Business Environment Overview
Canada offers a stable, well-regulated business environment with strong rule of law, skilled workforce, and access to both US and international markets. For Americans, cultural and legal similarities make it easier than most foreign jurisdictions.
Key Business Statistics
| Metric | Canada | US Comparison |
|---|---|---|
| Ease of Doing Business (World Bank) | #23 | #6 |
| Corporate Tax Rate (Federal) | 15% | 21% |
| Combined Corporate Tax | 23-31% | 21-30% |
| Small Business Rate | 9% | N/A (pass-through) |
| Time to Start Business | 1.5 days | 4 days |
Canadian-controlled private corporations (CCPCs) pay only 9% federal tax on the first $500,000 of active business income, with provincial rates adding another 0-4%. Combined rates of 9-13% are significantly lower than most alternatives.
Business Structures
Common Entity Types
| Structure | US Equivalent | Key Features |
|---|---|---|
| Corporation (Inc., Ltd., Corp.) | C-Corp | Separate legal entity, limited liability, most common |
| Sole Proprietorship | Sole Proprietorship | Simplest, no separate entity, unlimited liability |
| General Partnership | General Partnership | Two+ partners, unlimited liability |
| Limited Partnership (LP) | LP | General + limited partners, limited liability for LPs |
| Limited Liability Partnership (LLP) | LLP | Professionals (lawyers, accountants) |
Canada does not have Limited Liability Companies (LLCs). The flexibility of US LLCs doesn't exist. Corporations are the standard choice for liability protection. For US tax purposes, a Canadian corporation is always a foreign corporation—no "check-the-box" election.
Corporation Key Features
- Limited liability: Shareholders not personally liable
- Perpetual existence: Survives ownership changes
- Transferable shares: Easier to bring in investors
- Tax advantages: Small business rate, income splitting potential
- Compliance burden: Annual filings, separate tax returns
Federal vs. Provincial Incorporation
Canada offers both federal and provincial incorporation. The choice affects where you can do business and naming requirements.
Federal Incorporation (Corporations Canada)
- Operate nationwide: Name protected across Canada
- Must register extra-provincially: In each province you operate
- Name search: NUANS search required ($20)
- Cost: $200 (online) or $250 (paper)
- Annual filing: Required to maintain status
- Residency requirement: 25% of directors must be Canadian residents
Provincial Incorporation
- Operate in one province: Must register separately in others
- Name protection: Only in that province
- Cost: Varies ($300-500 typically)
- Director residency: Varies by province (Ontario: majority resident; BC: no requirement)
Which to Choose?
| Choose Federal If... | Choose Provincial If... |
|---|---|
| Operating in multiple provinces | Operating in one province only |
| National brand recognition important | Local business focus |
| Planning to expand across Canada | Lower initial cost desired |
| Can meet 25% Canadian director rule | Cannot meet residency requirements |
British Columbia is one of the few jurisdictions with no Canadian residency requirement for directors. If you can't meet federal or other provincial requirements, BC incorporation may be an option (though you'd still need to register extra-provincially to operate elsewhere).
Incorporation Process
Federal Corporation Steps
- Name search: NUANS report ($20, valid 90 days)
- File articles: Online via Corporations Canada ($200)
- Create bylaws: Standard or custom corporate bylaws
- Initial resolutions: Appoint directors, officers, issue shares
- Register extra-provincially: In provinces where operating
- Get business number: CRA registration for tax accounts
- Open bank account: With incorporation documents
Required Documents
- Articles of Incorporation
- Corporate bylaws
- Initial directors' resolutions
- Share certificates
- Shareholder register
- Director/officer register
Timeline and Costs
| Item | Cost | Timeline |
|---|---|---|
| NUANS search | $20 | Immediate online |
| Federal incorporation | $200 | Same day online |
| Provincial registration | $200-500 | 1-5 days |
| Lawyer (if using) | $1,000-2,500 | N/A |
| Business number (CRA) | Free | Immediate online |
Tax Considerations
Canadian Corporate Tax Rates (2024)
| Province | Small Business Rate | General Rate |
|---|---|---|
| Ontario | 12.2% | 26.5% |
| British Columbia | 11% | 27% |
| Alberta | 11% | 23% |
| Quebec | 12.2% | 26.5% |
| Manitoba | 9% | 27% |
US Tax Implications
If you own more than 50% of a Canadian corporation (by vote or value), it's a CFC. This triggers complex US reporting requirements (Form 5471) and potentially GILTI tax on foreign earnings. The small business rate advantage may be partially or fully offset by US tax on the Canadian income.
