In recent years Canada has proven to be one of our most popular company formation offers. Canada is popular for both general and limited partnerships. How does Canada, a large, well-respected and neutral nation fit with the offshore concept? The answer lies in tax free Canadian partnerships, that we will elaborate on in this article. We now offer these both with and without ready-made Canadian bank accounts and professional nominee services.
Note: Canada’s banking market is dominated by large, internationally-recognized banks. For offshore clients we work with large banks including Royal Bank of Canada, Bank of Montreal and CIBC (Canadian Imperial Bank of Commerce). These are the banks where we typically maintain ready-made accounts and we can assist with remote account opening for new partnerships.
The future of banking for offshore structures depends on developing more sophisticated and hybrid entities. Our clients frequently work with offshore companies like BVI, Nevis and Panama but are finding fewer and fewer banks are willing to work with these offshore entities. Please step forward the Canadian partnership or Limited Partnership. A Canadian partnership could be a solution for adding substance or the “kiss of life” to an existing offshore structure – allowing fully fledged access to the Canadian banking system.
A Canadian Partnership (whether Limited or Regular) is registered in Canada with a local business registration number. Every province of Canada has a separate register, but we work almost exclusively with the Province of Ontario. Toronto, the capital of Ontario, is Canada’s undisputed financial and commercial capital… although Ottawa is the official seat of the federal government and of course the Queen of Canada is based in London, UK!
A Canadian partnership serves as a highly flexible legal form for running your business – provided there is no income nor business in Canada, it is not subject to Canadian taxation but you can still take advantage of unfettered access to the Canadian banking system.
A Canadian partnership or LP can be created by resident or non-resident partners – physical or legal persons. It is possible, for example, for two offshore companies to form a Canadian partnership. This would complicate banking in Canada, but works just fine for banking in the Caribbean or with crypto exchanges, prepaid systems or e-wallets for example.
Why non-residents set up canadian partnerships
Main advantages of the Canadian Partnership (whether LP or regular partnership) are the following:
- Beneficial and De Facto Ownership of prestigious Canadian Entity
- Canadian registered business address, business number and Certificate
- Documents can be certified by Canadian consulates worldwide
- Same day express registration available for general partnerships
- Noo restrictions on the residence of the company’s partners (note however, for easy banking access you need at least one Canadian partner, who may be a professional nominee)
- Availability of Limited Partnership (Canadian LP) with one partner, where the company is managed by a single general partner
- There is no minimum capital requirement. Partners can make a contribution to the Limited Partnership of any amount, for example $100
- Zero tax on nonresident partners’ income received outside of Canada
- No requirement to file a corporate tax declaration
- No corporate income tax on partnerships. They are tax transparent entities.
FREE EXPERT CONSULTATION
on which jurisdiction is best for
your business, preferred tax regime,
company structure.
on which jurisdiction is best for your business, preferred tax regime, company structure.
Corporate taxation for the canadian “offshore” partnership
A Canadian Partnership (whether Limited nor Regular Partnership) is not a taxable legal form under Canadian law. Instead, Canadian partnerships are tax transparent. This means if the partners are non-resident there is no requirement to complete or file financial statements nor pay income tax under Canadian law.
Nonetheless we do of course recommend producing proper management financial statements to show the bank on an annual basis. While not strictly required, this projects a professional image and will smooth the banking relationship.
All profits generated by the Partnership outside Canada pass straight through to partners who are non-residents of Canada. They are therefore not subject to income nor corporate tax in Canada.
Of course, the partners of Canadian Partnership who are residents of Canada, are required to pay local taxes on their shares of profit. You should take this cost into consideration when hiring Canadian resident nominees. You can assign them a small share of the partnership profits (like 5%) and pay taxes on that. Locally-resident nominees are generally useful for easing bank account opening in Canadian banks. If, however, you are opening accounts in offshore banks, then 100% non-resident partners are fine.
Starting capital of a canadian “offshore” partnership
There is no legal requirement to specify any particular amount of starting capital for the Canadian Partnership. It is totally at the discretion off the partners.
Partners may contribute money or other property, know-how etc to the Partnership in any amount. The profit of a partner from the activities of the Limited Partnership is treated as personal income (corporate income in the case of a corporate partner).
Financial responsibility of the partners
General partners bear unlimited personal responsibility for the debts and obligations of the Partnership. In a Limited Partnership (LP) liability of limited partners is limited by the amount of their contribution to the Limited Partnership.
Management of a canadian partnership
A Partnership is managed by general partners, if the Partnership Agreement does not allow partners to appoint a manager.
Nominee partner and manager
We provide a nominee partner or manager at an additional fee. Our nominee partners can either be Canadian residents, or offshore residents (for example in Panama or Nevis). They can be individuals or corporations. It is best to discuss your exact requirements with our staff, by email or at a Zoom meeting.
Read more about Nevis company setup.
Bear in mind that if you want to be sure of full unfettered access to Canadian banks, it is important to include a Canadian resident partner in the structure. However, this could incur a liability to some Canadian taxes. Some clients like to pay a little tax so they can have a copy of a tax return and certification that they pay taxes in a high-tax country like Canada. Other clients will be happy banking and doing business exclusively outside Canada, in which case a Canadian resident nominee is probably an unnecessary expense. This is best reviewed on a case by case basis.
Ready made canadian bank accounts
We try to keep on the shelf a number of Canadian partnerships with ready-made Canadian bank accounts already opened for generic businesses such as IT consulting or international trading. Availability varies on a day to day basis, so if you are interested in this service the best thing you can do is write us an email explaining your needs and we will usually get back to you within a day or less, allowing for time differences.
Bank account details are available immediately following compliance approval (typically the same day) in the case of ready made Canadian partnerships. Of course, after purchasing a ready-made partnership you are free to change the partnership structure according to your requirements, as long as you are aware that this can impact access to banking.
Foreign currency bank accounts in Canada
It’s important to note that Canada is a dollar based economy. The Canadian banking system is almost totally integrated into the USA banking system. It is very realistic to use a Canadian partnership to sell goods or services online into the USA market. Almost all Canadian banks offer USD accounts besides, of course, CAD Canadian dollar bank accounts. This dual-currency banking system is deeply entrenched in Canada – extending to all regular banking services like checks, ACH transfers, credit cards and wire transfers.
On the other hand, due to the dominance of the different dollars in North America, clients who want accounts in other currencies like Euros, Pounds Sterling or Swiss Francs are likely to be disappointed. Canadian banks, with very few exceptions, do not offer foreign currency accounts except US dollar bank accounts.
If you are looking to do business in Euros, for example, a Canadian bank account would not be the right solution. Instead, you can take your Canadian general or limited partnership and open an account in a European EMI. This is a very realistic solution, since Canadian businesses are considered very low risk in the European banking system.
Wise (formerly TransferWise) for example works very well for low risk Canadian partnerships, even for remote opening with 100% non-resident partners. For higher risk businesses, we can refer you to other similar systems that have a slightly higher risk tolerance and also offer virtual account numbers around the world.
Feel free to have a conversation with our Q Wealth experts who will be able to listen to your requirements and then guide you towards the best possible solutions for your international incorporation, partnership formation and banking needs!
