For the purposes of minimizing taxes in international business, Canadian companies are used as facade companies in compound agency schemes. Such schemes are used when working with countries where there is strict anti-offshore legislation.
Benefits of offshore in Canada
- High reputation
- Political stability
- No exchange controls
- Low tax losses when using the agency scheme
Disadvantages
- Significant expenses for the registration and maintenance of the company
- The procedure for legalizing documents is more complicated, since Canada does not recognize apostille
Taxes and other payments
Canada has a resident taxation system. This means that the Canadian resident company pays taxes on income earned anywhere in the world. A company that is registered in Canada is considered a resident company. A foreign company can also be recognized as a resident if it is managed and controlled from the territory of Canada.
It would seem that these principles negate any opportunity to use Canadian companies to minimize taxes. But it is not all that bad. Thanks to the current system of common law in Canada, it is possible to create the so-called “Nominee Companies” (English Canadian Nominee Company). Such companies act as Agents on the basis of an agreement with an offshore Principal (for example, a company from Panama, BVI, Seychelles, etc.). In accordance with this agreement, the Canadian company operates on its own behalf, but on behalf of the offshore company for a fee.
The methods for determining the Agent’s remuneration may vary. For example, it can be a commission percentage of the turnover or the cost-plus method. The first method is self-explanatory. In accordance with the second, the Principal undertakes to cover all the costs of the Agent and pay him some fixed remuneration. The second method is better because it allows you to reduce the volume of reporting and determine tax losses in advance. With this method, tax losses range from a few hundred to several thousand Canadian dollars.