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Canadians Doing Business In The US

ddall

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To my fellow Canucks and anyone who can answer these questions, please do so and share your insight.

I operate an Ecom biz with sales to US based customers only. IT is getting enough sales where I need to start considering the legal aspects of this.

1) When should a Canadian incorporate in the US?
2) If I wish to create a sub brand, and be able to sell it separately down the road, do I create an entirely new LLC or can I register another one under the first?
3) Can anyone shed light on the tax implications, or direct me to an accountant who specializes in Canadians doing biz in the US?
4) Does the business still need to be registered in Canada?
5) Any other useful info?

I spoke with someone who sets up LLc's in Delaware, and has done so for Canadians. I imagine it is a simple process. Benefits I gather are the obvious limited liability, and secondarily makes selling the business down the road much more simple. It is not easy to incorporate in Canada as well or as cheaply is my further understanding.
 
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wilddog

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1) When should a Canadian incorporate in the US?

Advice from anyone on this forum is not a substitute for a proper lawyer in this case.

However, my understanding has been that you should avoid incorporating in the US at all costs.
1. Incorporation in Canada makes lawsuits against you more difficult from American citizens due to cost/complexity of the process.
2. Corporate taxes are significantly higher in the US than Canada and abroad. Hence why so many corporations are moving out of the US. ie, BK/Tim Horton's merger.

I incorporated for $400 on Legalzoom.ca
Cheapest you'll find anywhere.
 

ddall

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Advice from anyone on this forum is not a substitute for a proper lawyer in this case.

However, my understanding has been that you should avoid incorporating in the US at all costs.
1. Incorporation in Canada makes lawsuits against you more difficult from American citizens due to cost/complexity of the process.
2. Corporate taxes are significantly higher in the US than Canada and abroad. Hence why so many corporations are moving out of the US. ie, BK/Tim Horton's merger.

I incorporated for $400 on Legalzoom.ca
Cheapest you'll find anywhere.

Wildog, thanks a ton for the reply. I just also received a an opinion from an accountant. This is what he said to be questions:

-----
1) Do I incorporate provincially or federally, AND/OR in Delaware?
Incorporate federally in Canada - we have the lowest corporate tax rates in the G8 nations. Our fee for incorporation is $925 plus taxes and 2% admin fee.

2) Can you advise (if hired) how best to retain profits, etc. That
is, are you a fairly aggressive accountant in this regard?

Dividends through family trust.
-----
@wilddog Can you advise or are you aware of the benefit if any of incorporating stateside? Is it only to make the company more salable down the line to US entities?

Any other additional info regarding taxes. liability, etc for Canadians doing biz exclusively online to US customers?
 

wilddog

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Wildog, thanks a ton for the reply. I just also received a an opinion from an accountant. This is what he said to be questions:

-----
1) Do I incorporate provincially or federally, AND/OR in Delaware?
Incorporate federally in Canada - we have the lowest corporate tax rates in the G8 nations. Our fee for incorporation is $925 plus taxes and 2% admin fee.

2) Can you advise (if hired) how best to retain profits, etc. That
is, are you a fairly aggressive accountant in this regard?

Dividends through family trust.
-----
@wilddog Can you advise or are you aware of the benefit if any of incorporating stateside? Is it only to make the company more salable down the line to US entities?

Any other additional info regarding taxes. liability, etc for Canadians doing biz exclusively online to US customers?

If I recall, @JAJT was advised to shutdown an LLC he opened in the US. He maybe able to chime in here.

In terms of sale ability. I would think lower taxes = increased net revenue. Making purchase MORE appealing.
 

ddall

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If I recall, @JAJT was advised to shutdown an LLC he opened in the US. He maybe able to chime in here.

In terms of sale ability. I would think lower taxes = increased net revenue. Making purchase MORE appealing.

Really, that is interesting. It would appear the best path of action would be a Canadian federal corp. Wildog, I see you are also from Toronto, would you recommend any accountants in the area who specialize in online Canadian businesses operating state-side? @JAJT Please chime in here if you can. Thank you
 

wilddog

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Really, that is interesting. It would appear the best path of action would be a Canadian federal corp. Wildog, I see you are also from Toronto, would you recommend any accountants in the area who specialize in online Canadian businesses operating state-side?
Unfortunately I don't know of anyone. But Toronto is loaded with tax lawyers!
 

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1) When should a Canadian incorporate in the US?
2) If I wish to create a sub brand, and be able to sell it separately down the road, do I create an entirely new LLC or can I register another one under the first?
3) Can anyone shed light on the tax implications, or direct me to an accountant who specializes in Canadians doing biz in the US?
4) Does the business still need to be registered in Canada?
5) Any other useful info?

