Canada is the first foreign market for many Illinois manufacturers, distributors and service firms, and the border makes it feel like an extension of the home market. For tax and compliance it is not: Canada has its own business number, sales tax, income tax and withholding rules, and a US company can trigger them without a Canadian office. This guide for a US company entering Canada covers the structure choices, the CRA registrations, the taxes that follow, how money gets back to the US, and what the US parent must still report. It reflects October 2026 guidance.
How can a US company entering Canada choose a structure?
| Structure | Canadian filings | US forms | Typical fit |
|---|---|---|---|
| Sell from the US, no Canadian presence | GST/HST if carrying on business and above the threshold | None, unless a foreign entity is involved | Early export sales |
| Canadian subsidiary (federal or provincial corporation) | T2, payroll, GST/HST, provincial taxes | Form 5471; foreign tax credit forms | Operating business with staff |
| Branch of the US company | T2 for a non-resident corporation, Schedule 20 for Part XIV tax | Form 8858 for a foreign branch | Short projects, trials |
| Canadian partnership or LP | Partnership returns | Form 8865 | Joint ventures |
If you incorporate federally under the Canada Business Corporations Act, section 105 still requires that at least 25% of directors be resident Canadians, and at least one resident Canadian if there are fewer than four directors. Provincial statutes set their own director rules, so confirm them before choosing the incorporating jurisdiction. Our incorporation guide compares the routes.
How to enter Canada, step by step
- Check the Investment Canada Act. An investment to establish a new Canadian business, or to acquire control of one, is subject to notification unless it is reviewable. Notice is given before implementation or within 30 days after. Review thresholds are set each year by Innovation, Science and Economic Development Canada, so check the current figures.
- Choose the structure and incorporate or register. A subsidiary needs a corporate registration; a branch of a US corporation typically needs extra-provincial registration in each province where it operates, under that province's rules.
- Get a CRA business number. The CRA registration page has separate paths for residents with a Social Insurance Number and for non-residents, including a business incorporated or located outside Canada. Non-residents use the Non-Resident Business Number and Account Registration web form or Form RC1.
- Register for GST/HST if you are carrying on business in Canada and not a small supplier. Carrying on business turns on facts such as where agents and employees are, where delivery and payment occur, where contracts are made and where bank accounts are held. See GST/HST registration and filing.
- Register payroll and provincial taxes if you will employ people or sell in provinces with their own sales tax. The relevant provincial pages are in our Canada section.
- File a T2 return each year. The return is due six months after the tax year-end; the balance of tax is generally due two months after year-end for a non-CCPC. Non-resident corporations are not required to file electronically and file in Canadian funds.
- Plan the US reporting described below.
What does GST/HST require of a non-resident?
A non-resident carrying on business in Canada must register under the normal regime if it makes taxable supplies in Canada and is not a small supplier. The small supplier test is worldwide taxable revenue, including associates, of $30,000 or less in every single calendar quarter and the last four consecutive quarters. A non-resident with no permanent establishment in Canada generally must post a security deposit: 50% of estimated net tax, with a minimum of $5,000 and a maximum of $1 million, unless estimated annual taxable supplies are $100,000 or less and net tax is small. Returns and payments are made in Canadian dollars, with frequency set by annual taxable supplies (annual up to $1.5 million, quarterly up to $6 million, monthly above that). A non-resident without a Canadian SIN cannot use CRA My Business Account, so a representative may be needed.
Withholding on payments to and from Canada
| Payment | Default | US parent or US service provider |
|---|---|---|
| Fees for services performed in Canada by a non-resident | 15% withheld (Regulation 105) | Remit by the 15th of the next month; file Form T4A-NR; waiver application at least 30 days before services begin |
| Dividend from the Canadian subsidiary to the US parent | 25% Part XIII | Treaty: 5% if the parent owns at least 10% of the voting stock, otherwise 15% |
| Wages of a non-resident employee | Regulation 102 | Payroll rules apply |
Part XIII tax is remitted by the 15th of the month after payment, and NR4 slips and the summary are due by March 31 of the following year. Late remittance penalties run from 3% to 10%, and failure to withhold can bring a 10% penalty plus interest. Form NR301 is the declaration a non-resident gives to show treaty residency and beneficial ownership. See the US-Canada treaty guide.
