Foreign companies that want to carry on business in Canada generally do so through a Canadian branch or a Canadian subsidiary. This BLOG outlines the general tax rates for non-residents carrying on business in Canada using one of those structures.
A Canadian branch of a foreign company that is carrying on business in Canada through a permanent establishment will be subject to tax under Part I of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended (the “Income Tax Act”) on its income from the business carried on in Canada attributable to the branch.1 A Canadian subsidiary corporation of a foreign company will be considered resident in Canada and subject to Canadian income tax on its worldwide income.
Canadian corporate income tax is levied both at the federal and provincial level. The current federal corporate tax rate for 2012 is 15% on general active business income and the combined federal and provincial corporate tax rates in 2012 range from 25% to 31%, depending on the province in which the permanent establishment is located.
The following table outlines the current combined federal and provincial corporate tax rates on general active business income:
Combined Federal and Provincial Tax Rates for non-manufacturing income of a Corporation that is not a Canadian-controlled private Corporation2
Click here to view table
If a non-resident opts to use a branch in Canada, the non-resident customers will be dealing with an entity that is a non-resident of Canada. As a result, section 105 of the Income Tax Regulations requires Canadian customers to withhold and remit to Canada Revenue Agency 15% from payments for services rendered by the non-resident in Canada. This withholding is on account of, and will be applied by Canada Revenue Agency against, the non-resident’s Canadian income tax and branch tax liability. In certain situations, treaty based waivers can be obtained from Canada Revenue Agency. For more information on Regulation 105 withholding tax please see the previous posting on this BLOG at: http://millerthomson.com/en/blog/carrying-on-business-in-canada-for-non/branch-vs-subsidiary-which-is-right-for-you