As a foreign entrepreneur looking to expand your business into the Canadian market, navigating the country’s complex tax laws and regulations can be a daunting task. One common question we receive from international clients is: “What type of company do you recommend so that the Canadian company does not have to keep accounts and pay taxes?” In this article, we’ll explore the various options available to foreigners looking to start a business in Canada, and explain why registering a new Ontario Limited Partnership (LP) is often the most tax-efficient solution.
Understanding Canadian Tax Laws
Before we dive into the specifics of Ontario Limited Partnerships, it’s essential to understand the basics of Canadian tax laws. In Canada, corporations are taxed on their worldwide income, whereas individuals are taxed on their Canadian-sourced income. This means that if you’re a non-resident of Canada, you’ll only be taxed on income earned within the country.
Types of Business Structures in Canada
When it comes to starting a business in Canada, foreigners have several options to choose from:
- Sole Proprietorship: A sole proprietorship is a business owned and operated by one individual. While this structure is simple and inexpensive to set up, it offers no liability protection and can be taxed heavily.
- Corporation: A corporation is a separate legal entity from its owners (shareholders). This structure provides liability protection and tax benefits, but requires more formalities and record-keeping.
- Partnership: A partnership is a business owned and operated by two or more individuals. This structure offers flexibility and tax benefits, but can be complex to set up and manage.
- Limited Partnership (LP): A limited partnership is a type of partnership that provides liability protection for limited partners. This structure is often used for real estate investments, venture capital, and private equity.
Why an Ontario Limited Partnership is the Best Option
While all the above options have their advantages and disadvantages, an Ontario Limited Partnership (LP) is often the most tax-efficient solution for foreigners looking to start a business in Canada. Here’s why:
- No Tax Obligations: In Ontario, LPs are not required to pay taxes on their income. Instead, the partners are taxed on their share of the partnership’s income.
- No Accounting Requirements: LPs in Ontario are not required to file annual financial statements or tax returns, making it a low-maintenance option for foreigners.
- Liability Protection: LPs provide liability protection for limited partners, shielding their personal assets from business risks.
- Flexibility: LPs can be structured to accommodate various business needs, including real estate investments, joint ventures, and private equity.
Registration Requirements and Fees
To register a new Limited Partnership in Ontario, the total fees amount to approximately USD $1,970. This comprehensive package includes the essential services of an Ontario registered agent along with an Ontario business address, all valid for a duration of 5 years.
If you wish to include a US INC as a general partner in your Ontario LP, the US INC must first be registered in Ontario, which incurs an additional fee of USD 500. This brings the total fees for both processes 2,470.
To complete the registration process, you will need to provide the following information:
- For the US INC registration:
- Company Name
- Company Address
- State of Registration
- Certificate of Registration
- Certificate of Good Standing
- For the LP registration:
- Proposed LP Name
- Proposed LP Business Activity in Canada
- Names and addresses of the general partners
- Names and addresses of the limited partners
The processing time for these registrations is typically 5 business days.
Conclusion
Starting a business in Canada as a foreigner can be a complex and daunting task, but registering an Ontario Limited Partnership can help minimize tax obligations and simplify accounting requirements. By understanding the benefits and requirements of an LP, foreigners can establish a successful business in Canada while maintaining flexibility and liability protection. If you’re considering starting a business in Canada, it’s essential to consult with a qualified lawyer or accountant to determine the best structure for your specific needs.
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If you have any general questions, feedback or other inquiries, contact us and a customer service representative will gladly assist you.
