Any foreign business enterprises can joint efforts with a Canadian enterprise and form a joint venture in order to carry on specific activities or business on the territory of Canada. Joint ventures have different structures that can take form in different ways, and such, joint ventures laws in Canada will apply taxes based on the type of structure they have.
What is a joint venture?
A joint venture comes to existence when two or more partners decide to make an agreement where they share resources and contribute to a common business venture. These resources might be capital, services or skills. A joint venture does not represent a separate legal entity in Canada, and such, there are no formal regulations to govern it, as contractual obligations usually govern joint ventures. However, the Canadian law will tax each partner depending on several conditions and based on the structure if the joint venture.
Types of taxations
A Canadian joint venture may be present in the form of a Canadian corporation in which the parties hold shares based on the agreed proportions. In this case, the Canadian state will tax the corporation and its income as if it was a Canadian resident corporation. In the case that the Canadian participants hold at least half the shares of the joint venture, then then it may benefit from some tax reductions which depend on both the federal rate and the provincial rate. For example, a Canadian corporation with at least half the shares owned by the Canadian participants will benefit from a reduced rate of tax of 13.5 percent in British Columbia, 14 percent in Alberta, 16 percent in Ontario and 19 percent in Quebec.
There are also tax rate reductions for small businesses in the form of the small business rate, although Canadian joint ventures that have a capital of more than 10 million dollars will have a less reduction than corporations with less. The small business rate will be reduced in a straight line fashion, and Canadian corporations with more than 15 million dollars capital will not be eligible for the tax reduction. The capital that is taxable represents the sum of the equity of all the shareholders and the secured debt minus the equity investments and the debt in other corporations.
The joint venture may also be formed as a partnership consisting of Canadian and foreign partners. In this case, Canada will not tax the partnership directly, but it will tax each partner based on his profits. Each participant is taxed on the partner level because all members of the partnership are considered to be carrying out business in Canada. In the case that a foreign enterprise that is member of a partnership has a permanent establishment such as an office or a factory, then that partner will be taxable in Canada depending on its share of the total profits of the partnership. This is due to the fact that the foreign enterprise is considered to have been carrying business directly as a Canadian branch.