Question by William99: NEED HELP! offshore tax havens, income tax, company registration..?
Hello,
Starting two online based businesses. Not selling hard goods or storing products. Revenue sources will be affiliate marketing and downloadable products (exercise programs, eBooks etc.)
I was advised to incorporate offshore since I technically don’t have a business “presence” in a specific location. The main reason is for liability protection.
If I incorporate offshore but I remain a “resident” of Canada, am I taxed on only my personal income (salary i pay myself) as the corporation is viewed as a seperate entity? Locally based businesses are required to pay corporation taxes but Canada has no jurisdiction in those offshore locations (Nevis, Panama, Cayman Islands).
Note: I don’t plan on maintaining my Canadian “residency” for long as I will be travelling all over the world with no sure plan to return. I have no ties here (real estate, kids, wife, businesses etc.)
Any information would be great.
Thanks in advance.
Best answer:
Answer by jef
Let me start by telling that I am NOT an expert on Canadian tax law. I do in general know something about tax planning and offshore finance.
In general a corporation is NOT taxed according to where it is incorporated or registered, but where it is actually located. This means that where the ” management & control” of that corporation resides, this is where the corp resides. And so, where it pays taxes.
I do not know what criteria the Canadian tax authorities have to establish “residency”. But also generally speaking this means living in the country for 183 days minimum.
There are a lot of websites with free information on these subjects. In general the big accountancy companies (E&Y, PWC) provide trustworthy information on their websites. Or check: http://finance.groups.yahoo.com/group/belastingparadijzen/
You can post your questions in this Yahoo Group too.
Know better? Leave your own answer in the comments!
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Whie you are a Canadian resident, the CRA may try to look into your “tax avoidance” arrangement:
- whether the marketing and downloadable products were created in canada and if so, whether fair mkt value has been paid by the tax haven company
- “mind & management”: whether you in fact has mind and management of that offshore company, which may cause that company to be a cdn company
- “agency relationship” – whether that offshore company is a your agent in business, and thus all its revenue belongs to you.
- “sham doctrine” – whether the offshore company is in name only, and that you are the mastermind and person running the business especially when there is no employee in that offshore company, .
See the supreme court decision of the Dominion Bridge case in 1976, and the Spur Oil decision in 1981. See also the Fraser decision of 1966 when a real estate developer sold a property thru a newly incorporated company was considered to have sold the property by himself and the corporation profit should be reported by himself instead.
The Canada Revenue Agency may consider applying seciton 245 “General Anti Avoidance Rule” to your arrangement. Therefore, seek professional tax advice and proceed with caution.
Incorporating offshore is a good idea for you. You only need to pay tax on money you bring into Canada. Canadian citizens are legally allowed an offshore bank account with up $ 100,000 in it that is free from taxation (unless you bring the money onshore to Canada).
Canadian tax filers are asked on their T1 form to check a box if they invested over $ 100,000, or had an interest in an Offshore IBC or Trust. You are not required to check the box if the $ 100,000+ was for personal or business use, nor if you are not the beneficial owner or the mind of the company.
You need to get yourself an offshore corporation in Panama with a bank account attached to it that has an ATM card good throughout the world.
Money can be wired in and out of the corporate bank account from anywhere in the world and Panama is noted for it’s banking secrecy laws.
For best protection (you never know when they will lift banking secrecy) you should register a Foundation to own the corporation… costs a little more money though!