The tax policies of the United States and Canada are kind of identical. A significant similarity is the division into three branches of taxes (regional, federal and local). So where is the best place to register a company?

Company Registration in the USA

Not so long ago, the registration of a company in the USA gave its owners access to some options inherent in offshore structures. This was possible due to several features of the registration procedure of the company. The registration process consists of two steps. First you need to register the company with the State Secretariat (Secretary of State), then register with the US tax authorities (Internal Revenue Service-IRS).

A company that missed the second step of registration acquires the status of “Disregarded entity”. If this company does not conduct profitable activities in the United States, it is exempt from tax liabilities to the country. However, this plus can be nullified by local tax authorities - they can take a different position when considering a particular situation or dispute.

The process of registering a company remains virtually unchanged from state to state. The only thing you should pay attention to when choosing a state is taxation. 

Resident reports on foreign accounts

According to the Bank Secrecy Act, from June 1, 2013, all tax residents of the United States, if they have accounts with foreign banks worth 10,000 USD or more, are required to submit a report on foreign bank accounts to the US tax authorities. Reporting is carried out through the FinCEN portal.

The reporting obligation lies with:

- US citizens;

- US tax residents;

- legal entities, including partnerships, LLC (LLC) and corporations, registered in accordance with US corporate law;

- trusts, provided that they are registered in accordance with US corporate law.

The registration of a company in the United States is only advisable if it operates in the US or if a company in the US is a prerequisite for cooperation set forth by contractors.

Often, cooperation with a large business places a requirement on the company to conduct all operations through American organizations and accounts. In this circumstance, the registration of a company in the United States would be a good decision.

Canadian companies as a replacement for US companies

In recent years, businesses are increasingly abandoning US companies in favor of Canadian organizations. This is due not only to the stability of the Canadian economy and high authority on the world stage of jurisdiction, but also to tax savings for a company registered in the country. 

Canadian law is focused on the English law system. The exception is the province of Quebec. Each province of Canada, in contrast to the states of the United States, operates on the basis of its own laws. As a rule, residents of other jurisdictions register such structures in Canada as:

- private / public corporations;

- branch of a foreign company (Extra-Provincial Corporation);

- limited partnership (Limited Partnership-LP).

The tax rate in Canada cannot be called low, which is why the structures registered in the country are rarely used to optimize tax spending. Most often, private Canadian corporations serve as an intermediary in trading schemes. Often, the motivation for opening a corporation in Canada is the transfer of business to Canada and obtaining work permits for employees. The latter option is often chosen by companies working in the IT field.

A list of strict rules have been developed by Canadian government agencies to control transfer pricing. The tax rate at the source when sending dividends is high - it is set at around 25%. 

Canadian Limited Partnership

The most requested legal form for registration in Canada is a limited partnership. On the territory of the state, such partnerships are not classified as taxpayers. After sharing the profit of the partnership, its participants are required to pay tax at their place of residence.

Canadian partnerships have much in common with British (LLC) and Scottish (LP) partnerships and also often become an element of trading schemes. Canadian limited partnerships, although subject to registration, are not a legal entity. 

The partnerships do not file tax returns. Reports must be submitted only by partners, in the country of their residence. When distributing profit in favor of partners, no source tax is levied if the shared profit is not obtained in the course of activities in Canada. Often, the country of residence of participants in the Canadian partnership is a low-tax / tax-free jurisdiction.