What must the US parent report?
- Form 5471 if the US company controls the Canadian corporation or is a US shareholder owning 10% or more. It is attached to the US income tax return and due with it, including extensions. The penalty is $10,000 per foreign corporation per year, with an additional $10,000 for each 30 days after 90 days from an IRS notice, capped at $50,000.
- Form 8858 for a foreign branch or foreign disregarded entity, and Form 8865 for a foreign partnership.
- Foreign tax credit claims for Canadian taxes, and Subpart F and other current-year inclusion rules for a controlled foreign corporation.
- FBAR and Form 8938 for Canadian bank accounts that meet the thresholds.
Details are in our foreign business reporting guide and FBAR guide.
Documents and information you need
- US parent's incorporation documents and a certificate of good standing
- Canadian directors' identification and residency details
- Business plan, funding plan and intercompany agreements
- Estimated Canadian revenue by province, for GST/HST and security deposit planning
- Payroll plans and the immigration status of any US employees sent to Canada
A worked example
Fox River Fabrication Inc., in Aurora, forms an Ontario corporation to serve customers near Toronto. It invests C$250,000, hires four people, and registers for GST/HST once projected sales pass the $30,000 small supplier limit. In its second year the subsidiary pays a C$100,000 dividend to the US parent. With the treaty and correct paperwork, Part XIII tax is 5%, or C$5,000, remitted by the 15th of the following month, with an NR4 slip by March 31. The US parent reports the subsidiary on Form 5471 with its US return and claims credits as available. A US consultant that sends a technician to the Ontario plant for a three-week installation is subject to 15% withholding on the fee unless a waiver is approved first. All numbers are hypothetical.
Mistakes to avoid
- Assuming no Canadian office means no Canadian tax.
- Missing the 15% withholding on services performed in Canada.
- Paying a dividend before the treaty paperwork supports 5% or 15%.
- Overlooking Form 5471 on the US side.
- Ignoring provincial requirements such as sales taxes and corporate registrations.
How we can help
We handle the US side of a Canadian expansion: Forms 5471, 8858 and 8865, foreign tax credits, FBAR and Form 8938, and the US treatment of dividends and charges from Canada. We coordinate with your Canadian CPA, who files the Canadian returns; we do not prepare Canadian returns or represent clients before the CRA. We are based in the Aurora, Illinois area. See cross-border tax, foreign account and asset reporting and business tax returns and planning.
Frequently asked questions
Do I need a Canadian subsidiary to sell in Canada?
No. But carrying on business in Canada can trigger GST/HST registration and income tax filing, and a subsidiary separates liability.
Is a Canadian return required if a treaty exempts the income?
A non-resident corporation carrying on business in Canada must still file a T2, and the treaty exemption is claimed on Schedule 91.
What is the Canadian withholding rate on dividends to a US parent?
25% by default, reduced by the Canada-US treaty to 5% for a company owning at least 10% of the voting stock, and 15% otherwise.
Does the Investment Canada Act apply to small businesses?
Notification applies to establishing a new Canadian business or acquiring control of one by a non-Canadian; the review thresholds are separate and set annually.
Must a Canadian company have resident directors?
A federal CBCA corporation must have at least 25% resident Canadian directors; provincial rules vary.
Official sources
- CRA: Doing Business in Canada - GST/HST Information for Non-Residents (RC4027)
- CRA: Income tax information for non-resident corporations
- CRA: Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada (IC75-6)
- CRA: NR4 - Non-Resident Tax Withholding, Remitting, and Reporting
- Investment Canada Act, sections 11 and 12
- IRS: Instructions for Form 5471
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.