Key US Considerations
- CFC reporting: Form 5471 required annually (significant penalties for non-filing)
- GILTI: Global Intangible Low-Taxed Income may apply
- Subpart F: Passive income taxed currently to US shareholders
- PFIC: If corporation is mostly passive investments, even worse rules
- Tax treaty: May reduce Canadian withholding on dividends
Before incorporating in Canada, consult with a cross-border tax advisor. The interaction of Canadian corporate tax, US CFC rules, GILTI, and the tax treaty is complex. A structure that makes sense from a Canadian perspective may be problematic for US tax purposes.
Business Immigration
If you want to start a business in Canada and need immigration status, several pathways exist.
Start-Up Visa Program
- For: Innovative entrepreneurs with scalable business
- Requirements: Support from designated organization (VC, angel group, incubator)
- Language: CLB 5 in English or French
- Settlement funds: Varies by family size
- Result: Direct PR for you and family
- Processing: 12-16 months currently
Intra-Company Transfer
- For: Executives/managers of US company expanding to Canada
- Requirements: 1 year with US company, establishing Canadian operation
- No LMIA required: CUSMA work permit
- Duration: Up to 3 years initially, renewable
Owner-Operator LMIA
- For: Buying or starting Canadian business
- Requirements: Control of business, actively manage
- LMIA required: But different standards than employment LMIA
- Can lead to PR: Through Canadian experience
The TN visa is for employees, not business owners. You cannot use TN status to run your own Canadian business. If you want to own and operate a business, you need a different pathway like Start-Up Visa, ICT, or Owner-Operator LMIA.
Cross-Border Business Structures
Many US business owners want to maintain both US and Canadian operations.
Common Structures
- US Parent → Canadian Subsidiary: Clean separation, Canadian entity fully taxable in Canada
- Canadian Branch of US Corp: No separate entity, US taxed on Canadian profits
- Parallel Operations: Separate US and Canadian companies, related party rules apply
Transfer Pricing
If you have related companies in both countries, transactions between them must be at arm's length prices:
- Sales between companies at fair market value
- Management fees reasonable and documented
- Intercompany loans at market interest rates
- Documentation requirements in both countries
- CRA and IRS both aggressive on transfer pricing
The US-Canada Tax Treaty reduces withholding on dividends from Canadian subsidiary to US parent (5% for 10%+ ownership vs. 15% standard). Interest payments generally not subject to withholding. Proper planning can minimize overall cross-border tax burden.
Employment Regulations
Canadian employment law provides stronger worker protections than most US states.
Key Differences from US
| Issue | Canada | US (General) |
|---|---|---|
| Termination | Notice/severance required | At-will in most states |
| Vacation | 2-3 weeks minimum by law | Not required |
| Parental Leave | 12-18 months job-protected | 12 weeks (FMLA) |
| Overtime | After 44 hrs (varies) | After 40 hrs |
| Non-Competes | Limited enforceability | State-dependent |
Termination Costs
Unlike US at-will employment, Canadian employers must provide reasonable notice or pay in lieu:
- Statutory minimum: 1-8 weeks depending on service length
- Common law notice: Often much higher, based on factors like age, position, job market
- Rule of thumb: ~1 month per year of service for common law
- Executive severance: Can be 12-24+ months
Many US employers are surprised by Canadian termination costs. Unlike the US, you cannot simply fire employees with no severance (unless with cause, which has a high bar). Budget accordingly when planning Canadian expansion.
Ongoing Compliance
Annual Requirements
- Corporate annual return: Federal and provincial filings
- Corporate tax return (T2): Within 6 months of year-end
- GST/HST returns: Quarterly or annually depending on revenue
- Payroll remittances: Regular remittances to CRA
- T4/T4A slips: Employee/contractor tax slips by end of February
- Provincial filings: Varies by province
Important Deadlines
| Filing | Deadline |
|---|---|
| Corporate tax return | 6 months after fiscal year-end |
| Tax balance owing | 2-3 months after fiscal year-end |
| Federal annual return | 60 days after anniversary |
| T4s to employees | Last day of February |
| T4 summary to CRA | Last day of February |