There are a large number of options for Canadians who decide to set up an international structure. While there will be some variance depending upon the jurisdiction that is selected, the most common types of structures are:
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International Business Corporation (IBC): The IBC is perhaps the most common type of international structure. It is taxed at a special rate as determined by the host jurisdiction (in the case of Barbados this is 2.5%). The IBC is a formal corporate structure and must be incorporated and licensed in the appropriate jurisdiction. It is not taxable as a domestic corporation in the host jurisdiction, and is not subject to exchange control regulations (if those are in effect).
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Society with Restricted Liability (SRL): This structure is treated, for taxation purposes, in the same manner as the IBC. It is recognized as a foreign affiliate by Canada, and the usual FAPI rules, and exemptions, apply. It is usually used by companies having significant business with the USA. The USA does not, as a general rule, recognize an IBC structure in its tax treaties. Therefore, if the US oriented activities take place via an IBC, there is a danger that the USA may deem the profits to be effectively connected income with the USA and therefore taxable. With the SRL, it is treated as a flow through to the Canadian corporation, and as such the provisions of the Canada-US tax treaty will give protection (it should be noted that the SRL is a relatively new option, and there may be additional US tax cases on its tax treatment over the next few years).
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Exempt Insurance Companies: Exempt insurance (or "captive insurance" as it is sometimes called) is another option for companies with significant international risk exposure. They combine a number of attributes, including abilities to create capital pools for self-insurance, access to international reinsurance markets, and deferral of taxation on investment income from the insurance capital pool. In many cases, for cost-efficiency, companies band together under a "rent-a-captive" scenario.
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International Trusts: International trusts, a valuable tool for individual planning, can also be used for corporate planning. This can be done on either a stand-alone basis or in conjunction with a corporate structure. This structure is valuable for dealing with asset protection and risk management.
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