popular ones for renting an office. You have the following options to choose from:
- Rent or buy a brick-and-mortar office in Canada;
- Rent a legal address.
The latter option is allowed by law and it is much more economical. If you are not planning to make any profits in Canada (to remain tax-exempt), you therefore are not planning to carry out any business activities in the country. In this case, why should you pay for a brick-and-mortar office?
When the Partnership is registered, you will receive the statutory documents sent by regular mail or with a courier.
Downsides of registering a Partnership in Canada
Registering a Partnership in Canada also has certain downsides. First, the company registration procedure is rather complicated. Even though the Government of Canada makes every effort to attract foreign business to the country, the process remains difficult. You certainly need legal assistance to register a Partnership in Canada.
The second drawback is the fact that not all forms of company ownership are accessible to foreigners in Canada. This is the case in most other jurisdictions too but there are some forms of company ownership in Canada that make doing business especially easy. Yet, they are unavailable to foreigners.
Finally, not all Canadian banks will open accounts for a Partnership founded by an offshore-registered company. This is probably the most important downside of registering a Partnership in Canada.
