A US company setting up a Canadian subsidiary can be a slow process that requires time, money, in person visits, and local staff. Subsidiaries provide you with a permanent establishment in Canada and allow you to open a local office and set up payroll. For some businesses, it’s the best option and well worth the trouble.
For other businesses, there are better options! Working with a Professional Employer Organization (PEO) is a great alternative for US business in Canada. Instead of worrying about all the details of how to start a business in Canada as a foreigner, PEOs allow you to start hiring in Canada, without opening or registering a business in Canada.
Setting Up a Canadian Subsidiary
Businesses expand to Canada for many reasons. Setting up a subsidiary is one way that US companies have been able to expand into Canada and avoid the misclassification risks associated with hiring independent contractors. However, setting up a subsidiary is a complex process that isn’t right for every business, especially those just looking to process Canadian payroll.
How to Open a Subsidiary Company in Canada
The basic steps to creating a subsidiary should be simple to US businesses, however, there are additional considerations that you should be aware of.
- Search for and choose a name that has not already been taken, or request to have a numbered name assigned to you.
- Work with a local lawyer, establish your business structure and create articles of incorporation.
- Choose a board of directors
- Choose a location to register your business.
- Submit your application and pay a fee.
A US business in Canada must incorporate, either federally or provincially. Which option is right for you isn’t immediately obvious, especially without expert advice.
How to Register a Subsidiary Company in Canada
After incorporating your business and assigning directors, you can proceed to registering your subsidiary in Canada. You must apply for a Business Number, which is necessary to paying sales, income, and payroll tax.
Once registered with the CRA, you need to register with worker’s compensation boards in every province you plan to employ workers. They will provide you guidance on what kind of premiums you should expect to pay for your team. New workers should be registered with worker’s compensation within 10 days of hiring.
Finally, you will need to open a Canadian bank account. You will be required to produce your articles of incorporation, two pieces of identification, and appear in person in order to open your new account.
If your business requires licenses or permits, these may need to be acquired at the municipal level.
Why You Should Work with a PEO Instead
Choosing to open a corporation in Canada may be right for some businesses, but there are simpler options. Creating a subsidiary is a complex process and it comes with many obligations. US businesses should be wary of the tax, personnel, and legal implications of forming a company in Canada.
- Director Residency: If you choose to incorporate federally or in Manitoba and Newfoundland, 25% of your board of directors must be Canadian residents. In Saskatchewan, if you don’t meet this requirement you must appoint a local Power of Attourney.
- Hiring Local Staff: While you can avoid this requirement by incorporating in one of Canada’s other provinces, you will still need a full Canadian payroll and HR staff to handle payroll for your team, as well as local legal representation.
- Compliance: Subsidiaries are responsible for staying compliant with federal and provincial tax and employment laws. Payroll laws are complex and change from year to year. Staying on top of local compliance can be incredibly difficult, even for small Canadian businesses.
- Tax Implications: Whether you incorporate provincially or federally, your business will be subject to income tax under Part I of the Income Tax Act (ITA), in addition to employer payroll taxes. Subsidiaries are also charged a 15% withholding tax.
By working with a PEO, you can grow your team in Canada without opening a subsidiary and avoid all of these complications. PEOs hire your team compliantly for you and then lease them back to you to manage their day to day. They provide expertise in employment law, handle all employer tax obligations and employee deductions, process payroll and create benefits packages that maximize your ability to hire and retain in the Canadian market.
In short, PEOs allow you to grow your team faster, with fewer complications.
Work With Canadian Payroll Services Today
Canadian Payroll Services is a full service PEO with real local experience in employment and tax law, and human resources. Our HR Account Managers understand the challenges that US business leaders experience when hiring in Canada, and are ready to help.
We manage payroll, taxes, and all government documentation for your remote Canadian team, while you focus on your core business. Contact us today!
