Business Structures
Branches and Subsidiaries
- 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 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 B.C. Business Corporations Act. Under the Canada Business Corporations Act, 25 per cent of the directors (or at least one if there are fewer than four directors) of a federally incorporated company must ordinarily live 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 legally distinct entities in Canada.
- U.S. firms may find it attractive to establish an "unlimited liability company," a specialized entity that has potential advantages under U.S. tax law.
| Branch Operation |
- 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).
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- 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 |
- Tax on profits are 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.
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- 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
Canada Business Corporations Act (Federal), B.C. Business Corporations Act (Provincial)
Responsibility
Corporations Canada, Industry Canada (Federal), B.C. Ministry of Finance (Provincial)
Online Resources
Doing Business in Canada - Blakes (September 2010, PDF, 6.57 MB)
Doing Deals in Canada 2010 (Lawson Lundell)
Doing Business in BC (October 2010, PDF, 820 KB)