Entrepreneurship & Small Business

Taxes for Canadian corp doing business in the US

  • Last Updated:
  • Mar 9th, 2017 6:25 pm
Jr. Member
Jun 21, 2015
129 posts
48 upvotes
Montreal

Taxes for Canadian corp doing business in the US

So I recently incorporated both federal and in the Delaware for a US corp. All of my clients and partners are in the US, so most of the money comes in and out of the US except for main operating costs i.e. rent, internet, electricity, etc. Don't have a permanent establishment in the US just Canada. Don't want to get double taxed if someone knows what type of forms id have to fill out and what the process would be. The Delaware corp is registered under the Canadian company.

If anyone has done cross boarder business without actually having a PE in the states can give me a few tips or resources to read that would be greatly appreciated. Thanks.
14 replies
Deal Addict
User avatar
Mar 13, 2003
3302 posts
1042 upvotes
Alberta
Take a step back.

WHY would you incorporate in a foreign jurisdiction BEFORE you had a tax plan? That's a bit insane honestly.
Jr. Member
Jun 21, 2015
129 posts
48 upvotes
Montreal
Not really advice, but fair question. I'm in a very competitive industry and was going to lose a lot of business if I didn't move quickly. But you're absolutely right it was insane. If you have any advice or resources would be much appreciated.
Deal Addict
Feb 29, 2012
2654 posts
1461 upvotes
Richmond
Get a W-8BEN-E (Foreign Beneficial Ownership - Entities) form and figure out which category you fall under. You might technically be eligible to pay tax only in Canada, but frankly you've made things difficult by registering a U.S. corporation, even if it's 100% owned by a Canadian company and has no presence in the U.S.. You'll probably need to register for a U.S. taxpayer ID and file a U.S. tax return every year. You won't be double-taxed, you'll just pay tax at the higher rate of the two countries. But it will mean additional admin overhead and accounting fees.
Jr. Member
Jun 21, 2015
129 posts
48 upvotes
Montreal
What would be the alternative to registering a US corp. most banks I spoke with in the US needed a US corp to open a us small business account and my merchants wouldn't do business otherwise. What you would have been the less complicated way?
Deal Addict
Feb 29, 2012
2654 posts
1461 upvotes
Richmond
It's not necessary to have a U.S. corporation or even a U.S. tax ID to do business in the U.S.. You can open a business account at most U.S. banks and do business with most U.S. clients as a Canadian company. You will be asked a lot for your W-8BEN-E form, because that's what they need to avoid withholding tax if you don't have a U.S. tax ID. Foreign companies can get a U.S. tax ID if they want without having a U.S. presence, but it just adds administrative overhead.
Sr. Member
Jan 18, 2017
607 posts
527 upvotes
AB
Did you say that the Canadian corp holds the shares of the US corp? You're in for a pile of reporting requirements if so. W8BEN doesn't cut it - the US corp needs to file a full set of tax returns (State and Federal). Because you're a foreign owner of a US corp, there's separate reporting forms for that as well. So likely 1120's, 5472's,

The good news is you didn't get talked into doing an LLC setup, so you can avoid double-tax there. You could maybe set up some transfer pricing arrangements to help mitigate the US-based tax and shift it to Canada (depending on what business you're in.) Any foreign tax paid in the US will be claimable in Canada because of treaty rules, but CRA will want to see the US tax returns as support - They are hitting this area hard right now.

Did you set up an S-corp or C-corp?
momawj wrote: So I recently incorporated both federal and in the Delaware for a US corp. All of my clients and partners are in the US, so most of the money comes in and out of the US except for main operating costs i.e. rent, internet, electricity, etc. Don't have a permanent establishment in the US just Canada. Don't want to get double taxed if someone knows what type of forms id have to fill out and what the process would be. The Delaware corp is registered under the Canadian company.

