Limited Liability Partnership in Canada
British Columbia LLP
Corporate Taxation

A Full Tax-Exempt Entity

Since:
Partners not resident in Canada
Place of Business and Management not based in Canada
Income generated Overseas

In Canada, a Limited Liability Partnership (LLP), including one established in British Columbia (BC), is not taxed as a separate corporate entity. Instead, LLPs are flow-through entities, meaning the profits (or losses) of the partnership flow through to the individual partners, who then report and pay tax on their share of the income.

However, the taxation of a BC LLP and any potential tax exemptions depend on the residency of the partners, the source of the income, and whether the LLP has a taxable presence in Canada. Below are the key considerations and exemptions for corporate taxation of a BC LLP:

LLP as a Flow-Through Entity

An LLP in BC is not a separate taxable entity under Canadian tax law.
Each partner in the LLP is taxed individually on their share of the income, depending on their residency status and whether the income is Canadian-sourced.
Partners may include individuals, corporations, or other entities, and their tax obligations vary based on their residency and source of income.

Corporate Taxation of Partners

Canadian-resident partners: If any of the partners are Canadian residents (either individuals or corporations), they would be subject to Canadian tax on their share of the LLP’s income, regardless of where the income is earned.
Non-resident partners: Non-resident partners are generally only taxed in Canada if they earn Canadian-source income or if the LLP has a permanent establishment (such as a fixed place of business) in Canada.

Taxation of LLP Income

Canadian-source income: If the LLP generates income in Canada, such income would be taxable in Canada, and the partners would need to report their share of this income.
Foreign-source income: If the LLP’s income is generated outside of Canada (as in your case where the LLP has no business or management in Canada and earns all income overseas), non-resident partners may not be taxed in Canada on that income. Canadian residents, however, would still report their share of global income.

Permanent Establishment and Corporate Taxation

A business, including an LLP, may be subject to corporate tax in Canada if it has a permanent establishment in Canada. A permanent establishment generally refers to a fixed place of business (e.g., an office, factory, or employees working in Canada).
If the LLP has no permanent establishment or business operations in Canada, then it would generally not be subject to Canadian corporate tax, even if it is registered in BC.

Tax Exemptions and Benefits for LLPs

While LLPs are not directly subject to corporate taxation, the individual partners might be eligible for certain exemptions or benefits, depending on their residency and the nature of the income:

Non-Canadian-source income for non-residents: If the income is generated entirely outside of Canada and the partners are non-residents, that income would generally be exempt from Canadian taxation.
Foreign tax credits: Canadian-resident partners can claim foreign tax credits for taxes paid to foreign jurisdictions, which helps avoid double taxation on income earned abroad.
Treaty benefits: Canada has tax treaties with many countries to avoid double taxation and prevent tax evasion. These treaties may reduce withholding taxes or provide exemptions based on the source of the income and the residency of the partners.

Tax Filing Obligations

Even if the LLP is not subject to corporate tax, it may still have reporting obligations, such as:

Filing a T5013 Partnership Information Return with the Canada Revenue Agency (CRA) to report the partnership’s income, expenses, and allocation of income to the partners.
Non-resident partners may need to file a Section 216 or Section 217 return if they receive certain types of Canadian-source income, such as rental or pension income (although not applicable to foreign business income).
Reporting requirements for foreign affiliates if the LLP is controlled by Canadian residents and operates abroad.

Summary of Tax Exemptions

•  Non-residents: If the LLP’s income is generated outside Canada and the partners are non-residents, their income from the LLP may be exempt from Canadian taxation.
•  No Permanent Establishment: If the LLP does not have a permanent establishment in Canada, it would not be subject to Canadian corporate taxes on its foreign-sourced income.
•  Foreign-source income: For Canadian-resident partners, income from foreign operations can be offset by foreign tax credits to reduce Canadian taxes.

Conclusion 

A BC LLP is not subject to corporate tax in Canada, but its partners are taxed on their share of the income, depending on their residency and the source of the income. Non-resident partners with no Canadian-source income are typically exempt from Canadian tax. However, the LLP might still have reporting obligations in Canada, even if it is not taxable.