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The Tax Advantages of International Business In British Columbia, Canada

The Tax Advantages of International Business In British Columbia, Canada. Global Chinese Financial Forum. December 3, 2009. BRITISH COLUMBIA’S COMPETITIVE ADVANTAGES.

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The Tax Advantages of International Business In British Columbia, Canada

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  1. The Tax Advantages of International Business In British Columbia, Canada Global Chinese Financial Forum December 3, 2009

  2. BRITISH COLUMBIA’S COMPETITIVE ADVANTAGES • BC is a strategic gateway to the Pacific Rim and the US. Sailing time from British Columbia ports is 2-3 days shorter than US ports. • Vancouver International Airport offers non-stops flights to major cities in Asia. • Hong Kong is serviced by 2-3 non-stop flights a day. • Strong Asian business and support networks. • Stable political environment • Foreign currency reporting • Ethnic diversity and established Asian communities • Labour talent pool of 2.4 million • Quality of living • Cluster of financial expertise • BC has no residency requirements for corporate directors and exemption of B.C. tax for qualifying foreign trade/exchange specialists. • Immigration encouraged

  3. THE IFA PROGRAM The International Financial Activity (IFA) program is a unique tax incentive used to promote British Columbia (western most Province of Canada) as a location for investment. • The IFA program provides registered corporations with a refund of a corporation’s provincial tax (11% as of July 1, 2008) paid on income from qualifying international activities. • The legislative framework for the IFA program is the International Financial Activity Act (IFAA) of 2004. • In most cases, non-arm’s length as well as arm’s length transactions qualify. • A company can do business from any location in the Province—not only Greater Vancouver. • For non-residents transferred to BC to work in an International Financial Business (IFB), 75% of BC personal tax is refunded for 5 years.

  4. IFA PROGRAM AND RECENT TAX REDUCTIONS Provincial Corporate taxes reduced in 2008 12% to 11%. Further reductions to 10% by 2011 planned. Federal General corporate income tax rate will be reduced to 15% by 2012. 2009 19.0% 2010 18.0% 2011 16.5% 2012 15.0% In 2012, the combined corporate tax rate for British Columbia companies will be 25%. For companies registered in the IFA Program, the rate will be 15%.

  5. VANCOUVER: LOW TAXES (TOTAL TAX COMPARISON, SERVICES) Note: 2008 Total Tax Index compares total taxes (income, payroll, sales, property, and other statutory charges) imposed on a service business over a 10-year period based on KPMG’s 2008 Competitive Alternatives. Country indices are an average of cities in the study. Average US total tax is a baseline of 100.0 and other jurisdictions or cities are compared to this baseline.

  6. A QUALIFYING ENTITY In 2004, all companies became eligible based on qualifying activities. • To register for the IFA program, a company must fulfill these requirements: • was incorporated in Canada and since incorporation has not been continued outside of Canada, • has a permanent establishment in British Columbia, • is not exempt from income tax under the Income Tax Act, • establishes and carries on an international financial business within 90 days of registration, • establishes and maintains a membership in the International Financial Centre British Columbia Society ($1,000 Annual fee plus 0.45% of qualifying income as a Participation assessment fee) • pay a one-time application and registration fee of $5,000.

  7. QUALIFYING ACTIVITIES One side of the transactions is conducted with, for, or on behalf of a non-resident of Canada. In most cases, arm’s length and non-arms length qualify. Financial Activities • Treasury and cash management: short-term securities trading, intra-corporate loans and deposits, foreign exchange, managing investments and financial portfolios • Factoring and collecting trade accounts • Asset management activities including managing investments and securities, providing financial advice, financial research • Dealing in securities • Administrative support services related to financial activities • Insurance, including captives • Financial leasing Non-Financial Activities • Management services • Patents: Life science and green-related • Film distribution • Equipment and data back-up

  8. FINANCIAL AND CORPORATE TREASURY • Leasing property to non-residents by way of a direct financing lease • Short-term securities trading by a non-financial corporation • Managing investments for non-resident persons. • Intra-corporate loans and deposits • Managing financial portfolios. • Providing financial advice. • Factoring and collecting trade accounts receivable.

  9. HEAD OFFICE ACTIVITIES • Management services related to the business operations of a non-resident. • Strategic management services provided by the head office • Human resource services, such as payroll, benefits management, recruitment and selection, and training and development.

  10. A registered company can receive a 100% refund of BC corporate tax paid on qualifying IFB income. Patent-related refunds are limited to 75% of BC corporate tax to a maximum of $8 million. Refund is not taxable as income if election is made. A refund is paid only after all British Columbia and federal income taxes for the taxation year are paid. Returns must be filed within 18 months of the end of the taxation year. TAX REFUND: FOR CORPORATIONS

  11. IFA SPECIALISTS A company in the IFA program can apply to register an employee as an IFA Specialist. • Specialists are entitled to receive up to 75% refund of BC tax on IFA eligible employment income for a maximum of five years. Maximum marginal tax rate drops from 43.7% to 32.675%. • IFA Specialists must be transferred from outside of Canada to provide a specific expertise and have an employment agreement in place prior to arriving in Canada. • The terms of the written contract of employment require that at least 70% of the individual’s working time is devoted to performing international financial activities for the corporation.

  12. 75% of BC personal income taxes are eligible for a refund for IFA Specialists. Refund is not taxable as income. A refund is paid only after all British Columbia and federal income taxes for the taxation year are paid. Returns must be filed within 18 months of the end of the taxation year. TAX REFUND: FOR IFA SPECIALISTS

  13. SUMMARY • Use of IFC BC offers attractive tax rates of 19% (15% in 2012) • Proximity to US market/economy • Avoids complexity and tax risk associated with tax havens • Tax effective conduit to North America (similar for Ireland to Europe and Hong Kong to China)

  14. 2010 OLYMPICS The 2010 Games will showcase British Columbia as a leading international business centre; a place where natural beauty and cosmopolitan living co-exist in a sustainable balance. • The 2010 Olympic and Paralympic Winter Games are expected to generate up to $10.7 billion in economic activity. • It’s estimated 250,000 people will visit British Columbia in 2010. • Project-to-date venue construction expenditures now total $480.8 million, including highway improvements and the new RAV Canada Line. See you in 2010!

  15. QUESTIONS AND ANSWERS Bruce Flexman, President, IFC BC T: 604.683.6627 E: bflexman@ifcbc.com Suite 1170 – Park Place 666 Burrard Street Vancouver, BC Canada V6C 2X8 • www.ifcbc.com

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