What makes construction & contracting different from an ordinary filing?
Construction has its own permanent-establishment provision keyed to project duration, and subcontracting arrangements are aggregated in ways that surprise groups who thought each contract stood alone. An ordinary preparer applies the general rule and stops there, which is how the relief in the specific provision goes unclaimed.
Can you work with my existing accountant?
That is how most of these engagements run. They keep the domestic file, we take the cross-border piece, and the boundary is agreed in writing so nothing is done twice or missed.
Which country taxes the profit on our overseas project?
Start with the site rather than the company. Your home country will generally tax worldwide profit, because that is where the company is resident. The project country acquires a taxing right over business profits only if the treaty gives it one, and for construction that turns on whether the site continued beyond the duration the treaty specifies. Below that line, the profit is normally taxed at home only. Above it, the project country taxes the profit attributable to the site — not the whole contract and not the group's margin, but what that site itself earned — and the home country relieves the double charge. Everything else follows from which side of the line the site fell.
Do we pay tax twice if both countries assess the same project?
Not if the relief is claimed properly, although a double charge is common while matters are being sorted out. The mechanism is that the country where the site is taxes first, on the profit attributable to the site, and the country of residence then relieves it, usually by crediting the foreign tax against its own charge on the same profit and capping the credit at what it would itself have charged. Timing is the practical difficulty: the two assessments rarely arrive together, and a credit cannot be set against an assessment that has not happened yet. Where the countries disagree about how much profit belongs to the site, the treaty's mutual agreement procedure exists for exactly that.
Where do our site workers pay income tax?
Physical presence decides it first. The country where the work is actually carried out normally has a right to tax the employment income earned there, and the home country taxes it as well while the employee remains resident. The short-stay exemption in the employment article can switch the host country's right off, but only where every one of its conditions is met, and one of them concerns who bears the cost of the employment. That condition fails automatically once the site is a permanent establishment and the payroll is recharged to it. So the employee answer depends on the company answer: settle the site's status first and the payroll follows, do it the other way round and the payroll is usually wrong.
Do we have to register for local sales tax on a construction contract?
It is a separate question with a separate answer, and it does not follow the income tax one. Indirect tax on construction generally attaches to where the immovable property is, so work on a site in another country can create a registration and charging obligation there even where the treaty gives that country no right to tax your profits at all. Many systems shift the charge onto the customer for services connected with land supplied by a contractor who is not established locally, which can remove the registration; many do not, or do so only for certain classes of customer. Check it contract by contract, before invoices are raised rather than after.
What do we still owe at home once we have paid tax abroad?
The home filing does not go away. The company is still resident there, still reports its worldwide profit including the project, and still files on its own timetable. What changes is that a credit or an exemption reduces the charge on the part already taxed abroad. Several things are easy to miss. The credit is usually limited to the home country's own charge on that profit, so foreign tax above the limit is not relieved and may simply be lost. The site's results have to be translated into the home currency on a defensible basis. And the intercompany charges that moved cost to the site are examined from both ends.
Who files first when the two countries have different year ends?
Whichever deadline arrives first, usually the project country's, and that order causes most of the trouble. A credit at home needs the foreign tax to be determined; if the foreign assessment has not landed, the home return goes in on an estimated figure with the position disclosed, and is corrected when the real one arrives. Plan for that. Know both filing dates and both payment dates before the year closes, keep the site accounts in a form that can produce a number early, and make sure the amendment window at home is still open when the foreign assessment finally comes. The deadline that ruins a claim is nearly always the one for correcting a return, not the one for filing it.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
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.
