Did you know that business incorporation in Canada can bring a lot of tax benefits? For example, an LP (limited partnership) and an extra-provincial corporation allow you to avoid paying taxes in Canada. Therefore, such structures are also called offshores, although Canada is not an offshore jurisdiction. Let’s look at how to open a foreign-owned business in Canada, the documents that need to be collected, and the stages to go through. We will also compare the different organizational and legal forms of Canadian companies.
Please contact International Wealth experts to find out whether your registration in Canada is appropriate for you and what type of structure is best. They will provide comprehensive advice and legal support for the registration of a Canadian corporation or partnership with the opening of corporate accounts in foreign banks.
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Why is it Profitable to Start a Business in Canada?
Canada is the tenth-largest economy in the world that allows foreigners to start a private business in its territory. Registration of a corporation or partnership in Canada is a straightforward procedure, and resources provided by the government allow any investor or entrepreneur to start a business easily. The government offers various forms of incentives to businessmen to operate in Canada. Many investors migrate to Canada because the opportunity provided makes it easier to start a partnership or corporation. Canada is one of the prominent G7 countries that ranks high in the ease of doing business index in the world.
The Government of Canada allows non-residents to set up businesses in Canada in several formats. Three types of structures are most common:
- LP (Limited Partnership)
- An extra-provincial corporation
- A standard Canadian corporation in British Columbia, Quebec, New Brunswick, or Manitoba.
The advantages of incorporating a corporation or partnership in Canada are listed below:
- Straightforward registration procedure
Compared to other countries, the process of private structure registration is fairly simple and can be done online. This makes it easier for an entrepreneur to open a Canadian corporation or partnership.
- Global infrastructure
Among the G7 economies, Canada is highly appreciated for its ease of starting and running a business. Therefore, it is quite easy to register a business in Canada. The Canadian government offers various forms of allied scheme incentives for companies investing in Canada.
- Wide range of industries
There are different industries that enjoy an upward trend in Canada. The financial services sector, the insurance business, the legal sector, as well as automotive sales provide different opportunities for business growth. These industries also receive ongoing government support.
- Advantages of corporate tax
Tax rates in Canada are lower as compared to other jurisdictions. The applicable federal tax rate equals 15%. However, if the business is controlled by Canadian shareholders, they can take advantage of small business deductions (SBD). With all deductions and exemptions applied, the tax payable by the Canadian-controlled corporation or partnership would be 11 percent.
- Favorable corporate legislation
The status of a partnership or corporation differs from that of its shareholders or members. Therefore, even if the owners change, the business will survive. The business structure can conclude various forms of contracts, sue under contracts, and acquire the right of ownership of the real estate. Consequently, your corporation or partnership has the status of perpetual succession.
- Low cost of registration
The cost of incorporating a corporation or partnership in Canada is quite low compared to other jurisdictions such as the United States, Australia, and the United Kingdom. Even the annual compliance costs required for organization management are quite low.
- Low level of corruption
All investments receive some form of protection as Canadian law protects and supports foreign investments.
Excellent infrastructure that makes it possible to easily sell products and services abroad: the country’s road networks are among the 25 best in the world.
- Free trade with neighbors
A partnership or corporation registered in Canada can export locally manufactured goods and services to the Us and Mexico free of customs duties.
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on which jurisdiction is best for your business, preferred tax regime, company structure.
What Organizational and Legal Forms Can a Foreigner Open in Canada?
The following popular organizational and legal forms of business are available for opening by foreigners:
- LP (Limited Partnership)
A partnership can be understood as an association of two or more individuals with the common goal of sharing profits. In a limited partnership, a person can make contributions to the business without participating in its operations. It is run by a single general partner who has unlimited liability and is supported by other limited partners.
The general partner will receive the majority of the partnership’s earnings. The liability of limited partners corresponds to the amount of capital they have contributed to the partnership.
We recommend our customers to set up a Limited Partnerships in Ontario for non-residents. An LP in Canada is the most common and popular registration format that most non-residents opt for. Profits are shared only with the persons concerned, so the income tax rules are observed depending on the country where the founder lives.
