Do I have to withhold tax on royalties paid to my franchisor?
A cross-border royalty is generally taxed in the country the payment originates in, and the mechanism is withholding by the payer. That makes the franchisee the collection agent: the duty to hold back, remit and report sits with you, not with the franchisor receiving the money. A treaty's royalty article commonly reduces what the source country may take, but the reduction is not automatic. It usually depends on the recipient's residence being certified before payment and on the amount being characterised as a royalty in the first place. Where nothing was held back, the shortfall tends to become the payer's own liability, which is why this is worth settling before the first payment rather than after an assessment.
Is my franchise fee deductible if the franchisor is related to me?
Deductibility and withholding are separate questions, and where franchisor and franchisee are related the first one gets harder. A fee between unrelated parties is evidence of its own reasonableness, because it was negotiated. A fee inside a group is not, so the deduction rests on transfer-pricing support: what the franchisor actually provides for the fee, what an independent franchisee would pay for the same package, and documentation prepared at the time rather than assembled during an audit. Splitting the payment into its parts, such as brand, operating system, training, ongoing support and software, usually helps, because they do not all carry the same value and they are not all priced the same way.
Is a franchise royalty taxed where it is paid or where it is received?
Both, in a settled order. The country the payment leaves taxes it at source through withholding, because the payer is there. The franchisor's own country then taxes the royalty as income and relieves the double charge by crediting the source tax. Two things go wrong in practice. The character of the payment is disputed, because part of a franchise fee may be a service charge or a payment for goods rather than a royalty, and those are not taxed at source in the same way. And the certification the reduced treaty rate depends on arrives late, so the full domestic rate is withheld and the excess then has to be reclaimed in the source country.
I never withheld on royalties to my franchisor, what happens now?
The exposure is usually yours rather than the franchisor's, because the rule makes the payer responsible for what should have been held back. Interest runs from the dates the payments were made, and penalties attach to the failure to remit and report rather than to the tax itself. The order of work is to establish what was paid and when, characterise each payment, determine what the royalty article would have permitted, and bring the reporting up to date through the route the source country provides for late filers. That almost always costs less than the same position found on audit. Whether the franchisor or you bears the withholding is a contract question, and it is worth reading before the next remittance.
Can I hold franchise units in two countries under one company?
You can, and many operators do, but one holding company over units in two countries produces obligations in both. Each country taxes the profits earned in it, so the local units file locally, and the holding company's own country then taxes the group's income with relief for what was properly paid abroad. The awkward parts are the payments between the entities: management charges, royalties passed upward, intercompany loans. Each of those is a cross-border payment with a withholding character and a transfer-pricing question of its own. Decide where the intellectual property sits and where the management actually happens before the structure is built, because both are expensive to move afterwards.
My franchise agreement was written for a domestic operator, is that a problem?
It is common, and fixable, but not by ignoring it. Agreements drafted for domestic franchisees tend to assume payer and recipient sit in the same tax system: the fee clause is silent on withholding, there is no gross-up, and the audit and record-keeping clauses are written to one country's standards. Silence on withholding does not remove the obligation. It only leaves unsettled who bears it, and that argument then arrives at the worst possible moment. Read the fee, tax, gross-up and indemnity clauses against the source-country obligation before your next payment, and raise the point with the franchisor as an amendment rather than as a dispute.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
Can I avoid capital gains tax on a foreign property?
Not by virtue of it being foreign — there is no exemption for that, and the "keep it offshore" advice you may have read is how people acquire penalties rather than savings. What genuinely reduces the gain is ordinary and legitimate: principal residence relief where the property qualifies and the designation is made correctly, a properly built cost base including acquisition costs and capital improvements, the timing of the disposition, the treaty rules for real property, and credit for the foreign tax paid. See principal residence and foreign property.
