Great question, and you are wise to check into these issues up front. You've got a great opportunity to expand your business and reduce your taxes.
I'll give you a short response here, as I am between meetings. I'd be happy to follow up later.
So... you could likely go hands-off, keep it simple, and avoid significant tax compliance issues in Canada if you structured the business operations properly. I'd want a few more details before advising this route, but it seems like you might be able to pull it off.
That said, you might want a slightly more complicated structure to (1) reduce effective tax rates; (2) take advantage of potential provincial tax incentives; (3) reduce legal liability; and (4) have a commercially attractive investment vehicle.
That may all sound like legal mumbo-jumbo, but I'll begin to explain with some bullet points:
- (1) reduce effective tax rates: Canada's corporate income rates can be pretty attractive, depending on the province, which could in turn give you a nice tax deferral if you reinvest in Canadian operations.
- (2) take advantage of potential provincial tax incentives: Canadian provinces are "open for business" and offer some attractive tax incentives.
(3) reduce legal liability: building caves in, your Canadian subsidiary gets sued, your US company could potentially reduce it's risk on Canadian operations.
(4) Have a commercially attractive investment vehicle: some people like to "buy Canadian" which an Ltd. could offer.
Okay, I have to run. I'd be glad to discuss further.
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Your question is extremely comprehensive and cannot be adequately answered in this forum. As a starting point, however, you will need to hire a business and tax planning attorney in both the U.S. and probably Canada (or one attorney licensed to practice law in both countries). That attorney will outline the form that you want the business to take (i.e., sole proprietorship, partnership, LLC, S corporation, regular corporation). He/she then will have to file the paperwork needed to allow the company to conduct business in both the U.S. and Canada, and ascertain the tax filing and reporting requirements in the two countries. In addition, if you and/or other U.S. citizens intend to work for the company in Canada, then you will probably need to procure the necessary work permits from the Canadian immigration authority.
I would suggest that you perform some internet research before you actually consult with an attorney(s) in order to familiarize yourself with some of the pitfalls and requirements in conducting a cross-border business. That will enable you to ask specific, pointed questions during your meeting with the attorney(s) and facilitate your discussions. Best of luck in your new venture!
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.