Canada
The Onshore Alternative for
International Trade and
Tax Planning

Information on Canada
British Colimbia and Ontario

Canada is a country with a comparatively strict system of taxation. Ordinary Canadian companies are liable to tax on all their worldwide income. Accordingly, they have no features attributable to tax-exempt or offshore structures.

As such, Canada has an image in the eyes of entrepreneurs and government bodies as a country with a standard system of taxation. Due to this, any structure established on Canadian territory is considered a highly prestigious vehicle.

However, Canadian legislation does offer the opportunity of registering and using Canadian enterprises with a zero rate of tax. These are known as Limited Liability Partnerships. The L.L.P. is a limited liability partnership which has no less than two partners.

A Canadian LLP with foreign members, which does not carry on a business in Canada and derives no income on Canadian territory, is not liable to tax in Canada. According to the Canadian tax laws, the L.L.P. is not considered as the separate subject of taxation. It is the founders (“Partners”) who should pay taxes from the profits received by the L.L.P. company in the place of their residence, in proportions according to the shares of interests belonging to them in the L.L.P. company, if it is stipulated by the legislation of that particular country.

Partnership Tax Structures

In Canada, partnership structures involve the creation of the legal entity known as a “partnership”.

There are three kinds of partnerships in Canada: general partnerships; limited partnerships; and limited liability partnerships (this last kind is not yet available in all provinces).

One of the main reasons to use any kind of partnership is for income tax planning. In a partnership (any kind), profits or losses of the partnership have to be reported by the partners themselves and not by the partnership. (In some cases the partnership has to file a reporting form, but doing so doesn’t change the responsibility for paying taxes.) So partnerships are often used as investment vehicles in the investment business or for restaurants or in film development, because any losses can be flowed through to the underlying partners, and set off against other income in the right circumstances.

Limited Liability Parnerships

Don’t confuse a “limited partnership” (which has been around for a long time), with a “limited liability partnership” (“LLP”, for short) (which is fairly new in Canada).

A limited liability partnership is a general partnership in which liability of even the general partners is limited (not done away with, but limited). Ontario has had LLPs for a few years now. BC had lagged behind, but in 2004 the government finally passed legislation allowing these kinds of entities to be created in BC. This new kind of partnership allows all pre-existing general partnerships or registered limited partnerships to file a designation with the BC, orporate Registry to change into a LLP. Or you can create one from scratch. The benefit of this structure is that it reduces, but doesn’t eliminate, the liability that general partners face. If something goes wrong in a LLP, the partnership itself can be sued, and the assets of any particular partner who did something wrong will be at risk. But the assets of the other partners will be protected.

One benefit of the LLP legislation in BC compared to other provinces in Canada is that BC has made LLPs available to all kinds of businesses. Any kind of business may be carried on through a LLP. In other provinces in Canada, LLPs are usually limited to regulated professions, such as lawyers or accountants.

Because of this difference, a BC registered LLP can be a suitable vehicle for international businesses, particularly if the business operates entirely outside of Canada.

British Columbia LLP Registration for
Non-Residents

TBA & Associates offers registration of Limited Liability Partnerships in British Columbia and Ontario, for non-Canadian residents.

Limited Liability Partnerships is a simple form of business registration in Canada, which creates a Canadian company and does not generate filing and tax obligations in Canada for partners, who are not residents of Canada.

This form of business registration is extremely popular among software developers, web programmers, computer support specialists and IT service providers, who offer services to customers in Canada, US and Europe.

Advantages to Register a
BC or Ontario LLP

Limited Liability Partnership is a simple form of business registration in Canada, which creates a Canadian company and does not generate filing and tax obligations in Canada for partners, who are not residents of Canada.

This form of business registration is extremely popular among software developers, web programmers; computer support specialists and IT service providers, who offer services to customers in Canada, US and Europe.

Some of the advantages to register your LLP in Canada, British Columbia:

Highly prestigious Canadian company
No restrictions on the residency of partners
Availability of one-man Limited Liability Partnership, when one person is a sole general and limited partner
There is no minimum authorized capital. Partners can make any contribution to the Limited Liability Partnership
No withholding tax on profit received by partners outside of Canada
No requirements to file corporate tax returns
No corporate income tax.

Common use of a
Limited Liability Partnership

Regular trading company for doing business in Canada, US, EU and other highly regulated jurisdictions

Agent working under Sales Agency Agreement. Principal may be any legal entity including companies registered in low and zero tax jurisdictions

Software development and IT support services, when major customers are located in Canada, US and EU

Online based businesses (website development, marketing services, auctions, webstores, etc.)

Corporate Tax of a Canadian LLP

Limited Liability Partnership is not considered as a taxable entity. Therefore, LLP is not required to file corporate tax returns and pay income taxes.

All profit received by Limited Liability Partnership passes through the company to its partners. Partners, who are not Canadian residents, do not have tax liabilities in Canada. If a partner is a Canadian resident, he is required to include his part of profit received through his Limited Liability Partnership into his personal tax return and pay personal income tax.

There is no withholding tax on the profit passed to partners, who are non-Canadian residents.

There are no audit requirements for Limited Liability Partnerships.