Canadian subsidiary — cross-border compliance red flags: do I need an adviser, or can I do it alone?
Some of it, yes — and we will say so on the call if that is the honest answer. The parts that are worth paying for are the ones where a missed election, a missed deadline or an unverified threshold costs more than the fee: a protective Canadian return preserves treaty positions and deductions even where no tax is owed.
What if I have already filed and got it wrong?
That is a common starting point. We re-derive the position, identify whether an amendment or a disclosure route is the right vehicle, and tell you which one preserves the relief that is still available. The order matters more than the speed.
How long will it take?
It depends on the documents rather than on us. Once the pack is complete most filings turn around inside a fortnight; anything that needs a certificate from a tax authority runs on that authority's timetable, which we tell you at the start rather than at the end.
Do we need Canadian sales tax registration before we have an office?
Possibly, because the test is not about premises. Registration turns on whether you are carrying on business in Canada, which looks at where contracts are made, where the work is done, where any stock sits, and how far your activities reach into the country. A company with no Canadian entity, no office and no employee can meet it, and a company that has just incorporated can find the registration belongs to the parent rather than to the new entity. It is worth settling before the first invoice goes out rather than after a customer asks.
Our Canadian customer will not pay until we register, so why is that?
Because their own position depends on it. A Canadian business buying from you wants to recover the sales tax it is charged, and it needs a valid registration number on the invoice to do that. If you are not registered, the tax is either not charged, which may be wrong, or charged without a number, which the customer cannot claim. Procurement teams treat it as a supplier onboarding condition rather than a tax question. Registering is usually straightforward; the awkward part is the periods already invoiced before anyone raised it.
What is a protective Canadian return and why would we file one?
It is a return filed where you take the position that no Canadian tax is payable, normally under the treaty, but you file anyway to put that position on the record. Two things follow. The position is disclosed, so it is examined on your terms rather than discovered later. And deductions and treaty relief that depend on having filed are preserved, which matters if the presence question is ever decided against you, because the alternative is being assessed on gross receipts with nothing claimed against them.
One employee is working in Canada, so does payroll start immediately?
Payroll follows where the work is done, so it starts with the work rather than with an entity. If someone performs their duties in Canada, withholding and remittance obligations generally arise for the employer, whether or not there is a Canadian company, an office or a customer there. It is a separate test from sales tax registration, and separate again from whether the company itself becomes taxable in Canada. Three questions, three triggers, which is why answering one of them does not close the other two.
Does a Canadian subsidiary remove the US parent's own obligations?
Only for what the subsidiary actually does. Obligations attach to whoever carries on the activity, so if the parent is still contracting with Canadian customers, still holding stock in Canada, or still employing the people doing the work, those obligations remain the parent's. Incorporating without migrating the contracts, the inventory and the employment leaves a group with two sets of obligations instead of one. The transfer of activity into the new entity has to be real and documented, and that is usually the work that follows incorporation.
When does a US company have a permanent establishment in Canada?
The two routes are a fixed place of business at your disposal and a person acting for you. The first looks at premises, and at arrangements that function as premises, such as space in a customer's building, a site you control, or a home used as a base for the business. The second looks at whether someone habitually plays the principal role leading to the conclusion of contracts that you then sign without material change. Duration matters, and so does the nature of the activity, since genuinely preparatory or auxiliary work is treated differently.
What are the compliance red flags on a new Canadian subsidiary?
Four recur. Management decisions taken in the parent's country while the subsidiary is asserted to be resident in Canada. Intercompany charges with no agreement and no basis behind them. Payments to the parent made without considering withholding. And sales tax registration left until after taxable supplies have started. Each is a compliance failure that is cheap to prevent and expensive to unwind, because every one of them leaves a documentary trail an auditor reads first.
Does a foreign-owned US entity need an EIN?
Yes, for almost anything it must do: file its returns, operate payroll, open a bank account, and act as a withholding agent on payments abroad. It is applied for on Form SS-4, and the part that stalls foreign owners is the responsible party — a real person with a US identification number is expected, and where none exists the application route and the supporting explanation both change. It is worth starting early because downstream registrations queue behind it. See EIN applications.
