There is a lot to consider if you are a Canadian and wanting to do business in the United States. We will only cover the basics in this blog to give you an understanding of some of the things to consider before doing business in the U.S. As always a professional consulting appointment should always happen when you are considering any business or personal transactions in the U.S. We’ve already discussed a lot of the personal dealings in the U.S., such as vacation, retirement, investing and real estate in the U.S. Doing business in the U.S. can be the most complicated of them all.
The first thing to understand is that the U.S. has rules and so do each of the States within the U.S. First we must look at the tax treaty between the U.S. and Canada in this area and see how it applies. The main rule here is based on what is called “Permanent Establishment” In simplistic terms it comes down to whether you are doing the actual business in the U.S. or are you really doing it in Canada with U.S. persons or businesses. If you do not have a permanent establishment, such as a storefront, shop or office in the U.S. and all your decisions are made and contracts are signed in Canada then you most likely have nothing to report in the U.S. The Permanent Establishment rule of course comes with exceptions, such as locations for storage, display or delivery. You must be careful in having an employee go down to the U.S. to do business as this employee could also be considered for the “Permanent Establishment Rule”, particularly if they have the authority to sign the contract or deal.
Each State in the U.S. also has their own rules and sometimes do not follow the treaty. Many States have a threshold for determining whether State tax applies and this is known as “Nexus”. Generally, nexus is some minimum contacts that the Canadian Company has with the State. The presence of a Canadian employee, assets, inventory and even attendance at trade shows are some of the factors a State can use to determine whether nexus applies. Each State has its own standards, so again careful planning must be done to consider all the tax consequences of doing business in the U.S. and in a particular State.
