Doing Business in the United States

Canadians, whether individuals or corporations, who are seeking to expand their businesses are often enticed by the large potential market that is in the United States.  It is very important that individuals and corporations review how they are operating in the United States with an eye to reducing the overall U.S. and Canadian tax liability.  It is also important to be made aware of the various U.S. tax compliance requirements, and associated penalties for non-compliance, that will undoubtedly arise as a result of U.S. operations.

The following considerations are often overlooked by Canadian businesses operating in the United States:

• It is important that all cross-border tax consequences be considered and not just the U.S. tax consequences or the Canadian tax consequences.
• Planning with respect to corporate structure.  How a business is structured can significantly impact the overall U.S. and Canadian taxes paid.
• Canada does not tax U.S. LLC’s and S-Corporations the same way the United States does which can result in disastrous consequences.  Canadian residents must be very careful before becoming involved with these types of entities.
• U.S. information returns may be required for non-resident companies or individuals doing business in the United States (even if they are not taxable).  The IRS can levy substantial penalties for not complying with these requirements.
• The impact of the Canada – U.S. Tax Treaty (Treaty) and how the various sections of the Treaty apply to a particular transaction or business can often determine whether and how much tax will be paid to the United States.
• State taxation, including sales taxes.  Most U.S. States have their own income tax legislation and as such the tax legislation of each state that the business is operating in must be considered.    It is entirely possible for a Canadian company to be exempt from U.S. Federal taxes and at the same time subject to state taxation.
• U.S. payroll requirements need to be addressed.