In 2015, Canada's Gross Domestic Product in US Dollars was approximately $1.6 Trillion and the population of Canada was approximately 36 Million. With a shared border, a common language (in the west) and historically positive relations, Canada could represent a fertile trading ground for United States-based companies.
While the country is contiguous and friendly, there are many factors which must be taken into consideration before launching a commercial endeavor with our fellow North Americans.
What business structure should be employed?
Companies must decide what business structure they will utilize to do business in Canada. The options of structures are varied and will depend on the size of the revenue and profit opportunity north of the border. A large and highly probable opportunity may warrant establishing a stand-alone entity incorporated in Canada, which could include a permanent brick and mortar location with Canadian-based employees. A smaller or less probable opportunity may warrant selling to customers in Canada from the US base and not investing in facilities or local employees. A thorough business plan will help determine the best option.
What are the registration requirements in Canada?
All companies that carry on a business activity in Canada are generally required to register with the federal Canadian Tax Agency. According to the Canadian Income Tax Act, a company is carrying on a business in Canada if it "solicits orders or offers anything for sale in Canada through an agent or servant, whether the contract or transaction is to be completed inside or outside Canada or partly in and partly outside Canada." The definition of carrying on a business is interpreted broadly by Canadian Courts. The requirement to register at the provincial level will depend on the level of activity that is carried on in Canada and the level of activity in a specific province.
Do US companies incur Canadian tax liability for carrying on a business in Canada?
The United States and Canada have entered into a tax treaty governing the regulation of taxes related to cross border trade activity. US companies may be exempt from Canadian income tax liability if they do not create a "Permanent Establishment" in Canada. According to the tax treaty, a Permanent Establishment is a fixed place of business through which a US company partially carries on their business. If that fixed place of business is in Canada, the US company may be subject to Canadian income tax.
Doing business in Canada presents a possible opportunity for US companies looking to grow their revenue and profit. This blog entry identifies questions to consider when evaluating a business opportunity in Canada.
This information should not be considered a comprehensive discussion of doing business in Canada, legal advice, or all that a company, employee, contractor, or consultant should consider when navigating the uncertain waters of international trade. Should you wish to discuss entering the Canadian market and its implications, contact an attorney who can provide specific guidance tailored to your situation.