Deciding on which countries to expand your business can be a complex and difficult decision. Perhaps some of you are considering whether you should register company in Canada. To help you make a better decision, in this article, Tetra Consultants will offer insights about the 6 key pointers to take note of before choosing to setup business in Canada such that you can make a more informed assessment about whether expanding to this country is a business venture you should take on! These pointers will be divided into 3 main sections: logistical concerns, advantages and disadvantages of choosing to register company in Canada.
1. Determining your business structure
Before one even begins to register business in Canada, it is critical to first decide on what specific type of business structure to operate as. In Canada, there are 4 main types of business structures – sole proprietorship, partnerships, corporations and branch operations.
Sole proprietorships are one of the most simple business structures, where a single individual owns the business as in charge of making all relevant decisions and running operational activities. This makes the business and its operating structure relatively straightforward. Hence, this structure is best suited for small enterprises, as all benefits and liabilities of the business flow through to the individual. However, by being a sole proprietor, the Canadian Revenue Agency sees the owner and the business itself as the same entity, meaning that one is personally responsible for the business actions and inactions. As such, assets owned by the individual privately are at risk in honouring the liabilities of the business. Furthermore, as a sole proprietor, income tax imposed is in accordance with the personal income tax rate, not the corporate tax rate, as profits of the business flow directly to the individual.
Meanwhile, a partnership is a business made of at least 2 or more individuals but is not incorporated. This means that the group of owners and business partners have to privately determine how profits earned are distributed amongst themselves, and are all responsible for any debt obligations or legal action taken against the business.
Within the country, each province has exclusive jurisdiction with respect to partnerships and has enacted its own specific partnership legislation correspondingly. However, in general, similar to that of a sole proprietor, a partnership has no clear legal structure. Yet, it is highly encouraged for the different business owners to have an official agreement clearly stating how the business is structured and operated, especially with regards to revenue, expenses, liabilities and profits. When it comes to the issue of taxation, the partnership is not required to file a tax return or pay income tax. In contrast, much like a sole proprietorship, the state views the partnership and its members as one in the same entity. As such, each individual partner is responsible for filing their own income tax return and claiming the agreed upon split of profits and losses of the business operations.
Last but not least, In clear contrast to a sole proprietorship or partnership, a corporation is viewed by the state as its own legal entity endowed with the exact same legal abilities of a natural person such as the ability to own property, conduct business, borrow, lend, sue or be sued. Additionally, owners of the corporation do not directly own any assets of the corporation and are usually not personally responsible for its liabilities. Hence, corporations offer limited liability which personally protects business owners, the easy transfer of assets and perpetual existence as an entity. Furthermore, this means that corporations come with the benefits of lower tax rates in contrast to partnerships, lowering the net business costs. However, this could result in higher administrative costs due to set up fees, more paperwork, or additional money spent acquiring the support of experts in the respective areas to handle more complex tax filing requirements.
Hence, these are the key business structures operating within Canada one must consider carefully before choosing to setup business in Canada.
2. Business Licensing and Taxation
Firstly, one must register your specific business license in accordance to the type of business structure you opt for. One unique type of license to consider is that of branch operations. Failure to obtain an official license for such a branch office may result in being unable to legally enforce any contracts negotiated by or under its name within court proceedings, thus hurting business operations. This could also be accompanied with various penalties from Canadian regulatory authorities if such licenses are not properly obtained. Hence, considering the application processes for different types of licenses is a critical point to take note of.
Secondly, your business must also register for Good and Services (GST) Taxes and Provincial Sales Tax. As the GST Tax only applies to businesses earning more than $30000 annually, one must consider projected earnings to determine the necessity of registering for GST Taxation as well. With regards to the Provincial Sales Tax, given that this can vary from one jurisdiction to another, it is important to research specific regulations of each Canadian jurisdiction one is operating and act in accordance with its recommendations.
1. Lower corporate tax rates
Given the Canadian government’s commitments to spurring economic growth and incentivising foreign direct investments, the country has gradually lowered its tax rates over the past decade from 18% to the present rate of 15%. This is one of the most competitive tax rates internationally, especially in contrast to the corporate tax rate of the economic giant United States, with a tax rate of 21%.
2. Canadian trade pacts
Companies seeking to expand to Canada will also benefit from its large scale trade network. In fact, this network guarantees preferred access to a variety of international markets for businesses registered under the Canadian system. Furthermore, multiple trading pacts such as the North American Free Trade Agreement (NAFTA), the European Union’s Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) further aid in enhancing interconnectivity and volumes of business opportunities.
1. Navigating Provincial Regulations
As alluded to earlier, businesses need to consider the various regulations for each of the 10 Canadian provinces within the 3 federal territories. Such provinces function similarly to US states, with each province having its own system of laws, regulations and taxes which is actively enforced by the province itself. In fact, labour regulations can vary across provinces as well, therefore shaping the nature of employment contracts. One of the most substantial differences relates to Quebec, a French speaking province with a civil law system rather than the common law system. When operating in Quebec, documents and relevant filings must be in the French language, with all local workers expected to be able to converse in French fluently. Furthermore, the Quebec Sales Tax must be paid by Quebec-based firms on top of Canada’s standard Goods and Services Tax (GST).
2. Cultural Variations
While the United States is similar to Canada in many aspects, companies must be aware of some key differences. The province of Quebec specifically has significant cultural differences where people interact in a more formalised and reserved fashion. Business cards usually include both English and French language as well, along with applicable academic titles and degrees.
Navigating Canada’s complex business environment with multiple contrasting corporate structures and variations is most definitely a challenging process. Tetra Consultants hopes that through this article, you have a much clearer understanding of key logistics, advantages and disadvantages of choosing to setup business in Canada.
So, what are you waiting for? Contact us to find out more about the process of starting a business in Canada today, and our dedicated and experienced team will respond within the next 24 hours.