Tips on Starting a Company in Canada
Canada is the tenth-largest economy in the world and the fourth richest in natural resources, specifically, energy-related natural resources. While that’s not necessarily a massive advantage in a world that might be moving away from fossil fuel in a couple of decades, there are a lot of other factors that attract individuals and businesses to Canada.
Opening a business in Canada is easy if you have already emigrated to the country and living there as a permanent resident. However, if you are based someplace else and want to start a business there, here are a few Tips on Starting a Company in Canada.
Expanding vs. Starting A Business in Canada
There is a difference between expanding a company already established elsewhere to Canada, and starting a brand new business there when you are currently living in another country. It’s possible to do both, but they require different approaches.
Let’s say you own a business in country A. In order to operate in Canada, you will need to get registered as an “extra-provincial corporation” in one of Canada’s provinces. If you choose to register in Ontario, you will need:
- An agent for service (A Canadian citizen residing in the province, 18 years or older).
- A name-search-report (can be obtained online).
- A certificate of status from the business’s home country.
- A fee of $330 (as of now).
The exact stipulation will vary from province to province, but that’s more or less all you’ll need when you want to expand. It’s important to note that if you’re going to operate in a different province, you’ll need to get registered there as an extra-provincial corporation as well.
A Fresh Start
If you are a foreign national who wants to start a business in Canada, the requirements are slightly different and a little more stringent.
There are two scenarios, to begin with:
- You are starting a business and then immigrating to Canada.
- You start and run a business in Canada while staying in another country.
The situation would be different in each case. The most crucial factor when starting a business when you are not a legal immigrant or a citizen is the province where you choose to start a business.
For example, the province of Yukon requires you to have a net worth of at least CAD$500,000 that you have obtained through legal means and CAD$300,000 in liquid assets. If you fulfill that and several other requirements, you won’t just be able to start a business in Canada but will also be able to immigrate through the Business Nominee Program.
In Ontario, where you will probably be most interested in starting a business since it’s the most populated province, you might not be able to start a sole-proprietorship business at all. You need to incorporate, and at least 25% of the company’s directors should be Canadian residents. If the corporation has fewer than four directors, at least one needs to be a Canadian resident.
British Colombia allows you to start a sole proprietorship even if you are outside Canada, but you will inevitably have to immigrate to Canada.
Two other requirements you might have to go through for most provinces are:
- Your business in Canada must have a physical presence and a proper address.
- You would need to secure a work permit if you want to work for your business in Canada.
The second is a bit of a conundrum because what if you don’t want to work for your business in Canada as one of the active managers? You might be happy cashing in your profits and only attending occasional meetings as one of the directors of the company.
If that’s the case, then you might not need to obtain a work permit, but it comes with its own share of earning stipulations.
Taxes and Profits
If you have immigrated to Canada to start a business or as part of starting your business, your profits and earnings from the company would be relatively straightforward. You would be taxed just like any Canadian-based business. But as a foreign business owner, the situation might be a bit different.
For example, in Ontario, a Canadian-owned business might pay taxes at the rate of 13% for the first half-million dollars of the profit the company makes. Any business where Canadian resident(s) own 51% of the business or more is considered Canadian-owned, and the legal-term for it is Canadian Controlled Private Corporation (CCPC).
But if that’s not the case, i.e., you as a foreigner own most of the corporation, you would need to pay 31% income tax, which can be a lot. And the 51% ownership cannot be a sleeping partnership in the business. The Canadian stakeholder that makes your company a CCPC should be an active member of the board and an active part of the company’s management.
Then there are your profits. If you are not being paid by your Canadian company because you are simply a shareholder and not an active manager (officer) of the company, you might be paid in dividends. But as a non-Canadian who is receiving dividends, you may end up with the CRA (Canada Revenue Agency – country’s taxation authority) withholding 25% of those dividends. You would get them back eventually if you claim that you are paying taxes on them in your own country as well, but it would be significantly time-consuming and needlessly complicated.
And if you want to join your company in Canada actively, you’d need to get the right permits or ultimately immigrate to Canada.
Starting a business in Canada is very province-centric, and a lot of the rules you have to follow and the qualifications requirements you might have to meet will come from the province and not the federal government. And your profitability and taxation will rely quite heavily on your Canadian partners. Otherwise, you might be paying more in taxes than the profit you are making. So, the first two steps in order to start a company in Canada would be to decide on which province is right for you, following by finding the right local partners.
Read more about setting up a business in another country here.