1. IMHO - when you have a real business making real money. If you have regular income coming in and see yourself giving the business your best shot - formalize it.
2. No experience with this, sorry. I would imagine you could just setup a DBA (doing business as) under your parent corp for your sub-brands though, shouldn't be hard.
3. I had a hard time with this. I bounced around between lawyers and accountants and back before finding my team (located in Ottawa). Ultimately I found some small business lawyers who kick a$$ and even had a US tax lawyer on staff to legally advise me of how to proceed.
4. This isn't a necessity, but your structure needs to make sense however you do it - see a professional for help.

As others said, I setup an LLC, because everyone and their mother tells every entrepreneur "go setup an llc, it's cheap and easy and legal and awesome". So I set one up and wasted a ton of time doing it (won't get into the whole story but it took months). Then I got frustrated with not knowing what the hell I was doing and got together with who are now my lawyers and they sat me down and politely told me I was retarded. Canada views LLC's as foreign corporate entities and taxes them very highly. So for Canadians to have LLC's means we pay the tax man here quite a damn lot if we put any money from it into our own pockets.

So, in their own words, they said "so let's kill this LLC and keep the IRS out of it". Then we setup the (much more expensive) Canadian Corp.

Now, there are good reasons to have an LLC over a Canadian corp, and reasons to have both, but it depends on what and how you are doing things. Talk to a lawyer who knows small business and cross border experience. Then get an accountant who also knows small business and understands the legal setup you ultimately went with. Your Lawyer can likely point you in the right direction (mine knew one off the top of their head that they work with regularly).

Hope this helps!
 
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ddall

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1. IMHO - when you have a real business making real money. If you have regular income coming in and see yourself giving the business your best shot - formalize it.
2. No experience with this, sorry. I would imagine you could just setup a DBA (doing business as) under your parent corp for your sub-brands though, shouldn't be hard.
3. I had a hard time with this. I bounced around between lawyers and accountants and back before finding my team (located in Ottawa). Ultimately I found some small business lawyers who kick a$$ and even had a US tax lawyer on staff to legally advise me of how to proceed.
4. This isn't a necessity, but your structure needs to make sense however you do it - see a professional for help.

As others said, I setup an LLC, because everyone and their mother tells every entrepreneur "go setup an llc, it's cheap and easy and legal and awesome". So I set one up and wasted a ton of time doing it (won't get into the whole story but it took months). Then I got frustrated with not knowing what the hell I was doing and got together with who are now my lawyers and they sat me down and politely told me I was retarded. Canada views LLC's as foreign corporate entities and taxes them very highly. So for Canadians to have LLC's means we pay the tax man here quite a damn lot if we put any money from it into our own pockets.

So, in their own words, they said "so let's kill this LLC and keep the IRS out of it". Then we setup the (much more expensive) Canadian Corp.

Now, there are good reasons to have an LLC over a Canadian corp, and reasons to have both, but it depends on what and how you are doing things. Talk to a lawyer who knows small business and cross border experience. Then get an accountant who also knows small business and understands the legal setup you ultimately went with. Your Lawyer can likely point you in the right direction (mine knew one off the top of their head that they work with regularly).

Hope this helps!

Thanks for taking the time to write that one out @JAJT. I too have spent much time trying to find clear information on which is the best course of action, Canadian Corp or Delaware LLC, often going in circles and wasting time with info overload. This is something I put off upon starting the business for just this reason, until significant growth has occurred. With regards to question #2, I'll try and find the answer and share it here.

So for other Canadians reading this, I hope this helps, and it readily seems apparent a Canadian corp is the way to go if executing a similar business process to us ( selling to US customers from Canada, online).

@JAJT, May I ask you a few more questions relating to this which may be informative to others...?

1) Approximately how much can we expect to be taxed on our profits? If under $500K/year 11% for Federal? ( I am getting this from here: http://www.taxplanningguide.ca/tax-planning-guide/section-1-businesses/the-small-business-deduction/). Do we pay HST despite not selling to Canadians?
2) This is somewhat silly to ask but I honestly have zero exeperiance with this to date: What costs and services should I utilize a lawyer for? Product liability, trademarks, etc? This info will really help flesh out the process for me with a mental map.
3) The first accountant I briefly spoke to charges $1500 for yearly service, not including book keeping. Is this in line with what you've seen?

Thanks!
 
