Canadian company (BC) doing business in the US

1
211

Question

Hi Phil
I own a BC corporation and I’m starting to do some business in California. I sell online goods to residents of California and I plan on expanding the business to other states on the west coast and perhaps the east coast if things go well.
Can you tell me if I need to pay tax in the US to the IRS? I earned some income from the US in 2010 and I don’t want to be caught offside.
Thanks
XXXXXXX

Answer

Dear XXXXXX

Under the US – Canada tax treaty you will not be required to pay tax in the US on your US source income as long as you do not have a “permanent establishment” in the US. A permanent establishment is defined in Article V of the treaty as:

2.  The term “permanent establishment” shall include especially:

(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

If you don’t have a place of business in the US that meets any of these definitions you’ll probably be ok. However I usually like to file a “protective return” with the IRS to ensure that the treaty disclosure has been filed. You would report your US source earnings on an 1120-F tax return and take a “treaty deduction” for the same amount using a form 8833. Also note that you’ll have to obtain a employer identification number from the IRS in order to file the appropriate returns.

You’ll also have to consider any possible State tax issues that may arise as a result of State nexus.

Hope that helps and feel free to give me a call if you have any further questions.

Regards

Phil

Phil Hogan, CA
250-661-9417

___________________________________________________________________

If you would like to reach me to discuss a tax or accounting matter please call 250-381-2400 or email me at phil@hutcheson.ca.

The accounting and tax information provided on this website is for informational purposes only and does not represent binding professional advice. Appropriate tax treatment and advice will depend on an individuals particular circumstances and set of facts.

Related Articles

1 COMMENT

  1. Hi Phil,

    Thanks for your informative website,
    I have almost some related questions to this topic:

    I have an incorporation registered in BC, Canada and I am going to open another branch within USA Delaware, or California, so my income will be within USA and in US dollars, now:

    do you think is better to open a business in California or Delaware in terms of tax charges when transferring money from my LLC registered in USA to my BC Incorporation?

    do you know by any chance if I have to pay federal+state taxes both on my annual income within the US as a foreign LLC to IRS or the taxes will be paid in the state level only?

    After paying annual taxes of my LLC to IRS, will be any other charges by IRS/the US when taking money out from the US and bringing it to Canada? Will CRA (Canada) charge me for bringing the money to the country?

    Thanks Phil

LEAVE A REPLY