What foreign corporations and investors should know before incorporating in Canada
Are you a foreign investor who wishes to start a Corporation in Canada? Here are some things to consider before you get started:
Should You Incorporate Federally or Provincially?
Federal corporations are incorporated pursuant to the Canada Business Corporations Act (CBCA). They have the right to carry on business anywhere in Canada under their registered corporate name. However, if a corporation chooses to incorporate federally, they are required to apply for extra-provincial/territorial licenses within each and every province the Corporation chooses to operate in.
In contrast, Provincial corporations are incorporated pursuant to the applicable provincial corporate statute. For example, in Ontario, all corporations are governed by the Ontario Business Corporations Act (OBCA).
A Provincially incorporated business will only have the right to carry on business within the Province or Territory of incorporation. It is possible however for all provincially incorporated businesses to apply for extra-provincial licenses in other provinces or territories within Canada. Therefore, the business will have the right and access to carry on business in more than one province. An example of this is if an Ontario incorporated business wishes to also expand their operations in British Colombia (“BC”), they can register for a BC extra-provincial license, subject to having access to a registered head office address in BC as well as Ontario. For more information, please go to this link.
Should You Incorporate a Subsidiary Corporation or Create a Branch Office within Canada?
Two of the most common ways foreign corporations and investors register to operate their businesses in Canada are through: (1) the registration of a Canadian branch; or (2) the incorporation of a Canadian subsidiary.
There are certain aspects to consider in deciding whether to register a branch or incorporate a subsidiary such as tax implications, the ability to raise capital, access to the special programs available through the Canadian government and the parent company’s level of exposure to liabilities.
1.Branch Registration
A branch office is an extension of the parent corporation’s business, which allows foreign corporations to operate Canadian offices. Branches must be registered provincially in any Canadian province or territory which the foreign business wishes to operate. To register for a Canadian office Branch, the Corporation must directly apply for an Extra-provincial or Foreign Corporation license in the selected province or territory.
For tax consideration purposes, however, note that annual branch taxes are imposed on foreign corporations that operate through a Canadian branch. In fact, any and all income that comes from any Canadian operations (including branch offices) will be taxable in Canada.
2.Subsidiary Incorporation
A subsidiary Incorporation, on the other hand, is a separate corporation which is controlled by the parent corporation. Therefore, the parent corporation will be the sole shareholder of the corporation. In fact, most foreign investors prefer to incorporate a subsidiary as a subsidiary corporation allows for a division of liability between the Canadian operation and the foreign operation.
For tax purposes, please note however that all income resulting from worldwide operations is taxable in Canada.
Which Jurisdiction within Canada Should I Register My Corporation?
Another choice you must make, as a foreign corporation or investor, is to decide which jurisdiction you would like to incorporate under, whether you choose to incorporate provincially, or whether you choose to incorporate federally with a provincial extra provincial license. Each jurisdiction has its own requirements concerning the residency of a corporation’s directors. The chart below provides you with the jurisdiction that their directors residency requirement:
| Jurisdiction | Director Residency Requirement |
| Federal (Canada) | 25% of the Corporation’s directors must be a Canadian resident |
| Ontario | There are no residency requirements for the Corporation’s directors |
| British Columbia | There are no residency requirements for the Corporation’s directors |
| Alberta | There are no residency requirements for the Corporation’s directors |
| Manitoba | 25% of the Corporation’s directors must be a Canadian resident |
| New Brunswick | There are no residency requirements for the Corporation’s directors |
| Newfoundland | 25% of the Corporation’s directors must be a Canadian resident |
| Nova Scotia | There are no residency requirements for the Corporation’s directors |
| Prince Edward Island | There are no residency requirements for the Corporation’s directors |
| Quebec | There are no residency requirements for the Corporation’s directors |
| Saskatchewan | 25% of the Corporation’s directors must be a Canadian resident |
Do I Have a Registered Head Office Address Within Corporation?
Wherever you choose to incorporate, you should also be aware that the registered head office address of the corporation must be located within the jurisdiction of the province you are incorporating. Therefore, if you choose to incorporate within the province of Ontario, you must have a registered head office address located within Ontario. The same concept applies to federally incorporated businesses. As noted above, although the corporation is federally incorporated, each corporation must apply for extra provincial licenses for the federal corporation. Therefore, for each extra provincial license you wish to register within Canada, you must have a corporate address located in each province you would like to register the corporation in.
There are ways to navigate around this requirement, however. Throughout Canada, there are businesses that provide virtual offices and mailing address which foreign entrepreneurs and corporations often use as their registered head office within Canada. Such offices generally provide a business district address, a secure mailbox, reception services and, for out-of-town folks, a local phone number. For more information contact a corporate lawyer at Kalfa Law Firm.
© Kalfa Law Firm 2021
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
