Doing Business in Canada: A Non-Resident’s Guide

March 1, 2013 Published by
Post Categories: Financial PerformanceManaging Growth

If you’re looking to expand you’re business north, you will be pleased to hear that doing business in Canada is relatively simple.

Some of the benefits of doing business in Canada include:

  • Relatively few import restrictions
  • No restrictions on repatriation of earnings and capital
  • No foreign exchange controls.

Also, there are no special rules imposed on non-residence to compute taxable income and relief from double taxation is available to both residents and non-residents of Canada

The main forms of business structures in Canada include corporation, partnership, Canadian branch, trust, and joint venture. Check the chart below to see how each business is generally structured. Note that references in all cases are to business income.

                Business Structure

Attributes

Subsidiary

Corporation

Canadian

Branch

Trust

 

Partnership

 

Joint Venture

 

Distinct Legal Entity

Yes

No

A Relationship

No

No

Taxable Canadian Entity

Yes

No (1)

Yes

No

No

Residency Requirement for Directors

Yes (2)

No

No

No

No

Flow Through Entity

No

No (3)

No

Yes

Yes

Tax Rates

Corporate

Corporate

Top Individual (4)

Individual

Individual

Benefits of Tax Treaties

Yes

Yes

Yes

No (5)

No

Loss Utilization by the Parent

No

Yes (6)

n/a

Yes

Yes

Transfer Pricing Issues

Yes (7)

Yes

n/a

Yes

Yes

Financial Statement Preparation Difficulties

No

Yes (8)

n/a

n/a

n/a

Taxable Income Calculation

Entity Level

Entity Level

Entity Level

Entity Level

Venturer Level

Tax Liability

Entity Level

Foreign Entity Level

Entity Level

Partner Level

Venturer Level

Relatively Onerous Compliance Obligations

No (9)

Yes (10)

No

No

No

Income Character Retention on Distribution

Yes

Yes

No (11)

No

No

Withholding Tax Application on Distributions to Non-resident (12)

Yes

No

Yes

Yes

Yes

Branch Tax on After Tax Income

n/a

Yes (13)

n/a

n/a

n/a

Notes:

(1)  Branch Income is subject to Canadian taxation.

(2)  Under the federal statute, at least 25% of the directors must be Canadian residents. British Columbia, Yukon, Quebec, New Brunswick, and Nova Scotia have no residency requirements for directors.

(3)  Branch income can be consolidated with non-resident parent.

(4)  Certain exemptions may apply.

(5)  Partnerships are generally not eligible for treaty benefits; however, administratively, CRA has allowed treaty benefits to US non-resident partners.

(6)  Business losses can be included in the consolidated tax return of the parent corporation sheltering income from other sources.

(7)  Apply to related corporations.

(8)  Branch Financial Statement preparation may be difficult, especially with respect to allocation of head office charges, executive compensation, etc. CRA may conduct an audit of the U.S. corporation to validate reported Canadian portion of taxable income.

(9)  For non-publicly traded corporations.

(10) Example: on disposition of a capital assets used in the Canadian business a tax clearance certificate must be obtained as the amounts may be subject to withholding tax; however, a waiver of withholdings may be obtained.

(11) Income distribution from trust becomes trust income. Dividend income distributed from the trust will retain its character on distribution to Canadian residents and not to non-residents. Exception: SIFT trust rules allow for certain distributions from the SIFT trust to be taxed as dividends paid from Canadian corporation for the purposes of the withholding tax calculations; as a result, certain organizations become withholding tax exempt form particular distributions from SIFT trust.

(12) Certain exception may apply.

(13) May be a subject to a 25% branch tax on the Canadian after-tax income not reinvested in Canadian assets.

This blog is to provide general information and does not constitute professional advice. Please contact our firm for any specific advice with respect to a particular situation.