A Corporate Tax Incentive Program

By registering an international business (IB) in B.C., a company can receive up to a full refund on provincial corporate taxes paid on the income of the qualifying business

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

The company must be registered in British Columbia’s international business (IB) program.  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 IB 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 IB 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
• Digital media distribution (new in 2010 and to be defined)
• Clean technology (new in 2010 and to be defined)
• Carbon trading and certification (new in 2010 and to be defined)

Benefits of an IB

• Locating an international business in British Columbia can increase your company’s profits. The IB program provides a refund of provincial tax paid on income earned in conducting qualifying international business.
• The effective corporate income tax rate for a company registered in British Columbia’s IB 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 Business Activity Act (IBAA)

• The legislative framework for the IB Program is provided by the IBAA.
• The IBAA (formerly the International Financial Activity Act), 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 IBA replaced the international business (Tax Refund) Act on September 1, 2004.
• The IB Program is administered by the BC Ministry of Finance. More detailed information on the IB 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 IBAA

Digital media, carbon credit trading, and clean technology (2010)

The IBAA was expanded to include digital media distribution, certification and trading of carbon credits, and clean technology. The website will be updated as more details are forthcoming in 2010.

Investment Fund Management Activities (2010)

Effective September 1, 2010, the IBAA will include management and administration of certain investment funds. The website will be updated as more details become available later in 2010.

Executive Specialist (2010)

The Executive Specialist replaces management services as a qualifying activity. The Executive Specialist must have an annual compensation greater than $250,000 and wages must be included in the calculation of IB income. The Executive Specialist will be entitled to a refund of provincial taxes paid of 100% in Years 1 and 2, 75% in Year 3, 50% in Year 4, and 25% in Year 5. Click here for more information on Executive Specialists.

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 IB?

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

More Information

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

The IB program is administered by the BC Ministry of Finance. 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 IBA should consult with their professional advisors on the applicability of the legislation to their particular circumstances.

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