With a global based economy, many companies conduct business in various countries to gain market share and grow. There are certain tax ramifications in the manner in which foreign companies carry business in Canada.
There are tax treaties between Canada and many other countries around the world in an attempt to provide some relief from taxation in both countries. A permanent establishment is generally a key-word that comes up most of the times when assessing the tax consequences of foreign companies carrying on business in Canada.
When a foreign company based in the USA, for example, carries out business in Canada and does not have a permanent establishment, the Canada- U.S. Treaty provides some relief. In this case, the US Company can file a treaty based return in Canada in which the U.S. Company will be exempt from income tax in Canada. Also, any withholding taxes, etc. that the U.S. Company paid would be refunded. Click here to learn more about the withholding tax rates.
A permanent establishment is achieved in a province of Canada if the foreign company has a fixed place of business such as an office, a manufacturing plant or warehouse. A permanent establishment may be achieved for a U.S. Company through the use of an employee or agent in Canada that may have authority to bind the company in sales agreements or other contracts.
If you have more questions on whether your
foreign company carrying on business in Canada can seek treaty relief, please
contact an MP Group expert.