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Canada offers significant advantages when it comes to the formation of a company. The biggest advantage of all is that it can be structured in such a way that it can avoid tax completely providing it does not operate in Canada as will be outlined In more detail below. Of course one of the other pluses is that it can operate and trade freely with United States because there is a free trade agreement between Canada and the USA This means it can be extremely tax efficient because it would Not have any tax liabilities in Canadab and not be liable to US taxes either. Of course it might be that you don't wish to operate in North America at all in which case the other advantage of a Canadian company is that it is not perceived as being based in a tax haven jurisdiction so it's extremely low-profile.

Canada has a corporation tax rate of 26.5% and has 87 tax treaties in effect with countries including the UK, Japan, Germany, Switzerland, Italy, New Zealand and the USA. See full list of tax treaties. 

Canada is also party to the North American Free Trade Agreement; this allows traders to enter the US and Mexico to conduct trade in goods and services, and also to allow investors to enter the US and Mexico to develop and direct a company in which they own at least a 50% interest, or maintain a controlling interest. Certain employees of traders and investors may also be allowed to enter the US and Mexico under the agreement.

Although Canadian companies are taxed on their worldwide income its possible to significantly reduce taxation exposure by creating and properly managing a structure that involves the use of a locally-registered company, in conjunction with an overseas Parent company. Correctly structured, no tax exposure will arise where income is from non-Canadian sources and no activities in connection with the trading or overseas asset(s) being held have taken place in Canada.

In order to be deemed not to be carrying on business in Canada the relevant Canadian entities should not:
Be managed and controlled in Canada;
  • Conclude or negotiate contracts in Canada;
  • Hold board meetings in the jurisdiction;
  • Conduct any activities which cause the offshore Principal to be deemed to have created a permanent establishment in Canada; nor
  • Hold any Canadian assets or generate any Canadian source income / gains.
Canada also has Goods and Services Tax (GST) instead of VAT and a Canadian company would generally have to charge GST only if it renders services in Canada and only then, if such services are provided to another Canadian resident or entity with a permanent establishment in Canada.

The setup and formation of a companyIn Canada is very fast and it can normally be formed In under a week. The requirements to form the company are a minimum of one director and one shareholder and there are no restrictions governing residency or nationality. Under Canadian company law, an annual report must be filed within two months of the anniversary date of the incorporation.  The annual report sets out the company’s statutory particulars as at the date of filing to include, office address and director details. Canadian private companies are not required to have their annual accounts audited unless requested to do so by their shareholders. Annual accounts and tax returns are however required to be prepared and submitted to the Canadian Revenue Authority within six months of the year end.

One advantage of a Canadian company is that the accounts and tax returns are not accessible to the public.

There are a variety of different types of corporate entity in Canada as set out below.
The different types of corporation include:
  • The Canadian-Controlled Private Corporation (CCPC);
  • The Co-operative Corporation;
  • The Public Corporation; and
  • The Corporation Controlled by Public Corporation.

The Private Limited Liability Company is the most widely used business structure in Canada. It is a separate legal entity that is distinct from its owners, and can therefore enter into contracts and own property in its own name. The company must have at least one director.

The type of registration required depends on where in Canada the company is to operate. If the company is to operate only in one state, it need only register in that state. However, if the company is to operate across Canada, it must be registered under federal law; it may also be required to register or be licensed under state or provincial law.

The documents required for registration include:
  • The Articles of Association;
  • An Initial Registered Office Address and First Board of Directors Form; and
  • If required, a NUANS name search report dated not more than 90 days prior to the filing date.
  • For more information regarding company formations in Canada please contact us and we can advise as to exactly which option would be likely to work the best for you.

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