In either case, the Canadian corporation will be controlled by foreigners. This means that the Canadian corporation will not be eligible for the small business deduction and will therefore have a higher corporate tax rate (approximately 26% – federal + provincial).
The major difference between the two options has to do with the withholding tax rate on dividends paid to non-residents of Canada. In most cases, where there is a tax treaty between Canada and the foreign country, the withholding tax rate applied to dividends paid to non-resident corporations is lower compared to non-resident individuals.
Furthermore, the foreign taxes payable by foreign shareholders (individual or corporate) must also be examined.