Let’s get the bad news out of the way: yes, there are legal and tax obligations when Canadians do business in US markets. At Invest Buffalo Niagara, we help companies navigate these requirements—and often, they’re pleasantly surprised at their being less daunting than expected. Here’s a high-level idea of what companies should be aware of when choosing to do business in the market.
Your first must-know: income earned through US trade or business is taxable. Although international federal tax treaties might exempt a Canadian company from US federal income tax, your company could still be subject to state tax where they have a presence.
Next up: if you’ll make sales in New York State that are subject to sales tax (applied to tangible personal property), you must register with the Tax Department and obtain a “Certificate of Authority” at least 20 days before beginning business. Collected sales tax must be periodically remitted to New York State (monthly, quarterly or annually, depending on your sales). Most states have similar policies.
Third on our list: Canadian companies with customers in the US usually need to fill out a W8-BEN form (Certificate of Foreign Status of Beneficial Owner for US Tax Withholding), since a 30% withholding tax on income might be applicable to payments that US taxpayers make to a foreign corporation (though there are many exemptions). You’ll need a US Employer Identification Number (EIN) to fill out the form, which you can apply for through the IRS (link: https://www.irs.gov/).
Finally: You should know that many US states, with the support of the IRS and US Customs, have stepped up measures to ensure compliance. So on these issues and more—like specific obligations and product liability issues—you’ll absolutely want to get legal counsel before making any big decisions.
Looking for more answers or information? Get in touch—we’d be happy to help.
