A Corporate Tax Incentive Program

Through a registered international financial business (IFB), a company can receive up to a full refund on provincial corporate taxes paid on the income of the IFB

British Columbia offers companies a unique opportunity to increase profitability. By establishing an IFB in British Columbia, a company can receive a full refund of the provincial tax paid on the net income of the IFB (75% for patent activity).

The company must be registered in British Columbia’s International Financial Activity (IFA) program.  Most qualifying activities are financially based, and all activities are international in nature, meaning one side of the transaction is conducted with, for, or on behalf of a non-resident.

By locating an IFB in British Columbia, a company can gain the advantage of outsourcing functions to a near-shore or a North American location with a competitive tax structure without incurring the associated risks or unexpected costs of an off-shore location.

Qualifying IFB activities

Several activities qualify as international financial activities if carried out for, with, or on behalf of a non-resident:

• Fund and Asset Management
• Financial Services
• Corporate Finance and Treasury
• Administrative Services
• Factoring
• Patents
• Film Distribution

Benefits of an IFB

• Locating an international financial business in British Columbia can increase your company’s profits. The IFA program provides a refund of provincial tax paid on income earned in conducting qualifying international financial business.
• The effective corporate income tax rate for a company registered in British Columbia’s IFA program is considerably lower than the rate in other locations:

Rates current to January 2010. Adjusted for state deductions. US tax rates sourced from the Tax Foundation (www.taxfoundation.org).

The International Financial Activity Act (IFAA)

• The legislative framework for the IFA Program is provided by the International Financial Activity Act (IFAA).
• The IFAA, which took effect on September 1, 2004, allows a company, incorporated in Canada with a permanent establishment in British Columbia, to register for a refund of up to 100% of its corporate income taxes paid to the Province of British Columbia on qualifying activities. The IFAA replaced the International Financial Business (Tax Refund) Act, effective September 1, 2004.
• A complete copy of the IFAA and its regulations and amendments is available by clicking here.
• The IFA Program is administered by the BC Ministry of Finance (formerly the BC Ministry of Small Business and Revenue). More detailed information on the IFA program, including qualifying activities, eligibility, calculation of the tax refund, and registration requirements can be found in Bulletin IFA 001, International Financial Activity Overview.

Recent Changes to the IFAA

Management services (2008)

Effective February 20, 2008, management services directly related to the business operations of a non-resident are eligible international financial activities. Eligible management services are strategic management services provided by the head office of the corporation and the following human resource services provided by the head office of the corporation: payroll, benefits management, recruitment and selections, and training and development.

Short Term Financial Instruments for Corporations (2008)  

Effective February 20, 2008, corporations can qualify income derived from short-term investments with a non-resident. These include treasury bills issued by a government, commercial paper and bankers’ acceptances. Derivatives do not qualify.

Green-Related Patents (2008 and 2009)

Effective February 20, 2008, the list of eligible patents was expanded to include patents with classifications under the International Patent Classification System related to power generation using forces of nature such as wind, solar and tidal. In 2009, the list of eligible patents was expanded to include fuel cell technology and wastewater treatment.

Life Science Patents (2006)

Income derived selected life science patents is eligible for a refund of up to 75% of provincial tax paid on the eligible patent activity. More information can be found in Bulletin IFA 002, Life Science Patents.

What makes BC’s program unique?

• In most cases, non-arm's length as well as arm's length transactions qualify.
• A company can locate anywhere in the province. Vancouver is only one of British Columbia's many thriving cities.
• A company does not need to be a financial institution to apply. Qualifying activities go beyond traditional banking functions and comprise many financial activities, such as Treasury, that are an essential part of every business.

What are the requirements for establishing an IFB?

• Incorporation in Canada
• A permanent establishment in BC
• Not exempt from income tax under the Income Tax Act (Canada)
• Establish and carry on an IFB within 90 days of registration. A complete definition of the IFB can be found here.
  
• Establish and maintain a membership in the IFC BC

More Information

Further details on the IFA program can be found in Bulletin IFA 001, International Financial Activity Overview. Details on Life Sciences can be found in Bulletin IFA 002, Life Science Patents.

The IFA program is administered by the BC Ministry of Finance (formerly the BC Ministry of Small Business and Revenue). For more information regarding the legislation or provincial registration, please visit their website. The information on this website is provided for convenience and guidance only and is not a replacement for the legislation. Businesses considering accessing the benefits under the IFAA should consult with their professional advisors on the applicability of the IFAA legislation to their particular circumstance.

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