The United States of America is a country of a great purchasing power. Trillions of dollars are spent on goods and services in the USA every year. The country’s GDP makes up a quarter of the world economy while its population is about 4.2% of the total population on the planet. It will be safe to claim that the USA is the deepest-pocketed country in the world. It is not without a reason that a great number of large international companies have branches there.
However, setting up a company branch, a representative office, or an affiliated company in the USA can be quite costly. This is why we invite you to consider the opportunity to establish a company in the neighboring Canada in order to gain access to the US market. This offer should be especially attractive for IT companies that would like to sell their products to North American customers.
A Canadian Limited Partnership
We suggest that you should open a Limited Partnership (LP) in Canada and set up a corporate bank account in one of the largest banks in the country.
Let us see what advantages this move will bring. First of all, a Canadian LP will let you optimize your tax burden. At the same time, you have to realize that evading taxes is impossible in Canada.
In addition to that, a Canadian LP does not have to be considered a CFC (Controlled Foreign Company) and the automatic exchange of information requirements do not concern companies of this form of ownership. This means that the fiscal bodies of the foreign partner’s home country are not going to be informed of the financial operations that his or her Canadian-based company performs.
The two main advantages mentioned above make the LP registered in Canada an optimal company for any entrepreneur who wants to do business outside Canada.
Some additional advantages of this company ownership type are as follows:
- Flexibility in doing business;
- The possibility to use secure currencies (USD, Euro, and CAD),
- Good business reputation of Canada;
- Lack of currency control in the country;
- No VAT on business operations performed outside Canada;
- The possibility to open a corporate account in one of the largest banks in the world.
Let us discuss these opportunities in more detail.
Minimizing the tax burden in Canada
Canada is not an offshore jurisdiction with zero taxes. However, as soon as you register an LP in the country in association with a professional Canadian resident partner, you can open a Canadian bank account and economize on taxes.
Ninety percent ownership of the LP by the Canadian resident partner makes the company officially resident in Canada. Simultaneously, the Canadian partner issues a power of attorney and an assignment of partnership interest to the second company beneficiary – the foreign partner.
In accordance with the Canadian corporate legislation, partners in the LP are taxable on their incomes in their countries of citizenship (tax residence). This means that there is no Canadian income tax for the foreign partner. The personal income tax is payable only when the company profits are distributed to the partners and transferred to their personal accounts. In case all the profit is reinvested into the company’s growth and development, no personal income taxes are due.
If the company profits are distributed to the partners (this usually happens once a year), the Canadian bank will request that the Canadian partner submit a document confirming the payment of taxes such as a tax return, for example. The Canadian partner, however, will submit the document confirming that the company profits belong to the foreign partner who is to submit a tax declaration confirming the payment of the income tax in his or her home country (or tax residence country).
If the foreign partner fails to submit such a declaration, the Canadian partner is going to be liable for a 25% income tax payable on the income obtained in Canada.
How can the tax burden be lessened in technical terms? Before the company profits are distributed to the partners, the foreign partner declares the profits in his or her country of tax residence confirming that he or she has a source of income in Canada. Than the foreign partner has to have the declaration translated into English and send a copy of the translation to the Canadian partner who will then submit it to the bank.
After that, the bank will transfer the company profits to the Canadian partner’s personal account. The tax that you have to pay is the income tax payable in your home country. You do not have to pay the Canadian income tax that is rather high.
When you work in the USA via a legal entity registered in your home country, you will have to pay the corporate tax, the turnover tax, the personal income tax as well as social security contributions in case you have hired staff in the USA.
Besides, the Canadian LP does not have to keep financial records so you can save on accounting services too.
A Canadian-registered partnership does not have to pay any indirect taxes and it is entitled to reinvest up to 100% of its profits into business development. When the LP’s annual turnover exceeds two million CAD, you will have to submit a personal declaration to the Canada Revenue Agency (CRA) describing what your company is engaged with. When the turnover exceeds the said limit, you have to file tax returns to the CRA.
An additional advantage of this company ownership type is the possibility to purchase property in the name of the company without paying any property tax. Your Canadian LP can own real estate, transportation vehicles, marine vessels, and other property that is needed for carrying on the business or simply living happily.
