Starting a business in Canada has its challenges, especially for foreigners. If you are considering doing business in Canada as a foreigner, you should know some basics about Canadian business and tax regulations.
Canada has a fairly strict definition of what it means to run a business in Canada. In fact, it doesn’t even require a physical presence or permanent establishment, in the country. Online businesses with no physical presence in the country but who provide goods or services to Canadians can be described as carrying on business. There are several factors that go into the definition of “carrying on business,” and it is worth consulting with a Canadian business and tax expert when expanding into Canadian markets.
And, once you carry on business in Canada, the eye of the CRA may be upon you. You will need to be aware of the logistics of Canadian business formation, business income tax, and registering for GST/HST.
This won’t necessarily be an issue for every online seller that sells to Canadians, but it is very important to be aware of it as your Canadian customer base grows.
If you are entering Canadian markets from the United States, you may be used to the American income tax system. America has a global income tax, meaning the US taxes your worldwide income. Canada’s income tax is different – it is based on where you earned the money. If you earned the money from Canada, Canada will levy an income tax on it – even if you are not a citizen. As a US citizen and business owner in Canada, you will need to keep careful track of your income from Canadian sources, as well as your total income for US income purposes.
To avoid double taxation, the US and Canada have a tax treaty that allows you to deduct income tax paid in Canada from your US income tax. A tax accountant with experience in international tax can help you find the best tax outcome for your business.
To register a business in Canada, you will need to apply for a business number (BN). This applies to nonresident sellers and those with no permanent Canadian establishment as well as resident business owners. Once you have the business number, you will be able to use this number for all your business-government communications. It is also important for other taxes, such as the GST.
In addition to the federal requirements, each Canadian province has its own regulations and tax rates. Some provinces add extra taxes for certain revenues, like credit card surcharges, while others do not. Depending on the nature of your business, the provinces you serve may be something you need to consider. A business consultant or tax accountant with experience in Canadian taxes and regulations can help you decide.
Starting a business anywhere is challenging, but starting a business in a new country comes with its own steep learning curve. Our experts at Canadian Tax Compliance are ready to answer your questions and assist you with company registration. Contact us today.
