Need some advice on Canada & US business

[redman91]

So I have a partner in the US, and I am in Canada. We want to launch a business together but the issue of double taxation is quite annoying. Apparently the Canadian government classifies LLCs as a corporation so they are taxed that way too.

Apparently you need to create a Canadian parent corporation, then register a C Corporation in the US, in order to avoid double taxation. You still end up paying like 50% in taxes which is crazy.

I was wondering if you guys can tell me if my logic is sound with this strategy:

1. I create a corporation in Canada. Friend creates LLC in US State.

2. Friend pays me 50% of all profits to my corporation.

Do I still owe taxes in the US with this strategy?

If anyone can point me to an even better "workaround"or strategy, that would be awesome.

Thank you.

 

[dotpedal]

People typically Use LP in USA and ULC company in Canada.. to achieve tax transparency

 

[redman91]

dotpedal said:
People typically Use LP in USA and ULC company in Canada.. to achieve tax transparency
Click to expand...

Thanks for your response. Can you elaborate a little more please? Would we both own 50% of each one or does he register the LP in the US and I do the ULC in Canada? Once again, I appreciate any help you can provide.

 

[dotpedal]

redman91 said:
Thanks for your response. Can you elaborate a little more please? Would we both own 50% of each one or does he register the LP in the US and I do the ULC in Canada? Once again, I appreciate any help you can provide.
Click to expand...

I am not a tax professional but from what I understand you will want to form an LP in USA. 50% of that LP would be owned by a US LLC owned by the USA business partner. the other 50% would be owned by a ULC company registered in Canada.

funds will flow tax - free from the LP to the LLC, and tax free from the LP to the ULC

 

[redman91]

dotpedal said:
I am not a tax professional but from what I understand you will want to form an LP in USA. 50% of that LP would be owned by a US LLC owned by the USA business partner. the other 50% would be owned by a ULC company registered in Canada.

funds will flow tax - free from the LP to the LLC, and tax free from the LP to the ULC
Click to expand...

Awesome, thank you. Do you have any links on not being taxed from LP income if you have a ULC?

Thanks 🙂

 

[JustAnotherNomad]

Talk to an accountant in Canada. You can't be the first person with this problem.
Partnerships are taxed at the partner level, so from a tax perspective, the LP does not even exist.

 

[onemansomewhere]

There is still another problem.. If profit is coming from USA, you will have to pay US personal income tax in case to total tax transparency, even if you are a canadian tax resident..

 

[JustAnotherNomad]

Not if there isn't ECI. At least that's how I understand the rules.

 

[onemansomewhere]

There are ECI rules and many others..

 

[JustAnotherNomad]

Sure. But if the work wasn't carried out in the US, it shouldn't be taxable there. I'm not sure how the LP would play into this here, though.

 

[onemansomewhere]

If more than a half of your customers is in US.. All profits will be taxable in the USA. If LLC has supplier, which activity is more than half in serving your US LLC, all US LLC profit has to be taxed in the USA..

If you will create any tax transparent structure, canadian physical person, who is tax resident will have to tax income received in this structure in the USA. And apply DTT with Canada and pay a difference in Canada if Canadian personal income tax rate will be higher..