However, when the total worth of the company assets reaches five million CAD, it has to be declared and the Canadian property tax has to be paid.
Practice shows that service agreements with foreign partners can be used as additional tax burden optimization instruments if the services are necessary for the LP functionality. The important thing is to find the fine balance between tax burden optimization tools and aggressive tax evasion. Attempts to evade taxes may lead to unpleasant talks with the fiscal authorities of your home country.
Legislation on controlled foreign companies
As 90% of your Canadian LP will be owned by the Canadian partner, according to the papers, you do not have to inform your home country fiscal authorities about the 10% owned by you as you do not control the company having only a small share of ownership. According to the papers.
If your home country has CFC laws, it should not bother you too much as you do not have to report having a foreign company until you start receiving profits from your business activities to your personal bank account. When this happens, you have to declare the income and pay the tax that is due in the country of your tax residence.
As far as the automatic exchange of information is concerned, the requirement does not apply to the foreign partner in the Canadian LP. As the company is mainly controlled by a resident of Canada, it is deemed a Canadian-based company and thus no CFC nor fiscal information exchange requirements apply to it.
Another important factor is your relationships with the Canadian partner. These relationships will be regulated by the following:
- Canadian legislation that will protect your ownership rights that you obtain via signing the agreements with the Canadian partner. In case he or she violates these agreements, he or she will be prosecuted in accordance with the law. Thus you will have a security policy written on paper;
- Acting as a General Partner is the Canadian partner’s profession. The people that Offshore Pro Group cooperates with have been working successfully in this sphere for many years and no foreign partner has ever filed suit or complaint against them.
The agreements that you will sign with the Canadian partner are as follows:
- The Partnership Agreement;
- The Assignment of Partnership Interest;
- The Power of Attorney.
This document package will make the Canadian partner responsible for all his or her deeds related to the LP and you can file suit in case he or she violates any of the agreements.
In a certain sense, the Canadian partner can be called a ‘nominee partner’ but he or she is going to be more than that, in fact. The Canadian partner will act as the company representative when interacting with the local state, fiscal, and other official bodies. Moreover, he or she is going to do it professionally. With the Canadian partner’s help, you will obtain a Canadian-based company with economic substance, which will allow opening a corporate account with a Canadian bank. At the same time, the limited partner’s confidentiality will be protected and financial interests secured.
Flexibility, rapid registration, and remote management of the Canadian LP
A Canadian-registered LP is a perfect instrument for doing international business. Besides, it is fast and simple to establish one. The foreign partner has to supply a small package of application documents (a copy of the foreign passport, a utility bill as proof of address, and a letter of recommendation from a bank) in order to register a Limited Partnership and open a corporate bank account in Canada. We will be happy to set up an LP with a USD/CAD bank account in Canada for you. It is going to take us approximately seven business days.
When the company is established and the bank account is set up, you can start your business operations in any part of the world. You can receive payments from your international partners, transfer funds to your suppliers, pay salaries to your employees wherever in the world they work for you and so on and so forth. In Canada, you are going to have no problems with these sorts of transactions whatsoever. Far from every country on the planet can offer such favorable banking opportunities. This fact has to be appreciated.
Freedom to make and receive payments in USD
An LP registered in Canada is a very nice instrument that you can use for US dollar payments. Many EU banks as well as those located in other countries such as Hong Kong or Singapore, for example, put serious restrictions on dollar transactions. In some regions, it is possible to make euro payments only (the EU, SEPA zone) or in the local currency. In other regions, dollar payments are acceptable but not from all destinations. A Canadian partnership with an account in Toronto-Dominion Bank will solve these problems. What is also important is that the service fees that the bank charges are quite affordable. Therefore, a Canadian LP will not only allow saving on taxes but also give access to high quality and simultaneously inexpensive banking services.
Reputational security
Canada has never been on any black lists, which allows the companies registered in this jurisdiction to make international payments to almost any country of the world without any obstacles. The spotless reputation that Canada enjoys makes foreign bank Compliance Departments very loyal to the transfers from and to a Canadian-registered company. Your international partners will also be happy to do business with a Canadian LP.
Toronto-Dominion Bank is the second largest financial holding in Canada that provides banking, insurance, and investment services.
Total assets: 1.420 trillion CAD (2019)
Headquarters: Toronto, Canada
Number of employees: 89,031
Deposit insurance amount: up to 100,000 CAD.
