Welcome to Part 2 of our Business Basics posts on Canada. Last week we took a quick look at corporate law in Canada, and explored some of the major differences between American and Canadian corporate law. If you are thinking about incorporating up north, you should start there as it will give you a basic idea of what to expect in terms of regulations and rules.
This week we are going to shift gears a bit and answer a few of the most commonly asked question about incorporating in Canada.
Can Americans start a corporation in Canada?
Sometimes. As mentioned last week, you can choose to incorporate either at the provincial or the federal level. However, some provinces require that a percentage of the board of directors be Canadian citizens. Federal corporations also have to have a board made up of at least 25% Canadian citizens. Below is a quick list of the residency requirements of each province:
- Alberta: At least 25% of the board must be Canadian
- British Columbia: No residency requirements
- Manitoba: At least 25% of the board must be Canadian
- New Brunswick: No residency requirements
- Newfoundland: At least 25% of the board must be Canadian
- Nova Scotia: No residency requirements
- Ontario: At least 25% of the board must be Canadian
- Prince Edward Island: No residency requirements
- Quebec: No residency requirements
- Saskatchewan: At least 25% of the board must be Canadian, and at least one director must live in Saskatchewan.
Provinces also require that the business’s address be located within the province. If you want to work for your business in Canada, you will also need to apply for a work visa. If you were lucky enough to secure venture capital or an angel investor, you may also qualify for Canada’s new start-up visa.
Alternatively, you could also find a Canadian business partner and work with them to set everything up and get the company running.
Who do I pay taxes to?
The corporation will have to pay the corporate tax rate set by the province and federal government, and anyone who derives an income from a permanent Canadian fixture must pay Canadian income tax. In addition to this, an American who acts as an officer, director, or owns shares in a Canadian (or any foreign) corporation, has to fill out Form 5471 and attach it to their US income tax return. American citizens are responsible for paying taxes on any of their income earned abroad, however there is currently a tax amnesty in affect, meaning income earned by Americans in Canada may not be subject to American income taxes.
It’s also important to know that if your corporation pulls in more than $30,000, you will have to register for a GST/HST Account with the Canada Revenue Agency, though Quebec has its own department that handles these accounts.
How do I incorporate in Canada?
The actual process is fairly straightforward, just like it is in the states. The first step is to choose whether or not to create a provincial or federal corporation, and since we have already explored the good and bad parts of each, the next step is to visit the website of whatever department handles incorporations in your chosen province:
- British Columbia
- New Brunswick
- Nova Scotia
- Prince Edward Island
- If you chose the federal option, you visit Corporations Canada.
Before you file your articles of incorporation, you will probably need to perform a name search and reservation through the provincial/federal website you use. After your name is set, you file your articles of incorporation. In this you’ll likely have to give a registered address for your business and name a registered agent that can accept services of process on the corporation’s behalf. You will likely also need to describe the class of shares you intend to distribute, and identify the names and address of the corporation’s directors. However, every province has its own requirements, so make sure you comprehensively research your province’s laws, or that you talk to a professional – and MyCorp is also happy to lend a hand if you need one.
If you have any questions about incorporating in Canada, you can also leave a comment below or just give us a call at 1-877-692-6772!