UK-Canada operations

How do I re-arrange my UK company tax affairs when I move to Canada

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I am seeking advice on my tax affairs as my research is taking me round in circles, my existing UK accountant is unable to advise and the Canadian accountant I have consulted doesn't know the UK side. 

I have an established (10yrs+) UK Ltd company with myself as director and sole employee, working as an engineering design consultant.  I have recently moved with my family to British Columbia, Canada, as my husband has taken a job here for at least three years.  I have an existing client base, mainly in the UK, that I wish to retain.  I don’t mind whether I receive an income in the UK or in Canada but I do want to avoid falling foul of any fines and want to make sure that I have properly dealt with NICs and income tax obligations (or Canadian equivalent as applicable).  If at all possible I would like to maintain the UK Ltd company and am expecting to pay UK Corporation Tax, though I personally will be resident in and working from Canada. 

A Canadian accountant has advised that the best way to deal with this on the Canadian side is to set up as a sole proprietor and to regularly bill the UK company as a subcontractor and that due to the double taxation agreement between the countries this would satisfy income tax obligations in Canada.  However, I'm worried that the UK company will be deemed resident in Canada and that I will have a world of problems later down the line.

I don’t earn a massive amount from the company (less than £20k pa in wages and dividends in a good year) but it is important income for us as a family.

If anyone can point me in the right direction it would be much appreciated.

Replies (8)

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By Matrix
07th Dec 2020 20:33

graygilla wrote:

However, I'm worried that the UK company will be deemed resident in Canada and that I will have a world of problems later down the line.

I agree this is a concern so I would get international tax experts in both countries involved, maybe get them to speak to each other. I would probably set up a local entity and make the UK company dormant (as in not trading) or you will spend a high proportion of your profits on professional fees in two countries. It would have been wise to consider all this before you moved.

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By graygilla
07th Dec 2020 21:09

Further to this, I found the below on the Canadian Government website. Would a professional accountant read this as 'if your company was created in the UK and is taxed in the UK then the company is deemed resident in the UK'? It's only a portion of the text - the full text can be seen at https://www.canada.ca/en/revenue-agency/services/tax/international-non-r...

Deemed non-resident – Subsection 250(5)
Where a corporation that would otherwise be resident in Canada is, under a tax treaty between Canada and another country, resident in the other country, subsection 250(5) deems such corporation to be non-resident in Canada. This would be the case where a corporation is considered resident in Canada for the purposes of the ITA under common law but is, under a tax treaty between Canada and another country, resident in the other country.

A corporation may be deemed to be resident in Canada due to incorporation in Canada; however, the same corporation may also claim to be a resident of a treaty country if it meets the residence definition in a treaty. The tiebreaker rules (usually within Article IV) in tax treaties generally provide that if a corporation is a resident of both contracting states, it is deemed to be a resident of the state in which the corporation was created.

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Replying to graygilla:
Psycho
By Wilson Philips
07th Dec 2020 21:56

I’m not sure how reliable that source is, since the closing remarks don’t ring particularly true with me. Some treaties may conclude residence on that basis. I haven’t read them all but I have a fair number of them, and I don’t recall any settling the dual residence issue on the basis of place of incorporation. Notably, the UK-Canada treaty does not.

There are plenty of advisers out there that will be able to help - but it’s a specialist subject so expect to pay handsomely for the advice.

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Replying to Wilson Philips:
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By Paul Crowley
07th Dec 2020 23:20

Concur
Specialists are worth the money
Getting it wrong is a Damn sight more expensive

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Red Leader
By Red Leader
08th Dec 2020 10:48

Unfortunately any international tax structure is going to be expensive in terms of professional fees. I've been in practice over 20 years but I wouldn't be able to advise you on your situation even if we met in person.

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Ivor Windybottom
By Ivor Windybottom
08th Dec 2020 11:12

Difficult!

Think about the future....
will you wish to stay permanently in Canada?
or do you resent your husband dragging your family across there?

If you like Canada and can tolerate some people speaking French then close your UK company and become Canadian. Get local advice on how to trade from Canada, otherwise keep your UK company and subtly nag your husband to return to the UK.

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By OldParkAcct
08th Dec 2020 12:34

Given the limited company income, it is probably not worth the expense of getting advice on what you are suggesting happens with the UK company continuing to trade and you being based in Canada. The most practical way of dealing with it would be for the UK company to stop trading and become dormant.
You would then engage your clients with a new business set up in Canada as either a corporation or sole trader, depending on the advise of your local Canadian accountant and pay the appropriate Canadian taxes.

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By graygilla
08th Dec 2020 15:53

Thank you all for your responses. Glad I listened to my gut feeling on the approach that was being suggested. I will see what is involved in starting a Canadian enterprise and talk to my clients. It may be that I leave the company dormant for a few years and do contract work or, god forbid, get an actual job!

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