There are many tax issues to consider if you are planning to do business in Canada.
Their tax system for business is overseen by the Federal Income Tax Act and the Sales Tax Act and Corporate Tax act both play important parts in the whole process.
These tax rules will apply if you are shipping to Canada or if you are just expanding your business to include our northern friends.
If your employees are Canadian, you will also need to take care of these tax issues at the time of employment. You’ll need to be clear about the income tax and the transactional tax laws that are in effect in Canada.
Here are a few more tax issues to consider:
- If you are doing business in Canada but are not a citizen, then you have to pay income tax on any profits obtained. This applies to all businesses that are permanently established in Canada. “Permanently established” is defined as: “a fixed setup where the business activities are carried on partially or fully.”
- You may be subjected to the payment of Canadian withholding even if you qualify for any provision under the income tax law. A 2% tax rate is paid for certain things like dividends, interests or rent royalties.
- You can expect to pay somewhere around 5% tax for the total amount of purchases and sales.
- Foreign businesses that are established in Canada will also be required to pay provincial and territorial income taxes. This amount will vary from 10% to 16% of the total income.
If you are unsure about any or all of the tax laws in Canada, before you consider doing business there, your best bet is to talk with your accountant before you get in too deep.
It’s better to find out earlier rather than later.