Carrying on Business in British Columbia
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Carrying on Business in British Columbia A GUIDE FOR FOREIGN INVESTORS Carrying on Business in British Columbia A Guide for Foreign Investors This manual describes the general options available to a foreign investor, particularly a corporation, looking to establish or acquire a business in Canada, particularly in the province of B.C. The discussion includes the tax consequences under the federal Income Tax Act (“ITA”), and other federal and B.C. taxation statutes. Immigration and corporate law issues are also addressed. Foreign legal and tax consequences are not addressed. Please contact our office if you have any questions or require further information about anything discussed in this manual. Frank Schober Fasken Martineau DuMoulin LLP Tel: +1 604 631 3142 Email: [email protected] August 2013 This manual is intended to provide general information and is not intended to provide legal advice to any particular reader. Readers should seek qualified professional advice before acting on any information provided in this manual. Even though the information contained in this manual is regarded as true and correct at the date of publication, changes after the time of publication may influence its accuracy. ii Fasken Martineau DuMoulin LLP Table of Contents CHAPTERS 1. Introduction 1 2. Federal System 1 3. Corporate Issues 1 4. Taxation of Employees in Canada and Withholding Requirements 2 5. Visiting, Working In and Immigrating to Canada 2 6. Alternative Business Structures 3 7. Repatriation of Profits 6 8. Financing of Canadian Operations 6 9. Transfer Pricing 7 10. Other Taxes 7 Fasken Martineau DuMoulin LLP iii 1. Introduction 3. Corporate Issues The purpose of this manual is to highlight some key concepts REGISTRATION PROCEDURES to be considered. The discussion is quite general in nature Corporations may be incorporated under the laws of Canada and should not be interpreted as legal or tax advice to any or the laws of any particular province, including B.C. In order particular prospective investor. for a corporation to carry on a business in a province in which it is not incorporated, it must obtain provincial registration (“extra-provincial registration”, which is discussed below) in that province. A federally incorporated corporation is entitled 2. Federal System to carry on business in every province in Canada. A corporation can usually be incorporated within a few days. Canada is a federal system of government, similar to the Neither federal nor B.C. corporate laws require corporations United States. Governmental powers are shared between to maintain a minimum capitalization amount. the federal government and the governments of Canada’s ten provinces, including B.C. In addition, the provincial governments have delegated some regulatory responsibility to QUALIFICATIONS OF DIRECTORS municipal governments. As a result, businesses may be subject Directors of Canadian corporations generally need not be to regulation by any or all of the federal, provincial shareholders of the corporation. Most jurisdictions require, and municipal governments. however, that at least twenty-five percent of the directors be Canadian residents. B.C. is an exception, having no residency requirements. A director must also be an individual who is at least 18 years of age. Some provinces have additional requirements. 1 Fasken Martineau DuMoulin LLP to Canada to purchase or sell goods or services, or for employees 4. Taxation of of corporations or other organizations outside Canada who come to Canada to consult with other employees or members of that corporation or organization or to inspect a Canadian Employees in branch office or headquarters on behalf of that corporation Canada and or organization. IMMIGRATING TO CANADA Withholding There are generally three types of applicants for permanent residence in Canada. Requirements Family-sponsored Immigrants. Persons with close relatives in Canada, such as a spouse, parent or dependent child, are Employees of a Canadian subsidiary corporation or branch who permitted to establish permanent residence in Canada if their work in Canada are generally subject to Canadian tax on their close relative sponsors the application by signing an undertaking income. with the Canadian government promising to be financially responsible for the immigrant for a specified period of time. Tax is payable at the graduated marginal rates applicable to Canadian residents. The employer is generally required to Business Immigrants. Business immigrants are people who withhold amounts for Canadian Income Tax, provincial Medical can apply to immigrate to Canada based upon their intention Service Plan contributions, Canadian Pension Plan to invest in a business in Canada, or to establish their own and Employment Insurance contributions. businesses in Canada. There are three categories of business immigrants: • Investors An applicant must have successfully operated, controlled 5. Visiting, Working or directed a business for two years, have a net worth (accumulated as a result of the applicant’s own endeavours) In and Immigrating of at least $1,600,000, and make a minimum deposit to the CIC of $800,000. The deposit will be returned, without to Canada interest, five years and two months after payment. • Entrepreneurs An applicant must demonstrate that they have experience INTRODUCTION in managing a qualifying business (one in which the entrepreneur owns sufficient equity and does not simply Generally, all persons who are not Canadian citizens or create investment income) for at least two years in the past permanent residents of Canada must apply for and obtain a visa five, and have a minimum net worth of $300,000. before seeking to visit or immigrate to Canada. However, there are exceptions to this general rule. Also, the entrepreneur must satisfy certain conditions within three years after entering Canada: they must actively manage a qualifying Canadian business (one which creates non- TEMPORARY VISITS TO CANADA investment income), own at least one-third of the equity in Visitors to Canada must generally apply for and obtain a that business, and create full-time employment for one or visitor’s visa before appearing at a port of entry to Canada; more non-family members. Certain monitoring reports must current residents may send the Department of Citizenship and also be filed with the CIC at the six-month, two-year and Immigration Canada (the “CIC”) a letter of invitation to increase three-year marks. the visitor’s chance of obtaining a visa. Students and workers must also apply for and must obtain student or employment • Self-employed Immigrants authorizations. However, there are over 50 countries whose An applicant must intend to establish his or her own business citizens do not require visitors’ visas to enter Canada. Non- in Canada. This category is generally reserved for artists, Canadians who seek entry to Canada to attend school or engage athletes, or others who are self-employed and who, because in employment will still need to obtain student or employment of their abilities will make a significant contribution to the authorizations. To qualify for an employment authorization, cultural or athletic development of Canada. the Canadian employer must establish that qualified Canadian citizens or permanent residents will not be adversely affected Skilled Worker Immigrants. Successful applicants in this by the admission of the non-Canadian citizen to the Canadian category are generally those people who have the skills to labour market and the employer cannot fill the job with a fill job vacancies in Canada for which there are no qualified suitable Canadian or permanent resident. Canadian applicants. The selection criteria takes into account Canada’s labour market needs as well as an immigrant’s age, Employment authorizations are generally not required for education, occupation, work experience and knowledge of representatives of businesses outside of Canada who come French or English. Fasken Martineau DuMoulin LLP 2 If there is no permanent establishment and no Treaty applies, 6. Alternative Business the foreign corporation’s taxable income earned in Canada will generally be subject to a combined federal and B.C. Structures corporate tax rate of approximately 25%. Permanent Establishment. A permanent establishment is a fixed place of business through which a business is wholly or Although a Canadian corporation is the most common, partly carried on, including: business operations in Canada may be carried on through a variety of legal entities, including the following: • a place of management • Registration of a foreign corporation without establishing • a branch a branch office or other “permanent establishment” in Canada • an office • Canadian subsidiary corporation • a factory • Canadian branch office • a workshop, or • Non-resident partnership, or • a mine, an oil or gas well, or any other place of extraction of natural resources • Non-resident trust A permanent establishment will also exist where a These are discussed below. corporation carries on business in Canada through an agent who has the authority to conclude contracts in the name REGISTRATION OF FOREIGN CORPORATION of the foreign corporation, except where the agent is an independent broker or agent acting in the ordinary course Introduction. In limited circumstances it may be possible for of its business. a foreign investor to carry on business activities in Canada without a Canadian “permanent establishment”. This may Registration. In order to carry on business in Canada