Tired of paying half your profits to Canadian Revenue? Ready to move you and your business out of Canada? Want to move your business out of Canada and into a zero tax offshore jurisdiction? Here’s how Canadians can set up an offshore business
As you read this article on where should Canadians set up an offshore business, note that I’m assuming that you will move you and your business abroad. If you want to form a foreign division or subsidiary, but remain in Canada, that’s a very different analysis.
Setting up a business offshore is relatively simple for a Canadian. So long as you move out of Canada, and become a legal tax resident of a foreign country, you will pay zero to the CRA. Unlike Americans, Canadians living abroad are not taxed on your worldwide income.
And, of course, you want to setup your offshore business in a low or zero tax country. If you’re leaving Canada to escape the taxman, you certainly won’t go to the UK or France where you’ll pay higher taxes.
So, the answer to where should Canadians set up a business offshore has two components:
- Must be a country that makes it easy for you to get legal residency, and
- Must be a country that won’t tax your foreign sourced profits.
Foreign sourced profits in an offshore business are earnings from sales outside of your country of incorporation and operation. For example, you incorporate a business in Cayman selling to US persons, all of your income is foreign sourced to Cayan.
Likewise, if you set up a restaurant in Panama, or a Cayman business offering services to Caymanians, then you’re earning local source income. Sales to locals in your country of operation generates local sourced income.
Foreign sourced profits are tax free in many countries. You will always pay tax on your local sourced profits.
Many countries don’t tax your foreign sourced profits. In fact, just over 50 countries don’t tax any type of business income or don’t tax foreign sourced business profits.
We’ve reduced the number of countries where Canadians might set up a business offshore to 50 (Click here for a list). Now we need to consider which of these will give you legal residency and a work permit (or allow you to operate through a local corporation) quickly and with the least amount of red tape.
You’ll find that most of these 50 countries make it very difficult, if not impossible, to move there and begin operating a business. They don’t want you to compete for jobs and don’t want to attract a bunch of outsiders. Countries like British Virgin Islands and Hong Kong are happy to incorporate your business, but don’t want you moving there (unless you have millions of dollars to invest).
For example, Singapore is a great place to setup an internet or cryptocurrency business. However, the only way to get residency is to invest about $1.2 million or hire a bunch of local workers. Unless you’re looking to build a big business, or buy a fancy condo, Singapore isn’t where I recommend Canadians move their businesses.
My top two jurisdictions for Canadians looking to setup a business offshore are Cayman Islands and Panama. If money’s no object, and you like living on a Caribbean island, Cayman it is. If you want a big city, or lower costs, then consider Panama.
Canadians in Cayman Islands
Back in the day, Cayman was like the BVI. It was impossible to get a residency visa unless you spend a million or more on real estate. Even then, it was very difficult to get a work visa. All that changed in 2015 with the creation of the Cayman Enterprise Zone.
If you setup an approved business in Cayman, which is just about any internet based business, and operate from an office in the CEZ, most red tape will be eliminated and you’ll operate tax free. You’ll pay zero tax to Cayman on your foreign sourced profits and your office lease will include all visas and permits necessary for you to live and work on the island.
For more on the Cayman tax free zone, see: Move Your Internet Business to Cayman Islands Tax Free. Some of that article is for US persons, but can apply to Canadians as well. If you have any questions, please post a comment to the page and I will respond.
However, Cayman residency doesn’t offer a path to citizenship. No matter how many years you live in Cayman, it’s impossible to become a citizen of this country. This also means that you won’t be eligible for a second passport from Cayman.
Canadians in Panama
The easiest residency visa and the most business friendly jurisdiction for Canadians is Panama. This program allows you to apply for citizenship after 5 years of residency.
Apartment and rental costs are about the same as your home country, but labor and other expenses are much lower… and a fraction of Cayman.
As a citizen of Canada, you can become a resident of Panama with an investment of only $20,000. Panama’s friendly nations reforestation visa gets you a residency visa, permission to start a business, a corporation, and a path to citizenship (should you choose to take it).
Panama is the lowest cost residency visa by far. No real estate to buy, no hidden fees, and no physical presence requirement. You can spend as much or as little time in Panama as you like and maintain your visa.
After 5 years of residency, you can apply for citizenship and a second passport from Panama. This travel document isn’t as good as your Canadian passport, but does give you options when it comes to travel, privacy, and expatriating. A passport from Panama gives you visa free access to 127 countries, including the EU but not the United States. Canada has 171 countries and is a top tier passport.
Panama will not tax your foreign sourced profits. If you’re living and working in Panama, and selling online into the US and Canada, you’ll pay zero tax in Panama and zero tax in Canada.
I hope you’ve found this article on where should Canadians set up an offshore business to be helpful. For more information, and for a free and confidential consultation, you can reach me at email@example.com or call us at (619) 550-2743. We’ll be happy to assist you to set up offshore in a compliant and efficient manner.