Have an independent corporation that can accept payments from clients, hold capital, and pay expenses (myself as a contractor and other freelancers)
Isolate it from “me” as a Canadian taxpayer (Income shouldn’t be directly associated to my name)
Invoice clients from the business entity
Hold/Invest the majority until a later date (pay myself 5%)
Pay business taxes properly
Go unnoticed
So far it looks like the way to do this is
Create a corporation
Name someone I trust as the director
Create an international bank account in the name of the business
Set up a payment processor to deposit in to the bank account
Keep up with accounting/regulatory paperwork
What I’ve done so far
Hire a freelancer to create a corporation (100GBP)
This is a UK corporation. Chosen because it was easy to find someone to incorporate in the UK.
The director is chosen and named
The freelancer also offered to do the required paperwork for the business for a monthly fee (20GBP). I personally like this as this means the freelancer is incentivized to make sure the setup and the paperwork are done right, so I agreed.
Create a transfer wise account for the business ($0)
This was also tied to the director’s name, and they had to provide Canadian passport as ID verification
Set up Freshbooks (Free for 3 or less clients, small CC fee) ($0)
Set up WePay (This was the wrong choice. WePay is out.) ($0)
Accept a credit card payment in to Freshbooks (success: $10)
Have the Director sign up for Stripe (success)
Create a new Gmail account for the business
Connect Stripe to Transferwise using the Borderless account with a USD balance (Success: $0)
As Transferwise and Stripe both require 2FA, I created a Twilio number that forwards the 2FA codes to the gmail account ($5/mo for a server to precess the request, plus 4-5 hours wrangling with the Gmail API. Note: Could probably be done server less for pennies, but I had the server anyway)
The payment processor (to accept CCs)
Stripe can pay in to a “borderless” Transferwise account that has “local bank details” (available with GBP, USD, and a couple others. Not CAD)
It took 12 days for Transferwise to verify the account, minutes for Stripe to verify, and then about 2 weeks for a test payment to Stripe to show up in Transferwise.
We did have to email Transferwise as noted below in Tips, I suspect they would not have made any progress without us emailing them
Tips for anyone following in my footsteps
Find a proxy that you trust to act as the director, and who’s name the accounts will be under. At a certain $$ threshold, this would probably be a lawyer.
Set aside at least a month for this process, and stay on top of it (We had to email Transferwise a half-dozen times to keep their verification on-track)
(Based on how it’s been done by other people) write up a resignation letter for the director, leave the date off, and have them sign it. Do the same for release of shares or a document detailing the transfer of ownership of the company.
What next
Test it throughout real business use, and make sure everything goes the same as the test results!
Community input is greatly appreciated. There can still be gotchas we’re not seeing.
Hi, interesting setup, but I have a question, how are you planning to get the money out of company at the end of this process?
I’m asking because I used to be a director/100% shareholder in UK Ltd, and I was told I couldn’t just give or sell shares at a price of my choosing to my (then) fiance. You’d have to sell the shares at “fair price” (that is, connected e.g. to retained profits). You can only give shares to a spouse (or at least that’s what I’ve been told by my accountant - I’m not expert to say if there are some other routes).
If taking over the company at some point is not your plan then this does not apply of course. But given you have no stake in the company, how do you plan to get your money out of it?
In the short-to-medium term, it could be expensed out as I (or other people) do increasingly valuable work (thus reducing the company profits)
When it reaches a tipping point, I would either step in as director myself (and/or employee or whatever) and give myself a fair salary, keeping the capital circulating inside the business for growth or possibly empty it out by having the UK company incorporate a Canadian business and shifting all Capital to that new business.
I think it all depends - what is your main goal with this setup?
Overall, the main issue I can see is that in many places, getting money out of company via dividends is taxed significantly less than taking it as salary (as there is a significant overhead on social security taxes, plus income tax on salary can be higher than on dividends). This will be especially true if the salary is quite high. So if tax optimisation is the goal, this might not be the best route (although a lot would also depend on where you are at the point of withdrawing the money, if that place taxes worldwide income etc.). If you’re not company shareholder from the beginning, it will be much harder for you to open this avenue to distributing the company profit. I’m sure clever lawyers and accountants might come up with something but they’ll cost $$$$ so depending on how much there is in the company it may or may not make sense.
On top of that, I have no idea about the possibility of UK company employing you - would you relocate to UK? Would you be still in Canada? I don’t know what the rules on this exist but overall, whenever I see cross-the-border employment (i.e. company in country A, worker in country B), it’s often done via B2B (with worker having own company, or operating as solo trader/self employed and invoicing). I suspect part of the reason is that it’s just easier for everybody involved than trying to deal with international laws in this regard.
The last route (UK incorporating a Canadian business and e.g. employing you there) sounds like it might be a good route, although I know nothing about that so can’t say what to look out for here.
Also, I know absolutely nothing about Canadian tax system so unfortunately can’t give hints what kind of setup is good.
Not sure if that helps at all. When I saw your post it’s just the first thing that came to my mind as I’ve been thinking quite a bit recently about my own setup and came to conclusion that the biggest challenge (i.e. highest tax burden) tends to be at the end, taking money out of company, and I was wondering what your plan for this was. I was aware that one route you might be thinking of (“buy the shares”) is not necessarily as easy as it sounds.
The ideal is to have a payment processor that pays in to Transferwise (looking first at Stripe, but Braintree is also on the consideration list). That way companies can pay via CC which in my experience has been a fairly frictionless process.
I think it all depends - what is your main goal with this setup?
The main goal with this is to isolate “my” income from my citizenship.
This is mainly because I don’t want my personal “debts” to impact the potential growth of the business, but it does leave the door open if I decide to relocate in future. Though tax optimization could be a nice bonus, it’s not the main goal.
On top of that, I have no idea about the possibility of UK company employing you - would you relocate to UK? Would you be still in Canada?
I’d still be in Canada for the foreseeable future, and I’m planning on being a freelancer to the company: part of the income I earn will go to me through invoicing, and the rest will stay inside the company (and used for expenses, of course).
To be honest, the idea of being an employee for the UK company feels intuitively like a paperwork nightmare so I’ve steered clear of it.
the biggest challenge (i.e. highest tax burden) tends to be at the end, taking money out of company, and I was wondering what your plan for this was.
Yes, that seems to be the conclusion of my research as well.
My situation is likely different than yours here, as the question of getting the money out feels like a >300k/yr question and I’m not thinking about it yet. Maybe it’s naive but: hopefully I would have a good accountant/lawyer to handle the details by then. It may even be more convenient to spin off holding companies for major investments and keep the UK company ‘cash-poor’. In this way I wouldn’t need any income per-se as everything around me would be handled.
For anyone keeping track: I’ve updated the original post.
Short version: It seems to be working, now have to wait 10 days to make sure the deposit goes from Stripe to Transferwise.
Stripe and Transferwise are now confirmed as connected.
The steps I’ve laid out above do seem to work.
We have a business name to put on invoices, and a way to accept credit card payments from anywhere in the world.