If the business is conducted in Canada, an LP must become a payer of our Goods and Services Tax (GST)/Harmonized Sales Tax (HST) (or Provincial Sales Tax (PST) in British Columbia) and open a payroll account to pay employees in Canada — WSIB (Workplace Safety and Insurance Board)/ WCB (Workers Compensation Board).
If your profits are received outside Canada, you will not be liable to any Canadian taxes. This means that you can actually operate a Canada offshore partnership without calling it an offshore officially, and you will have all the benefits of a respected business jurisdiction. So, an Ontario LP with a ready-made bank account seems to be one of the best offers that our experts can propose to you.
You need to have the address of the registered office and the attorney in the province where the LP is registered. It is recommended to draft a Partnership Deed to avoid any disputes in business that may arise later.
- Extra-provincial corporation
Foreigners have the right to extra-provincial corporation formation if they have a registered business in another country. For example, if you have an offshore company in Panama or Nevis, you can open its legal branch in Canada by registering an extra-provincial corporation. You can enjoy a zero-tax rule if your business is outside Canada or your country has a double taxation agreement with Canada. A registered office in the Canadian territory is required.
Foreign corporations will need an Agent for Service for extra-provincial corporation formation – a natural person aged 18 and more who is a province resident or a legal entity that has its registered office in that province.
- Standard Canadian Corporation
Non-residents can register a standard Canadian corporation in British Columbia, New Brunswick, Manitoba, and Quebec. A standard corporation is a Canadian organization. To open it, you will need at least a principal director and a principal shareholder who may be non-residents and have a foreign address. You also need a registered office and a lawyer in the province where you got your registration.
- An LLC in Ontario
This option is only suitable for an existing LLC (limited liability company). If there is an existing LLC registered in the United States or any other country (regardless of the owner’s nationality or domicile), the LLC may be registered in the Province of Ontario. This is similar to extra-provincial corporation formation, except that an LLC in Ontario is a Canadian organization.
The table below provides a comparison of several legal forms of business in Canada.
|LP in Ontario||Extra-provincial corporation||Subsidiary Corporation||LLC in Ontario|
|Structure||Limited Partnership||Same as the foreign parent company||Limited Liability Corporation (LLC)||LLC|
|Taxation of foreign income||no||no||Yes, if there is no tax agreement||Yes, if there is no tax agreement|
|Minimum number of directors||1||1||1||1|
|Minimum number of shareholders||1||1||1||1|
|Minimum paid-up capital||1 Canadian dollar||1 Canadian dollar||1 Canadian dollar||1 Canadian dollar|
|Account with a Canadian bank||yes||yes||yes||yes|
|Applicable province||Ontario, British Columbia||All provinces||British Columbia, New Brunswick, Quebec, Manitoba||Ontario|
|Legal address||Province of registration||Province of registration||Province of registration||Ontario|
|The lawyer’s services||required||required||required||required|
|GST, PST, payroll accounts||Required if activities are carried out in Canada||Required if activities are carried out in Canada||Required if activities are carried out in Canada||Required if activities are carried out in Canada|
|Right to participate in an offshore company||yes||yes||yes||yes|
Federal and Provincial Incorporation
If you decide to register a partnership or corporation in Canada, you can choose federal or provincial incorporation.
- Federal incorporation means that the corporation or partnership will operate under the laws of Canada and have a possibility of providing services and selling goods throughout the whole country.
- Provincial territorial incorporation means that you can choose one of the thirteen Canadian provinces to register your business in, and local laws will apply in this case. A corporation or partnership with provincial incorporation will be limited to operations in the respective province only.
Essential Requirements for Business Incorporation in Canada
The applicant is required to provide a detailed business plan. At the next stage of opening a Canadian business, the applicant should choose the name of the corporation or partnership. There are several rules for the candidate to follow when choosing a name, and the main one is uniqueness (the name you select should not be easily confused with any other name).
