I have been working on a way of stripping the assets inside my Cdn corp at the lowest tax rate possible (and in a timely fashion. I don't want to wait 10 yrs to do it either), and then declaring non-residency from Canada.
The best solution so far seems to be to contribute the corporate cash to a pension plan, which shelters it from the departure tax, and then receive periodic pension payments at lower WHT rates using a tax treaty. The default WHT rate is 25% but one can often get 15% with a treaty country.
If you are resident in a country that Canada has a tax treaty with, and if your pension payments are periodic and not lump sum, most of the time you will pay 15% withholding tax to Canada before they send the payment overseas. Payments to UK is the only instance where WHT is 0% (but you will pay dearly when the money is remitted to the UK). For popular retirement destinations like Thailand and Philippines, it is 25%.
I was hoping that if you were a non-dom UK tax resident, and didn't remit your pension income to the UK, that you would have a tax-free situation.
However.....
So far in all of the Cdn tax treaties I've read, there is a paragraph called Limitation of Relief (usu Article 22), or Article 27 (2) in the UK treaty, saying to the effect that Canada will only provide the treaty rate of 15% (or 0%) for income that is remitted to the other country. For income that is not remitted, I conclude that you would pay the default 25% WHT rate.
So while the 0% WHT rate for Uk tax residents looks really juicy, I believe you would actually pay 25% WHT on the Canadian end for unremitted income and local UK rates of 45% (for the bracket I'm interested in) on remitted income....terrible rates.
So using the following principles, I'm looking for a way to make the total tax rate 15% max:
A)pick a treaty country (otherwise u automatically pay 25% WHT)
B)Make sure the treaty rate is 15%
C)make sure the country you will become tax resident in taxes pensions at less than 15% AND gives full tax credits for tax paid to Canada
This seems to be the only way you will achieve a 15% rate. You want to remit all of the income otherwise you will pay 25%
D)make sure the country has a good tax regime for non-pension income also, i.e. investment income
So far the countries that seem to fit these req's are Cyprus and Bulgaria.
Cyprus residents pay 0 or 5% on foreign pensions. You don't run into trouble with non-dom remittance schemes bc the baseline tax rate is low, unlike with the UK or Ireland where the Limitation of Relief clause seems to cancel eligibility for treaty benefits. Bulgarian residents will pay 10% and credit foreign tax paid to Canada.
Along the same lines, if you set up a 1 or 2 year 'term certain' annuity, you will pay a treaty rate of 10% in Bulgaria, Croatia, Latvia, Lithuania, Estonia, Hungary, Slovenia and UK. I have very little experience with annuities but if you made a 1-yr term (and it wasn't too expensive to set up), then you could get your money out at 10% if you went to Bulgaria.
I left UAE out bc apparently their tax treaty is extremely difficult to apply for Cdns.
Any thoughts from the more experienced members here?
The best solution so far seems to be to contribute the corporate cash to a pension plan, which shelters it from the departure tax, and then receive periodic pension payments at lower WHT rates using a tax treaty. The default WHT rate is 25% but one can often get 15% with a treaty country.
If you are resident in a country that Canada has a tax treaty with, and if your pension payments are periodic and not lump sum, most of the time you will pay 15% withholding tax to Canada before they send the payment overseas. Payments to UK is the only instance where WHT is 0% (but you will pay dearly when the money is remitted to the UK). For popular retirement destinations like Thailand and Philippines, it is 25%.
I was hoping that if you were a non-dom UK tax resident, and didn't remit your pension income to the UK, that you would have a tax-free situation.
However.....
So far in all of the Cdn tax treaties I've read, there is a paragraph called Limitation of Relief (usu Article 22), or Article 27 (2) in the UK treaty, saying to the effect that Canada will only provide the treaty rate of 15% (or 0%) for income that is remitted to the other country. For income that is not remitted, I conclude that you would pay the default 25% WHT rate.
So while the 0% WHT rate for Uk tax residents looks really juicy, I believe you would actually pay 25% WHT on the Canadian end for unremitted income and local UK rates of 45% (for the bracket I'm interested in) on remitted income....terrible rates.
So using the following principles, I'm looking for a way to make the total tax rate 15% max:
A)pick a treaty country (otherwise u automatically pay 25% WHT)
B)Make sure the treaty rate is 15%
C)make sure the country you will become tax resident in taxes pensions at less than 15% AND gives full tax credits for tax paid to Canada
This seems to be the only way you will achieve a 15% rate. You want to remit all of the income otherwise you will pay 25%
D)make sure the country has a good tax regime for non-pension income also, i.e. investment income
So far the countries that seem to fit these req's are Cyprus and Bulgaria.
Cyprus residents pay 0 or 5% on foreign pensions. You don't run into trouble with non-dom remittance schemes bc the baseline tax rate is low, unlike with the UK or Ireland where the Limitation of Relief clause seems to cancel eligibility for treaty benefits. Bulgarian residents will pay 10% and credit foreign tax paid to Canada.
Along the same lines, if you set up a 1 or 2 year 'term certain' annuity, you will pay a treaty rate of 10% in Bulgaria, Croatia, Latvia, Lithuania, Estonia, Hungary, Slovenia and UK. I have very little experience with annuities but if you made a 1-yr term (and it wasn't too expensive to set up), then you could get your money out at 10% if you went to Bulgaria.
I left UAE out bc apparently their tax treaty is extremely difficult to apply for Cdns.
Any thoughts from the more experienced members here?
