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| Branches and Subsidiaries |
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Non-Canadian (non-resident) companies investing in British
Columbia usually establish either a branch operation of the “parent”
company, or incorporate a Canadian subsidiary – generally a “limited
liability company.” A branch is not legally distinct
from its “parent.”
- A subsidiary can be incorporated either provincially or federally – the
choice basically depends on the intended geographic scope of
operations and legal considerations, e.g., residency requirements
for company
directors. There are no residency requirements for companies
incorporated in British Columbia under the BC Business
Corporations Act. Under the Canada Business Corporations Act,
25% of the Directors(or at least one if there are fewer than
four Directors) or a federally incorporated company must
ordinarily reside in Canada.
- A branch operation requires the parent corporation to be registered
in the province where it operates
- For tax reasons, a partnership
or joint venture, used in conjunction with a subsidiary or branch-type
structure, may be advantageous in
some situations. Note: partnerships are provincially regulated.
Joint ventures are not treated
as a legally distinct entities in Canada
- US firms may
find it attractive to establish an “unlimited
liability company,” a specialized entity that has potential
advantages under US tax law
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| Advantages and Disadvantages of Alternative Structures |
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Branch operation |
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Key advantages
- Canadian branch losses are available to the non-resident “parent”
- Canadian
thin capitalization rules do not apply to branch operations,
providing greater opportunity to use “parent-supplied” debt
financing (benefit of interest deductibility for tax purposes)
Key
disadvantages
- Non-resident “parent” may be directly exposed
to legal liabilities of its Canadian branch
- Liability for branch tax on after-tax Canadian profits
when earned
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| Subsidiary corporation |
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Key advantages
- Tax on profits remitted to “parent” payable
only when transferred (withholding tax on dividends). No branch-type profits
tax applicable
- Legal liability generally does not extend to the
non-resident “parent”
- More advantageous as a vehicle for potential acquisitions
in Canada
Key disadvantages
- Canadian losses not transferable to non-resident “parent”
(must be carried forward for future use by the Canadian subsidiary)
- Canadian “thin capitalization” rules apply, limiting
the use of “parent-supplied” debt financing
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| Legislation |
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Canada Business Corporations Act (Federal),
BC Business Corporations Act (Provincial) |
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| Responsibility |
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Corporations Canada, Industry Canada (Federal), BC Ministry
of Finance (Provincial) |
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| Online Resources |
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Establishing A Business in Canada (Gowlings)
Doing Business in Western Canada (Lawson Lundell) |
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