Setting up a Corporation in Canada by a Non-Resident
Definition of Non-residents: A non-resident can open business in Canada in several formats. A non-resident means an individual who is neither a Canadian citizen nor a Canadian permanent resident. In this definition, your physical presence does not determine your status. You may live in Canada, but as long as your immigration status is not a permanent resident nor a citizen, you are a non-resident. And the same is true, as long as your immigration status either permanent resident or citizen, even if you live outside of Canada, you are a Canadian resident. This article is applicable only for a non-resident who is physically living outside of Canada and wants to start a business in Canada. If you are a non-resident but living in Canada (as a student or temporary worker or refugees or other temporary status), we have prepared another article ‘Non-resident living in Canada’ for you.
Formats of Business in Canada for Non-residents living outside of Canada: Canadian government allows non-residents to form a business in Canada in a few formats. The most common formats are three: i. LLP, ii. Extra-provincial registration, iii. Standard Canadian Corporation in BC or Quebec or New Brunswick or Manitoba. It all depends on the following four factors. If you are opening a business in Canada, this is a must-read article before you plan.
1. Zero Tax to Canadian Government.
2. Business activities inside Canada or outside Canada.
3. Currently you have or have not a registered business in your home country or another third country
4. Double tax exception treaty with Canada
1. Zero Income Tax to Canadian Government: A standard Canadian corporation normally pays on average of 25% corporate income tax to Canada Revenue Agency. However, as a non-resident, who lives outside of Canada, you may be eligible to take advantage of zero tax rule in either of the two situations. In the first situation, if 100% of your business activities occur outside of Canada, you can enjoy this advantage. Or, in the second situation, if your home country has a double tax exception treaty with Canada, you can enjoy this advantage as well. In the second situation, basically you are avoiding paying double tax (your home country and Canada). Have a look at the bottom part of this article and find out whether your country is on the tax treaty list or not.
2. a) Offshore Company (Business Activities Outside of Canada): If your all business activities (business operation, physical presence and sales revenue) occur outside of Canada, you are eligible to take advantage of zero tax rule. To take this advantage, you need to form an offshore company in Canada. An offshore company pays zero percentage tax to Canadian government simply because business activities and earning the revenue does not happen in Canada. In this case, a business can be formed in Canada in two formats; i. Limited Liability Partnership (LLP), and ii. Extra-Provincial Registration. If you currently have a registered business (corporation or LLC or LLP or other names) either in your home country or in another third country, then you are eligible to do an extra-provincial registration of that business in Canada. If you currently don’t have a registered business, an LLP is the only option for you. The major difference between an LLP and an extra-provincial registration is, an LLP is a Canadian entity while an extra provincial registration is not a Canadian entity, rather it’s the registration of a branch of your home country’s business in Canada. Both are eligible to have Canadian bank accounts and receive revenue in Canadian dollar. Another third option to form an offshore company where you can take tax benefit by applying double tax expiation rule, is applicable only and only if your country has a mutual tax treaty with Canada. In that case, you can register a standard Canadian corporation (a Canadian entity) in a Canadian province where residency requirement is waived (British Columbia, New Brunswick, Quebec and Manitoba) and can list down shareholder as yourself or your existing company. If no business activities occur in Canada, you do not need to collect GST/HST or PST on sales and hence you do not need such accounts. Because, you do not pay any employee in Canada, you do not need to have a payroll account as well.
2. b) Business Activities in Canada: If any of your business activities (business operation, physical presence and sales revenue) occur in Canada, you may still enjoy zero tax advantage if you either make an LLP or your country has a double tax exception treaty with Canada. If business activities occur in Canada, you can start a business in three formats: i. LLP, and ii. Extra-provincial registration, and iii. Standard Canadian corporation. If you form an LLP, your business profit goes to you personally and therefore, you pay income tax only to the country you live in (not to Canada). If you do an extra-provincial registration or a standard corporation (non-residents can register only in BC or Quebec or New Brunswick or Manitoba), then you are supposed to pay income tax to Canada, unless your country has tax exemption treaty. Regardless, you make an LLP or an extra-provincial registration or a standard corporation, since your business activities occur in Canada, you need to set up a GST/HST account for any sales inside Canada and payroll account for any employee payment in Canada. If your activities include exporting from Canada to other countries or importing to Canada from other countries, you need to set up an export-import account as well. If you hire an employee within the physical boundary of Canada, you need to register a WCB/WSIB/WSB account as well.
3. If you currently have a registered business in your home country or in a third country, it makes you eligible to do an extra provincial registration. Let us have a summary of all the types of business formats we mentioned above.
3. a) Limited Liability Partnership: Is a Canadian entity. Non-residents can open an LLP in the province of Ontario or British Columbia (BC). This is the most common and popular format of registration for non-residents. Profit goes to relevant persons only, therefore income tax rule is followed as of the country, the person is living in. If business activities occur in Canada, an LLP must have a GST/HST Account, PST Account for BC, Payroll account to pay employee in Canada, WSIB/WCB/WSIB if employee hired in Canada. You need to have a registered office address and an attorney in the province you register an LLP. We offer both services.
3. b) Extra Provincial Registration: You qualify to register for an extra-provincial registration if you already have a registered business in your home country or in a third country. An extra-provincial registration is not a Canadian entity, rather a branch registration of your business in Canada. You can enjoy zero tax rule if your business activities outside of Canada or your country have tax treaty with Canada. You need to have a registered office address and a Attorney in the province you are doing an extra-provincial registration. We offer both services.
3. c) Standard Canadian Corporation: As a non-resident, you can register a standard Canadian corporation in BC, New Brunswick, Manitoba and Quebec. A standard corporation is a Canadian entity. You need at least a principal director and a principal shareholder. The principal director or shareholder can be non-residents and with foreign address. You need to have a registered office address and a attorney in the province you are doing an extra-provincial registration. We offer both services.
3. d) L.L.C Registration in Ontario: This option is eligible only for an existing L.L.C. As long as you have an existing L.L.C registered in United States or any other country (regardless of owner’s citizenship or residence), the same L.L.C can register in same legal structure (L.L.C) in the province of Ontario. It’s similar to an extra provincial registration, with an exception that an extra-provincial registration is not a Canadian entity, while an Ontario L.L.C is a Canadian entity. For further details and to place an order for an Ontario L.L.C, please click here.
4. Double Tax Exemption Tax Treaty: Canada has tax treaties for the avoidance of double taxation with many countries.
In force: Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belgium, Brazil, Bulgaria, Cameroon, Chile, China (PRC)1, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Gabon, Germany, Greece, Guyana, Hungary, Iceland, India, Indonesia, Ireland, Israël, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Korea, Rep of Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Portugal, Romania, Russia, Senegal, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Trinidad & Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Vietnam, Zambia, Zimbabwe.
Signed but not yet in force some for additional details: Colombia, France, Italy, Lebanon, Namibia, Switzerland
Under re-negotiation to change some terms: Barbados, Bolivia, China, Cost Rica, Cuba, Egypt, Hong Kong, Madagascar, Malaysia, Netherlands, New Zealand, Poland, Serbia and Montenegro, Singapore, Spain, United Kingdom.