Even companies without buildings in the U.S. may be subject to its various tax regimes
Going global isn't just for big businesses — successful small businesses often look outside Canada for markets to fuel their growth. For many, this means doing business in the United States, Canada's largest and closest trading partner. However, Canadian companies considering this move should carefully consider the potential U.S. tax consequences of U.S. activities. Even if companies don't have physical facilities in the U.S., they may be subject to one or more federal, state or local tax regimes.
One way that Canadian businesses are often subject to U.S. federal income tax is that they are considered to have a "permanent establishment" in the U.S. This includes "bricks and mortar" places of business—such as offices and factories—but a sales representative or agent can create a permanent establishment if he or she concludes contracts in the United States. However, activities in the U.S. that do not create a permanent establishment can still obligate the company to obtain a U.S. taxpayer identification number and file a U.S. federal income tax return.
There are state tax considerations too. States use a similar concept called "nexus" to determine the minimum contact necessary for the state to impose its various taxes on an out-of-state company. Different state taxes have differing nexus standards, and many states have recently made changes to provide that virtual presence through the internet can create nexus.
With an easy-to-reach market of more than 300 million potential customers, doing business in the U.S. can be necessary for both large and small Canadian enterprises, whether they are growing their own business or acquiring other companies. To help you understand the federal and state tax compliance responsibilities that come along with the U.S. market, KPMG presents "The tax implications of expanding your Canadian business into the U.S.", the latest webinar in KPMG's Enterprise Tax on Demand series. Other upcoming short and specific Enterprise Tax on Demand webinars will focus on other important tax-related areas of your business.
To learn more about how proper planning can help mitigate exposure to unforeseen tax traps and contribute to profitability, please contact Dino Infanti or visit our website KPMG Private Enterprise Tax.
For more information, contact your KPMG advisor.
Information is current to January 14, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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