Other rules related to the choice of a name for business registration in Canada are listed below:
- The name should not mislead the general public and other customers
- The name should be easy to pronounce and memorable
- The applicant should make sure that the name does not belong to any other company as it may entail legal issues connected with trademark infringement. To avoid such situations, the company name must be reserved
- The uniqueness of the name is checked on the Canadian Government website
- However, you can also check the names used by companies on the Nuans website
- If a corporation or partnership is opened in a particular province or territory, you can search the corporate register of the province
The applicant should then open a business in the provincial government office.
Procedure for Starting a Business
You need to go through the following procedure to open a corporation or partnership in Canada:
- Preliminary stage
The applicant needs to consult with International Wealth experts to determine whether it is appropriate for him to open a Canadian business, and what type of structure to choose.
- Step 1: Business Name
Select a unique corporation or partnership name and reserve it with the authorities concerned.
- Step 2: Business Number
A registered business should obtain a business registration number in order to identify it with the federal, provincial, and municipal authorities. This business number will be used to interact with the government on GST/HST, payroll, import, export, and other matters.
- Step 3: Registration
Registration is performed at the federal or regional level. A corporation or partnership in Canada can be set up both remotely and in person. The founders sign the Articles of Association. If the founder is a company, the Articles must be signed by a person authorized by the organization. The applicant may submit a Memorandum of Association through the online application center. You can draw up the Articles of Association in French or English. When registering, the founder indicates the company’s legal address — the address of the registered office, which is used for further correspondence. In addition, the applicant should provide a list of the first board of the company’s directors.
An application fee
A registration fee is CAD 200 for online processing or CAD 250 in case of an application on paper.
- Step 4: Processing of the application
When all the above steps have been made, the competent authority reviews the application for registration and checks the organization’s Articles of Association so that the activities are indicated correctly.
- Step 5: Get a business number or permits and other requirements
The Canadian Revenue Agency (CRA) issues a business number to businesses in the province or at the federal level for GST/HST sales tax, payroll deductions, corporate income tax, import and export duties and fees.
The following documents are required to open a corporation or partnership:
- Certificate of Incorporation
- Memorandum and Articles of Association
- Memorandum of Association of a federal corporation or company incorporated in a provincial territory of Canada (Form 3001)
- Data on the registered office and information on the first Board of Directors (form 3002)
- Name Search Report from Nuans to show that sufficient steps have been taken by the corporation or partnership related to the name search and reservation
- Letter of corporation or partnership name approval by the Registry of Corporations in Canada
- Federal Business Number and the Income Tax Number for corporate transactions from the relevant revenue authority in Canada
- Legal address
- If the shareholders are foreigners, proof of their residence address
- Copy of the passport (visa) of the founders
- Information on the paid-up capital required to open a corporation or partnership
- Application filing fee
Please remember that the information provided here is not intended to replace legal advice. Contact our experts for detailed advice on opening a corporation or partnership in Canada to ensure that the specific needs of your business are met. We are also ready to help with the opening of a corporate account in a Canadian or any other foreign bank. Our clients can take advantage of a free service of selection of a settlement foreign bank account.
To contact experts, write an email to firstname.lastname@example.org
What are the most popular types of business registration structures in Canada?
The Government of Canada allows non-residents to set up businesses in Canada in several formats. The three most common types of structures are:
– LP (Limited Partnership)
– Extra-Provincial Corporation
– Standard Canadian Corporation in British Columbia, Quebec, New Brunswick, or Manitoba
How can a Canadian business reduce its tax liability?
One way to reduce tax risks is to ensure a tax deduction rate for small businesses, which is currently 11%. Previously, this percentage was 9%. In addition, the corporation or partnership may carry losses for a period of up to 20 years. Shareholders also have the opportunity to defer the payment of personal income tax by retaining profits at the company level.
What documents do I need to collect to open a corporation or partnership in Canada?
– Certificate of Incorporation
– Memorandum and Articles of Association
– Data on the company’s registered office and information on the first board of directors
– Name search report from Nuans, letter of approval of the name by the – – Register of Corporations in Canada
– Federal business number and income tax number for corporate transactions from the relevant tax authority.
– Company’s legal address
– If shareholders are foreigners, proof of their residence address
– Copy of the passport (visa) – for each founder
– Information on the paid-up capital required to open the company
– Receipt for payment of the application fee