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Hi,
What are the tax implications of having a foreign company as the only shareholder in its Canadian subsidiary versus the shareholders of the foreign company being shareholders of the Canadian subsidiary?
Two of the three shareholders of the foreign company will not be residing in Canada.
Kindly advise.
In either case, the Canadian corporation will be controlled by foreigners. This means that the Canadian corporation will not be eligible for the small business deduction and will therefore have a higher corporate tax rate (approximately 26% - federal + provincial).
The major difference between the two options has to do with the withholding tax rate on dividends paid to non-residents of Canada. In most cases, where there is a tax treaty between Canada and the foreign country, the withholding tax rate applied to dividends paid to non-resident corporations is lower compared to non-resident individuals.
Furthermore, the foreign taxes payable by foreign shareholders (individual or corporate) must also be examined.