They do not. Anyone is free to create a sole proprietorship/partnership/corporation provided that there is not national security implications ("Pam and Tom's Atomic Weapons" - Disallowed "Pam and Tom's Fighter Craft Displays" - Allowed) or confusion in the marketplace or depletion of nation resource (fishing companies, dairy companies, logging, etc). Actually, small business law in Canada is extremely well thought out. There is rarely a tax reason to incorporate, unlike other companies. For example, incorporating and paying out dividends will run you just as much tax as running as a sole proprietor. Usually. There are tricks you can pull, Turks and Caicos QA companies that reduce your profit to nearly 0 but reinvest the profits overseas. Plus IRAP funding is intense if you are large enough to float a couple salaries and you can handle mountains of paperwork.
[In Canada] There is rarely a tax reason to incorporate, unlike other [countries]. For example, incorporating and paying out dividends will run you just as much tax as running as a sole proprietor. Usually.
To elaborate slightly: The tax system treatment of dividends is set up to make "company produces a profit; company pays corporate income tax; company pays out the rest as dividends; individuals pay personal tax on the dividends" approximately equivalent to "sole proprietorship produces a profit; owner pays personal income tax". Depending on how much other income the owners have, the effective tax rate can be a few % better in either direction -- things don't line up perfectly -- but on average it works out pretty evenly.
There are, however, three common situations where incorporating produces a tax advantage in Canada: 1. If you use the company to "buffer" profits, retaining some of them in good years and paying them out in poor years (either as dividends or salary), in order to keep your personal income in a lower tax bracket (many professional corporations use this approach); 2. If you reinvest profits, since avoiding personal income taxes allows you to compound more effectively; 3. If you sell the company, since capital gains are taxed at a lower rate and in some cases capital gains on the sale of a small business are entirely tax-exempt.
It doesn't seem like there's as much incentive to misclassify employees as independent contractors in Canada. With government-provided health care and low/no payroll taxes, it isn't as lucrative to substitute contractors for full-time employees.
I've worked with plenty of contractors and few of them were 'independent' by any reasonable definition, but no one seems to care much. Every contractor I've worked with seemed to be in it to shift the risk/reward ratio in their favour, rather than because they couldn't find a full-time job.
CPP (Canadian Pension Plan) and EI (employment insurance) take around %12 of the first $50'000 annually (CPP maxes out after that) so it is pretty significant if you hire mostly median waged people.
You can do that, but it won't help. My understanding (as a non-US tax expert) is that if you're providing a service in the US you have to pay taxes in the US -- at least, last time I did consulting for a US company I had to fill out paperwork confirming that I was Canadian and doing all of the work from Canada in order to avoid all sorts of US tax paperwork.
There are similar rules to the US rules in the UK, but what we do instead is that we hire people cross border in the EU as there is no real coordination on these things between the countries. If there was they would open up a can of worms around where the tax money goes and who gets what for the services.
In fact the only sensible way to work for a Dutch company whilst living in Sweden is to have your own company or be a sole trader, even if you work 100% for the same company in the Netherlands and invoice only them.
I am not a lawyer, or an accountant, or anything like that.
My understanding is that for federal Canadian corporations a certain percentage (I think 25%) must be Canadian residents.Before doing anything like registering a company in another country it would be advisable to consult an accountant.
