Canada - Company Incorporation

map of canada

Corporation

The Corporation is the most popular business structure in Canada. It is a separate legal entity and can enter into contracts and own property in its own name, separately and distinctly from its owners. Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file its own income tax return. A corporation can be created under two jurisdictions:

  • Under provincial law - If the business will operate in only one province, the company is incorporated provincially.
  • Under federal law - Companies that plan to do business across Canada must be incorporated under federal law and sometimes under provincial law. Some types of business, such as banks, are subject to industry-specific legislation.

Advantages

  • Complete exemption of taxes for any activity or transaction taking place outside the Canadian territory.
  • Complete business privacy. Nominee directors and non-registered powers of attorney.
  • No offshore profile.
  • The abbreviation of the company can be SA like a Swiss company.
  • Easy management. No financial statements to be filed.
  • Fixed incorporation and annual fees.

Canada is not generally perceived as a place in which it is possible to establish a non-resident, non-tax paying type of company and therefore the Canadian non-resident company provides a very low profile and extremely useful tax planning vehicle. Canadian law treats all companies incorporated in Canada as resident for tax purposes and taxable on worldwide income. In addition any company, wheresoever incorporated, which is controlled and managed from Canada is also treated as Canadian tax resident and taxable on worldwide income. These facts would seem to preclude the possibility of establishing a non-taxable company in Canada but certain Canadian provinces have corporate statutes which provide for the continuation of existing foreign corporations in Canada and a Canadian non-resident company can thereby be established by taking a foreign company, registering that company in Canada and ensuring that the central management and control of that company takes place outside Canada. Under these circumstances the company would be deemed by the Canadian tax authorities to be neither incorporated nor managed and controlled from Canada and not therefore subject to Canadian taxation on non-Canadian source income. One of the provinces within Canada which allows for such entities to be established is Alberta where extra-provincial registrations may be achieved under the Business Corporations Act.

Canadian Non-Resident Company Structure

A TCI company which has been continued in the province of Alberta has the following characteristics:

Taxation

Provided that the continued Canadian corporation is managed and controlled from outside Canada then only Canadian source income would be taxable in Canada i.e. as long as the activities of the company took place outside of Canada and no Canadian source income was thereby generated then such a corporation would not be subject to Canadian tax.

Shareholders

The corporate structure would follow that of the place of incorporation of the original company and therefore if a TCI company was used only one shareholder would be required. Details of the shareholders would not appear on public file in TCI but would appear on the public file in Canada. However, confidentiality can be retained by issuing shares to bearer or by using nominee shareholders.

Directors

Again the structure of the company follows the original incorporation and with a TCI company only one director is required. Details of the directors do not appear on the public file in TCI but do appear on the public file in Canada. Therefore, confidentiality can only be retained by appointing third party directors.

Annual Reporting

Tax returns in Canada would have to be filed even if they showed that no Canadian source income had been generated and therefore no tax was payable. Accounts need to be prepared and accounting records maintained at the Canadian office of the company although companies with assets of less than 5 Million Canadian Dollars do not need to have their accounts audited.

Timescale

It will take around six weeks for the whole registration process to be completed however a small number of shelf companies which have been pre-registered are normally available through these offices.