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JAJT

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Sure, I'll try, but do keep in mind I HEAVILY utilize professionals as I am a grade-A, top shelf moron when it comes to legal and taxes. It's a weak area I need to improve on. I can't even tell if my experts are making good calls without boosting my literacy to at least a competent level, which I of course plan to do.

Here's what I know/think

1. I JUST got my taxes back and it APPEARS like I paid no HST on my US sales. I still have to review my return (I JUST got it) but I was expecting to be taxed almost 4-5x more than the bill finally came to, this right now points towards me not paying tax on my sales to the US. I still need to review.
2. Right now I use them to file taxes, answer tax questions, bookkeeping, legal structure, legal questions, etc... basically anything where I go "uhhh... no clue" I fire them off a question.
3. I pay my accountants ala cart right now but I have my lawyers on retainer though, for about $1500.

Hope that helps!
 

lnBetween

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I JUST got my taxes back and it APPEARS like I paid no HST on my US sales. I still have to review my return (I JUST got it) but I was expecting to be taxed almost 4-5x more than the bill finally came to, this right now points towards me not paying tax on my sales to the US.

If you're running an ecommerce store from Canada and your customers’ shipping address is outside of Canada then no tax should apply to the product price or shipping rate. This article explains it very well and also summarize how to apply taxes if your customer is from Canada.
 

lnBetween

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Also, as a side note, I see that most of you are from the Toronto area. Do you know that you can use chitchatsexpress.com or bookstotheborder.com to ship your products using USPS and save money? Unfortunately, they don't serve the Montreal area. If anyone knows about a similar service for Montreal please let me know!
 
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Bossopolis

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To my fellow Canucks and anyone who can answer these questions, please do so and share your insight.

I operate an Ecom biz with sales to US based customers only. IT is getting enough sales where I need to start considering the legal aspects of this.

1) When should a Canadian incorporate in the US?
2) If I wish to create a sub brand, and be able to sell it separately down the road, do I create an entirely new LLC or can I register another one under the first?
3) Can anyone shed light on the tax implications, or direct me to an accountant who specializes in Canadians doing biz in the US?
4) Does the business still need to be registered in Canada?
5) Any other useful info?

I spoke with someone who sets up LLc's in Delaware, and has done so for Canadians. I imagine it is a simple process. Benefits I gather are the obvious limited liability, and secondarily makes selling the business down the road much more simple. It is not easy to incorporate in Canada as well or as cheaply is my further understanding.

1) Very rarely should a Canadian business incorporate in the USA if you do not have a physical location there. You are just asking for more headaches. First question to ask yourself is "why" ? What benefit will you get ? In your case I do not see any reason for an LLC in USA. I just see a lot of pain, paperwork, taxes and hassle. Incorporating in Canada will help protect your personal assets in case of a lawsuit, tax flexibility, perpetual existence, etc... If you do not have many assets I would just stick with a sole proprietorship until your profits / assets justify it. Keep it lean and mean if you can.

2) Do not need to create an LLC just for branding a product line. All you need to do is "Trademark" the name to protect it. First of course check to make sure no one else owns the name... If possible also check to see if the domain name is available for the "sub-brand".

CANADA http://www.cipo.ic.gc.ca/app/opic-cipo/trdmrks/srch/bscSrch.do?lang=eng

USA http://www.uspto.gov/trademark

3) If you export a lot to USA, at year end you may get a GST tax credit. Example: If I import $10,000 of product, pay 5% GST when it comes to my customs broker, then sell all of it back to a USA buyer(s) then I get that GST credit back at year end. From personal experience, once you start asking the government to send you GST back and it amounts in the $$$$ then there is a VERY HIGH probability they will ask to audit you. (From personal experience)... but don't freak out, just have your books in order and all is cool... get a good bookkeeper & accountant, keep all your receipts / records organized. But do expect an audit if you are asking them for large sums of money, governments are funny that way ;)

4) You MUST register GST / IMPORT # if you intend to import products commercially. Your customs broker will require it. You do not have to register for GST if your sales are under under $30,000 / year and are not importing commercially.

5) Read, check for local MEETUP group for networking, create a Mastermind group, read some more,
http://www.canadabusiness.ca/eng/page/2856/

Good luck to you !

From a fellow Canuck...
 

ddall

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Sure, I'll try, but do keep in mind I HEAVILY utilize professionals as I am a grade-A, top shelf moron when it comes to legal and taxes. It's a weak area I need to improve on. I can't even tell if my experts are making good calls without boosting my literacy to at least a competent level, which I of course plan to do.