What are the benefits of having a company and a bank account in the same country?
Some time ago, only large international banks required that the business company should be registered in the same jurisdiction where it has a corporate bank account. Over the recent years, however, more and more banks are putting forward this requirement. In addition, such IT giants’ trade platforms as Apple, Google, Facebook, Kickstarter, and others also require that their clients have bank accounts in the countries where their companies are domiciled. This is important because as soon as the business company sets up a bank account in the country of registration, it automatically becomes accountable as a resident company, which entails the obligation to pay taxes, keep the financial records, and file tax reports. It also allows the banks to see that the counteragent is not a shell company but it is an active business entity that pays the taxes and follows the rules. This means that dealing with such a company is secure. Thus, a Canadian-Registered LP with an account in Toronto-Dominion Bank will give you access to all the trade platforms mentioned above and more.
Currency control and the VAT
A Canadian LP is VAT exempt, which allows you to avoid adding the tax to the price of your products as well as keeping the VAT records. The latter may entail considerable accounting costs especially if your operations include a large number of iterative payments.
No currency control is applied in Canada and all the payments are processed in full. This does not mean, however, that you do not have to provide supporting documents when making and receiving payments from and to your bank account. All the transactions have to be supported by proper documents that need to be kept in the electronic or paper formats.
Pay card from Toronto-Dominion Bank
When you have a corporate account with Toronto Dominion Bank, you are entitled for a corporate VISA credit card that you can use for business payments. Actually, you can make any purchases anywhere in the world using the credit money while repaying the loan from your LP account. The card will make your company capital readily available wherever in the world you find yourself.
Let us recap on the advantages that a Canadian-registered LP will bring to your IT company and the problems that it will solve:
— You are going to have to possibility to minimize your tax burden while having a company registered in a reputable jurisdiction;
— You can purchase property in the name of the company without having to pay the property tax (up to a certain limit);
— Your assets are going to be confidential and they will be protected by the Canadian laws;
— You are going to be flexible in doing business and you can manage your Canadian company remotely;
— Opening an account in a large Canadian bank is guaranteed and the account can be opened within a short period of time unlike with some other banks where you have to wait for months before your application for services is approved;
— Your partner companies can be located in the USA, Canada, Europe, the CIS, Asia, and all other parts of the world. You can make payments in whichever currency your partners prefer, dollars or euros. No one is going to tell you where you can send the payments and where you cannot;
— Your bank is going to charge modest service fees and your deposit there is going to be insured for up to 100,000 CAD. Besides, Toronto-Dominion is a highly reputable bank, which is likely to evoke the feeling of deep trust in your international partners. All the payments are going to be quickly confirmed;
— Your counteragents will be happy to know that you have a bank account in the country where your company is domiciled;
— You are not going to have to carry the burden of currency control nor the VAT;
— You are going to have a corporate credit card that you can use to pay for goods and services all around the world.
A Canadian LP will satisfy all your business needs!
If you are interested in this proposal, please contact us via info@offshore-pro.info and sign up for a free consultation. You can also get in touch with us via Whatsapp or the live chat so that we can discuss your questions and take the steps that will lead your international business to prosperity.
We guarantee that the information that you supply to us will remain confidential and that the services that we provide will be highly professional.
What benefits does a Canadian LP bring?
A Limited Partnership registered in Canada will bring several important benefits: you can economize on taxes; no VAT is payable; you can open a corporate account in a large Canadian bank; this will give you access to cooperation with international banks and trade platforms such as Google, Amazon, Apple, Facebook, Kickstarter and others; there is no currency control in Canada; you do not have to file tax reports unless your turnover exceeds two million Canadian dollars; your assets will be secure under the protection of the Canadian laws; your participation in the partnership will be highly confidential.
Who can register a partnership in Canada?
Any foreign individual or foreign legal entity can set up an LP in Canada. To make the best of this opportunity you have to build the right company ownership structure. Please apply for professional assistance in doing that.
How much time does it take to open an LP in Canada?
First, you have to make the decision and collect all the required application documents. This can take up to two weeks. When our lawyers have all the necessary documents, they can set up an LP in Canada for you within five to ten working days. After that, you can start your international business operations.