If anyone has done cross boarder business without actually having a PE in the states can give me a few tips or resources to read that would be greatly appreciated. Thanks.
______
MR CROSSBORDER KNOW IT NOTHING, but ready to spew forth. (Also a CPA)
Jr. Member
Jun 21, 2015
129 posts
48 upvotes
Montreal
So I'd be better off incorporating under my own name?
Sr. Member
Jan 18, 2017
607 posts
527 upvotes
AB
It's not as simple as that, because either way you hold the US corp the US deems it as being owned by a foreigner, which comes with its own set of specific reporting requirements.

What kind of gross revenue figures are you working with? I don't need specifics, but are we talking a couple thousand dollars in revenue? Six-figure US$ revenue? The revenue from the US-based operations will dictate whether or not the compliance costs (read: professional fees) make the whole thing worth pursuing. For a little hobby-type operation my experience has been it's not worth doing.

If you do want to insist on having a US entity (This isn't a bad thing - I know a lot of US corps won't do business with a non-US entity for all sorts of reasons) typically it's easier (from a compliance standpoint) to look at setting up a US partnership. Still requires compliance work, but arguably less.
momawj wrote: So I'd be better off incorporating under my own name?
______
MR CROSSBORDER KNOW IT NOTHING, but ready to spew forth. (Also a CPA)
Deal Fanatic
Nov 17, 2004
7311 posts
1672 upvotes
Toronto
Faith24 wrote: It's not necessary to have a U.S. corporation or even a U.S. tax ID to do business in the U.S.. You can open a business account at most U.S. banks and do business with most U.S. clients as a Canadian company. You will be asked a lot for your W-8BEN-E form, because that's what they need to avoid withholding tax if you don't have a U.S. tax ID. Foreign companies can get a U.S. tax ID if they want without having a U.S. presence, but it just adds administrative overhead.
I would further add that many canadian banks have presence in the US. RBC has their RBC Georgia branch/brand, I think RBC georgia is treated like a US bank by other banks and financial institutions. And you can open up a RBC georgia account by calling RBC or online, you do not even have to walk to your nearest RBC.

Is a US bank account what you ultimately want?
I workout to get big so I can pickup bricks and ****.
Jr. Member
Jun 21, 2015
129 posts
48 upvotes
Montreal
A US business account. not personal, rbi didn't give me any trouble in opening a us based personal account but needed a tax id and documents to set up us based business account.
Banned
Jan 10, 2016
175 posts
84 upvotes
Newmarket
momawj wrote: So I recently incorporated both federal and in the Delaware for a US corp. All of my clients and partners are in the US, so most of the money comes in and out of the US except for main operating costs i.e. rent, internet, electricity, etc. Don't have a permanent establishment in the US just Canada. Don't want to get double taxed if someone knows what type of forms id have to fill out and what the process would be. The Delaware corp is registered under the Canadian company.

If anyone has done cross boarder business without actually having a PE in the states can give me a few tips or resources to read that would be greatly appreciated. Thanks.
In your situation you should have not incorporated in the US but just operated out of your Canadian corp and filed a US return as a Canadian company, for which you would have benefited from Canadian taxes paid. There is ZERO advantage for you to do what you did.
Deal Fanatic
Nov 17, 2004
7311 posts
1672 upvotes
Toronto
momawj wrote: A US business account. not personal, rbi didn't give me any trouble in opening a us based personal account but needed a tax id and documents to set up us based business account.
You should double check with RBC on that, I do not think that is correct.
I workout to get big so I can pickup bricks and ****.
Deal Addict
Feb 29, 2012
2654 posts
1461 upvotes
Richmond
We opened our U.S. business account with BMO Harris, which is BMO's U.S. bank. There was a lot of administrative paperwork involved, and they don't seem to have much of a relationship with BMO Canada, but we did not need a U.S. tax ID or U.S. presence of any kind. Just a valid W-8BEN-E form certifying that we are a Canadian company, and a Canadian bank reference for identity verification.
Deal Addict
Aug 19, 2013
2397 posts
1091 upvotes
You need to find an accountant that has experience with cross border issues. Do not try and do this yourself and do not just rely on the advice of people on the internet. You may have already made it more complicated then needed by trying to do it yourself.

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