Here's what I know/think

1. I JUST got my taxes back and it APPEARS like I paid no HST on my US sales. I still have to review my return (I JUST got it) but I was expecting to be taxed almost 4-5x more than the bill finally came to, this right now points towards me not paying tax on my sales to the US. I still need to review.
2. Right now I use them to file taxes, answer tax questions, bookkeeping, legal structure, legal questions, etc... basically anything where I go "uhhh... no clue" I fire them off a question.
3. I pay my accountants ala cart right now but I have my lawyers on retainer though, for about $1500.

Hope that helps!

Thanks JAJT it does help! That is good news being taxed so much less than expected. Perhaps the government has not caught up with this new form of business where no goods actually enter Canada. Lucky for us!
 

ddall

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1) Very rarely should a Canadian business incorporate in the USA if you do not have a physical location there. You are just asking for more headaches. First question to ask yourself is "why" ? What benefit will you get ? In your case I do not see any reason for an LLC in USA. I just see a lot of pain, paperwork, taxes and hassle. Incorporating in Canada will help protect your personal assets in case of a lawsuit, tax flexibility, perpetual existence, etc... If you do not have many assets I would just stick with a sole proprietorship until your profits / assets justify it. Keep it lean and mean if you can.

2) Do not need to create an LLC just for branding a product line. All you need to do is "Trademark" the name to protect it. First of course check to make sure no one else owns the name... If possible also check to see if the domain name is available for the "sub-brand".

CANADA http://www.cipo.ic.gc.ca/app/opic-cipo/trdmrks/srch/bscSrch.do?lang=eng

USA http://www.uspto.gov/trademark

3) If you export a lot to USA, at year end you may get a GST tax credit. Example: If I import $10,000 of product, pay 5% GST when it comes to my customs broker, then sell all of it back to a USA buyer(s) then I get that GST credit back at year end. From personal experience, once you start asking the government to send you GST back and it amounts in the $$$$ then there is a VERY HIGH probability they will ask to audit you. (From personal experience)... but don't freak out, just have your books in order and all is cool... get a good bookkeeper & accountant, keep all your receipts / records organized. But do expect an audit if you are asking them for large sums of money, governments are funny that way ;)

4) You MUST register GST / IMPORT # if you intend to import products commercially. Your customs broker will require it. You do not have to register for GST if your sales are under under $30,000 / year and are not importing commercially.

5) Read, check for local MEETUP group for networking, create a Mastermind group, read some more,
http://www.canadabusiness.ca/eng/page/2856/

Good luck to you !

From a fellow Canuck...

@Bossopolis

Thank you for the awesome info.

Incorporating federally in Canada clearly seems the way to go. Can you clarify the income tax rate on a small business corporation in Ontario is around 15%? One accountant I talked to suggested dividends through a family trust are one way to minimize being taxed. Can you recommend other strategies?

Regarding number 2, I was inquiring about incorporating sub-brands for the purposes of potentially selling them off in the future. I was wondering if it simplifies the process as it is less entangled.

3) I export to the USA directly (to a warehouse) from China, no goods ever enter Canada, so I have a U.S customs broker who handles the duties and tariffs.
Can you provide any suggestions (or anyone else for that matter) or strategies to handle bookeeping in a cost effective manner? Is there software one would recommend? @JAJT ? Perhaps an accountant would best advise.

Thank you all, this thread has been very helpful
 
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OverByte

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Hey I know this thread is a bit old but contains some great info and I had a question as I'm currently looking into this.

One question I had, @ddall you mention incorporating federally, I was curious why you chose this option as my understanding is you should be fine to perform ecommerce and ship abroad while remaining incorporated provincially?

I was looking into provincial incorporation so I would like to know if I missed something you are aware of?

Also, does anyone know if I need to charge HST for a non physical product? ie selling leads or info products?
 

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This is an awesome thread, thanks @JAJT, @Bossopolis, @InBetween, @OverByte for sharing valuable information and @ddall for starting this thread that helps me a lot even after several years of creation.

I'm going through very similar troubles trying to figure out the most appropriate business structure for myself except that I'm planning to source from local US suppliers and most of them demand reseller permit to work with.

So far looks like I'm too gonna stick to Canadian corporation :thumbsup:

@ddall as it's been 4 years since you started this thread, looking back at 2015 did you actually choose Canadian corporation? Having all the knowledge now do you think it was the most optimal way to go about it? Thanks a lot!
 

pashka

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I think tax wise it's better and easier to go with a Canadian corporation. But I'm not an accountant so I could be wrong.
Looks like so, the only reason for me to consider American based company was having back thoughts on whether it is possible to get all the necessary documents (e.g. resale certificate or whatnot) being a Canadian corp. But looks like it is indeed possible
 

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