Canadian businesses benefit from a long-standing tax treaty, easier border crossing for many professionals, and a visa category built for treaty investors. A Canadian company entering the US market still needs a structure, a federal tax position, state registrations and a plan for the people it sends south. This guide covers a Canadian company entering the US market from the choice of subsidiary or branch to the treaty rates on money sent home, and it uses October 2026 rules. It is general information, not legal or immigration advice.
How can a Canadian company entering the US market choose a structure?
| Structure | US return | Treaty angle | Typical fit |
|---|---|---|---|
| No US entity, selling from Canada | None unless engaged in a US trade or business; Form 1120-F protective filing may help | Business profits taxed in the US only through a permanent establishment | Testing sales, exports |
| US subsidiary (corporation) | Form 1120 and Form 5472 | Dividends 5% or 15% | Operating business, staff, financing |
| US LLC owned by the Canadian company | Disregarded: pro forma Form 1120 with Form 5472; or elected corporation | Hybrid treatment needs review | Simple holding, but Canadian classification may differ |
| Branch of the Canadian company | Form 1120-F | Branch tax limited to 5% by the treaty | Short projects |
Canada and the US can classify the same LLC differently, which is why Canadian groups often prefer a corporation for the US operation; confirm with your Canadian CPA before using an LLC. A foreign corporation files Form 1120-F by the 15th day of the 4th month after year-end if it has a US office, or the 15th day of the 6th month if it has no US office or place of business. Treaty-based positions are disclosed on Form 8833 where required.
FinCEN's August 2026 final rule exempts US-formed companies from beneficial ownership reporting, but a foreign entity that registers to do business in a US state remains in scope. See our beneficial ownership update.
What the treaty says about profits and presence
The Canada-US convention (as amended through the 2007 protocol) provides:
- Dividends (Article X): 5% where the beneficial owner is a company owning at least 10% of the paying company's voting stock, and 15% in all other cases.
- Branch tax (Article X, paragraph 6): an additional tax on the earnings of a company attributable to permanent establishments may not exceed 5%, and the base is reduced by a cumulative threshold of C$500,000.
- Services permanent establishment (Article V, paragraph 9): services performed through an individual present for 183 days or more in any 12-month period, with further conditions, can create a permanent establishment.
The IRS treaty table (revised May 2023) adds that non-contingent interest paid by a US obligor to a Canadian resident is 0%, copyright, patent and know-how royalties are 0%, and film and equipment-rental royalties are 10%. The treaty text and its limitation on benefits rules control, so we confirm before any rate is claimed. See our US-Canada treaty guide.
How to enter the US market, step by step
- Map the activity. Will employees travel, will inventory sit in the US, and will contracts be signed there? Each answer can create a permanent establishment or state nexus.
- Choose the structure from the table and your Canadian CPA's view of the Canadian tax result.
- Form the entity and register it with the state; for an Illinois base, see start a business in Illinois.
- Get the EIN and open the bank account. A Canadian director without an SSN follows the international EIN process described in our EIN guide.
- Fund the subsidiary with documented equity or a properly drafted loan; both are reportable on Form 5472.
- Register for state taxes and payroll where you have people or customers; see sales tax registration for foreign sellers and the employer checklist.
- Obtain Form W-8BEN-E documentation from the Canadian parent so treaty rates can be applied to dividends, interest and royalties.
- Keep the Canadian filings in step. The Canadian parent reports its foreign affiliate; see T1134 and other international forms.
People, visas and payroll
- E-2 treaty investor: open to nationals of a treaty country, and Canada appears on the State Department's treaty list for both E-1 and E-2, effective January 1, 1994. The investor must invest a substantial amount in a real, operating, not marginal business and be coming to develop and direct it, shown by at least 50% ownership or operational control. The first stay is up to two years, with extensions in two-year steps.
- TN: for Canadian citizens in listed professions with a prearranged job. A Canadian citizen residing outside the US can present proof of citizenship, an employer letter and credentials to a CBP officer at designated ports of entry, or the employer can file Form I-129.
- L-1 and O-1: available to employees of qualifying organizations and to people of extraordinary ability.
- Payroll and social security: where a totalization agreement applies, it can prevent double social security contributions on a posting; see totalization and cross-border remote work.
Immigration filings should be handled by an immigration lawyer.
Documents and information you need
- Canadian incorporation documents, certificate of status and the latest financial statements
- Ownership chart with percentages, and directors' identification
- US formation papers and EIN notice
- Intercompany agreements (loans, services, licences) and a funding plan
- A list of people to be moved, with citizenship and role
- Details of any inventory or space in the US
A worked example
Credit River Controls of Mississauga forms an Illinois corporation, sends two managers on L-1 and TN status, and rents an office in DuPage County. It funds the subsidiary with US$300,000 of equity. In its first full year the subsidiary earns US$150,000 of taxable income, so federal tax at 21% is US$31,500, leaving US$118,500. A dividend of US$100,000 to the parent, which owns at least 10% of the voting stock, bears 5% withholding, or US$5,000. The subsidiary files Form 1120 and Form 5472, and Forms 1042 and 1042-S for the dividend; the Canadian parent reports the affiliate on its Canadian return. All figures are hypothetical and exclude Illinois tax.
Mistakes to avoid
- Sending staff to work in the US without checking visa status and payroll.
- Assuming the 183-day services test is the only way to create a permanent establishment.
- Forming an LLC without checking the Canadian classification.
- Paying dividends or interest to the parent before the W-8BEN-E is on file.
- Overlooking Illinois registration when the US entity is formed in another state.
How we can help
We coordinate the US formation, EIN, books, payroll and federal returns for Canadian companies, and we work with your Canadian CPA so the Canadian and US filings match. Our firm is based in the Aurora, Illinois area. See cross-border tax, business formation and registrations and payroll and employer compliance. We do not prepare Canadian returns or represent clients before the CRA.
Frequently asked questions
Do I need a US entity to sell into the United States?
Not always. Without a US trade or business or permanent establishment, a Canadian company may owe no US income tax, but state sales tax and payroll rules can still apply.
Should I use a subsidiary or a branch?
A subsidiary separates liability and keeps the Canadian company out of the US filing system, while a branch makes the Canadian company file Form 1120-F directly. The treaty limits the branch tax to 5%.
Can a Canadian citizen get an E-2 visa?
Canada is on the treaty list for E-2, so a Canadian citizen who meets the investment, ownership and "develop and direct" requirements may qualify. Each case is decided on its facts.
What are the US dividend withholding rates for a Canadian parent?
5% if the parent owns at least 10% of the voting stock, otherwise 15%, with the right documentation.
Does the treaty remove US filing duties?
No. A treaty position usually requires a return, and the treaty position may need a disclosure on Form 8833.
Official sources
- Department of Finance Canada: Canada-US tax convention (consolidated)
- IRS: Tax Treaty Table 1 (Rev. May 2023)
- USCIS: E-2 Treaty Investors
- USCIS: TN USMCA Professionals
- U.S. State Department: 9 FAM 402.9, E visas
- FinCEN: Beneficial ownership information reporting
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.