Canada: Forex regulations. Check it out:
(EIU Viewswire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
Overview
Few controls hinder the movement of capital or other payments either into or out of Canada. But the federal government has strengthened its anti-money-laundering regime to deal with the increased threat of terrorism and to bring it in line with international best practices.
There are some restrictions on investments in Canada. Large direct investments must be approved by a federal agency, Investment Canada, and sometimes also by the federal Competition Bureau. Portfolio investment is limited in several types of business, including banking; media and communications; cultural activities (book publishing and retailing, filmmaking and distribution); and, to some extent, transportation. Restrictions on foreign portfolio holdings in these sectors range from 2049%.
One regulation that limited outflows of Canadian capitalforeign holdings in pension fundswas eliminated in the February 2005 federal budget. Foreign pension assets had previously been limited to a maximum of 30%.
In November 2001 the federal government began to monitor currency flows under the Proceeds of Crime (Money Laundering) Act. (The act, originally passed in May 2000, became more relevant after the terrorist attacks on the US in September 2001.) Individuals, financial institutions and intermediaries are required to provide information to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to help prevent money laundering and, with subsequent amendments, the financing of terrorist activities. FINTRAC and the Office of the Superintendent of Financial Institutions (OSFI) can share information under June 2004 revisions to federal law. The following types of exchanges must be reported:
cash transactions of C$10,000 or more;
international electronic funds transfers of C$10,000 or more;
crossborder movements of large amounts of currency or monetary instruments if the rate of exchange exceeds the posted rate; and
payments of C$3,000 or more in casino cheques.
Information posted on the FINTRAC website includes (1) information on money laundering and the intent of the new law; (2) a list of the activities that should be reported and how this should be done; (3) an explanation of when and how to submit reports; and (4) an outline of how compliance procedures are to be implemented by individuals and organisations.
Under Canadian law, money laundering is a criminal offence that includes such acts as concealing or converting property (or the monetary proceeds of property) and knowing that the proceeds were derived from committing an offence under Section 462.31 of the Criminal Code. Money laundering takes the form of placement (putting proceeds of crime into the financial system), layering (using a complex series of transactions to disguise an illegal source of income) or integration (putting illegal proceeds into legitimate businesses).
Canadian law supports international efforts to combat money laundering and, more recently, the financing of terrorism. Canada has been a member of the OECD-led Financial Action Task Force on Money Laundering since it was formed in 1989.
Penalties for not filing reports under the Proceeds of Crime (Money Laundering) Act are severe: up to five years in prison and/or a fine up to C$2m for failing to report a suspicious transaction; fines of C$500,000 (first offence) to C$1m (subsequent offences) for failing to report large cash transactions; and five years in prison and/or a fine up to C$500,000 for failing to keep records.
Lawyers challenged portions of the new law, arguing that it violated the principle of client-solicitor privilege. Application of the law to lawyers was suspended by mid-April 2002. The government repealed sections of the law pertaining to lawyers in March 2003 and said it would develop a new regulatory and legislative regime that takes into account the nature of the duties of legal counsel. The Attorney General of Canada has indicated that clients rather than lawyers are responsible for reporting under the act, and lawyers have been advised to explain that to their clients. In April 2004 the Law Society of British Columbia adopted a rule to prohibit lawyers in the province from accepting more than C$10,000 in cash from a client, except in certain circumstances (as executor of a will, or for payment of bail or legal fees).
During the fiscal year which ended March 31st 2006, FINTRAC detected the probability of illegal conduct in 142 cases (from among about 10m reported transactions). Of these, 110 involved suspected money laundering, 24 concerned suspected terrorist activities and eight combined the two offences. The total dollar value represented in these cases was more than C$2bn, an increase from C$700m in the previous fiscal year. All suspicions of illegal actions are turned over to the Canadian Security Intelligence Service for investigation. In February 2006, FINTRAC upgraded its electronic reporting system, creating a secure website called F2R.
Repatriation of capital
No restrictions apply.
Profit remittances
No restrictions or reporting requirements apply.
Tax consequences. Dividends are paid out after corporate income tax. There is no withholding tax on dividends paid by resident companies to Canadian individuals or corporations. In general, dividends paid or credited to non-residents are subject to a 25% withholding tax. Double-tax treaties can reduce this rate to 15% or less.
In addition to normal business expenses, Canadian corporations can generally deduct dividends received from another Canadian enterprise. Private companies are subject to a special refundable 25% tax on dividends received from companies in which the recipient has an interest of less than 10%. The tax is refundable to the corporation when it passes the dividend income on to its shareholders.
Loan inflows and repayment
No restrictions apply to borrowing from abroad. There are no limitations on the remittance of interest or principal on foreign-currency loans, and no reporting requirements.
Tax consequences. Corporations can pay interest to non-residents free of withholding tax on debt of five years or more. Interest payable to a non-resident-owned investment corporation is exempt from withholding tax. Otherwise, interest payments to non-resident individuals and corporations are generally subject to a 25% withholding tax (although this rate may be reduced under double-tax treaties). Interest paid to a Canadian resident is generally taxed as regular income to the recipient.
Transfer of royalties and fees
No restrictions apply. There are no reporting requirements, except when the remittances are subject to an agreement under the Investment Canada Act.
Tax consequences. A 25% tax is withheld on royalties and management fees paid to non-residents (but may be reduced by various tax treaties). For example, a US-Canada income tax treaty protocol in effect since 1995 abolished the withholding tax on royalties for computer software, patents and technical data.
Ontario restricts the amounts of royalties and management fees paid to non-residents that can be deducted from taxable income in calculating provincial taxes.
Restrictions on trade-related payments
No restrictions apply to export or import payments. Leading and lagging of payments are allowed.
Both bilateral and multilateral netting are freely permitted.
Copyright 2006 Economist Intelligence Unit
Technorati
Del.icio.us
Slashdot
Digg
