How to set up business operations in Canada
- •Get a business license and permit
- •Choose your business structure and register your business
- •Navigate taxes
- •What should you know about incorporating in Canada?
- •Familiarize yourself with Canadian business laws
- •Apply for business insurance
- •Carry out your administrative duties
- •Contact Airwallex for your Canadian expansion
So, if you’re ready to expand and sell in foreign markets, here are some steps to follow to set up business operations in Canada.
Get a business license and permit
Federal or provincial licenses aren’t necessary for all types of businesses, but sometimes permits are. It depends on your type of business and the province that you’re in.
If you have a home-based business in Canada, you won’t need to worry about getting a business license. But for non-Canadian residents, municipalities will often issue a business license that allows you to generate revenue while complying with specific zoning requirements.
BizPaL is a useful tool that will help you determine which permits and licenses you need in Canada before doing business. They’ll provide a personalized list of the government documents needed to operationalize your business.
Choose your business structure and register your business
You’ll need to register your business under one of Canada’s three basic business structures before you can begin legally operating.
A business is likely a sole proprietorship if it’s owned and operated by an individual who is also responsible for its liabilities. This is a simple business structure that only requires a few things, such as licensing and business name registration.
However, tax planning opportunities are limited because any profits going to the individual are taxed in their hands.
A business is a partnership if two or more individuals or corporations carry out their business together. Each Canadian province has its own partnership legislation, and carries out its own jurisdiction in respect to the type of partnership that the business falls under.
Additionally, a partnership is not seen as a distinct entity in terms of tax purposes. Any profit or loss flows through to the partners, who pay taxes on these amounts in their own personal tax returns.
Here are the different types of partnerships:
General partnership: Each partner is liable for the debts and other obligations of the partnership. All provinces recognize general partnerships.
Limited partnership: A limited partnershiphas at least one general partner and any amount of limited partners. General partners have the authority to manage affairs and have an unlimited liability to the partnership. Limited partners don’t have management authority and their liability generally matches the capital that they contribute to the partnership.
Limited liability partnership: Only certain provinces offer this type of partnership, and it’s typically filed for doctors, accountants, and lawyers. All partners in this partnership have more liability protection than if they were general partners.
Undeclared partnership: Verbal or written agreements are enough to satisfy this type of partnership — registration under legislation isn’t necessary. These partnerships are usually formed for a limited amount of time to carry out a specific project. Many artists and musicians use these.
Corporations are legal entities that are distinct from their shareholders. A corporation in Canada can more or less have all of the legal abilities that an actual person has, such as owning property, lending or borrowing money, suing, and more.
Shareholders of a corporation don’t own the business or its assets, and aren’t responsible for its liabilities. This makes corporations the most common type of business structure in Canada.
Visit the Canada Business Network to learn more about business registration in the province you plan on expanding to.
Navigating taxes is important because you can’t sell or operate without abiding by federal- and provincial-level regulations. And these differ between each Canadian territory.
Consulting the Canada Revenue Agency (CRA) is the best way to determine which tax credits are relevant to your business in your particular Canadian territory.
Register for goods and services tax (GST) and harmonized sales tax (HST)
GST doesn’t exist in the US but applies to most goods and services bought and sold for use in Canada. The VAT rate in Canada is 5%, which is charged as a percentage of the total price.
You’ll have to register for GST and HST if your business earns over $30,000 annually. If it doesn’t, you may be eligible for the small supplier exemption.
However, you may still want to register for GST and HST even if your business makes less than the $30,000 threshold because of Input Tax Credits (ITCs). ITCs are a way to get back the GST and HST that your business paid out for business-use purchases.
Register for provincial sales tax
Some provinces haven’t harmonized their sales tax with federal GST, which means you may have to register for provincial sales tax depending on your location. Nonresidents can register for a business number and GST and HST through the CRA if they wish to add it.
In Quebec, you’ll need to register for the Quebec Sales Tax (QTC), which is unique to that province. But the following provinces require you to register to collect and remit provincial sales tax:
What should you know about incorporating in Canada?
For US businesses that aren’t yet incorporated, you can either label your business as a corporation or a limited liability business in both the US and Canada.
However, you need to determine if your plan is to incorporate at a federal or provincial level, as well as if you want your business acting as a subsidiary or a branch. Let’s take a look at what this means.
Federal or provincial?
Businesses that incorporate at a provincial level can only do business in that specific province. Each province has its own set of rules on how business can operate within its borders. So, if a business is incorporated on a provincial-level in Manitoba, it can only do business in Manitoba.
Incorporating your business on a federal level means you can do business in any province. This is great if your business is looking to expand its reach and audience as much as possible, but there are some rules that follow federal-level incorporation.
One rule is that 25% of your board of directors must be Canadian residents. There’s also generally more paperwork and time requirements to running a federal-incorporated business.
Subsidiary or branch?
When your US business expands to Canada, that presence in a foreign country is either a subsidiary or branch, depending on what you decide.
A subsidiary is considered a separate entity and, as such, has separate finances from your US-based parent business. Essentially, the parent company won’t absorb the subsidiary’s losses, if there are any. However, in order to qualify as a subsidiary, it needs to be incorporated on a federal level.
A branch is a part of the parent business and is not considered a separate entity. The parent business is liable for the branch and will absorb its profits, losses, and legal concerns.
Unlike a subsidiary, branches do not need to be federally incorporated. They only need to be incorporated on a provincial level.
Familiarize yourself with Canadian business laws
You need to familiarize yourself with all of the necessary information relevant to running your business in Canada. In terms of business laws, the province of British Columbia is the most laidback.
Expect the following requirements if you choose to expand there, or more if you choose a different province:
Have a physical address for your business.
Have the correct work permit from Citizenship and Immigration Canada.
Submit an application for Investment Canada to review.
There are some other laws that your business needs to comply with as well, whether you’re a resident or not:
Employment and labor laws
French language laws
Data and privacy laws
Make sure you’re following the correct rules specific to your business so that your Canadian operations thrive.
Apply for business insurance
Most people assume that insurance is required in the country that they expand to. However, it isn’t mandatory in Canada. Beyond insurance for your employees (which is legally required), you don’t need any for your actual business.
However, business insurance may still be smart to look into.
Consider getting insurance in the following areas to protect your business:
Carry out your administrative duties
Once you’ve completed your registration and other legal prep work, you’ll then need to take care of some administrative tasks.
First, you need to decide whether you want to hire employees, contractors, or freelancers.
The main difference between these three is that employees are generally permanent, full-time workers whose payroll and taxes you are responsible for managing. Contractors and freelancers are self-employed, manage their own taxes, and are usually with your business for a predetermined length of time under a contract.
Once you’ve decided the type(s) of workers you want, you can move on to the hiring process. You have three options when hiring a remote Canadian employee from the US:
Choose to hire them directly.
Establish a Canadian subsidiary, which will act as an employer.
Use an Employer of Record (EOR) service.
An EOR is a legal entity that’s already established with local payroll and gives your business the freedom to immediately onboard employees.
EORs are very useful when hiring global talent because they’re fully compliant with tax and entitlements. They’re also beneficial because Canadian workers who aren’t employees, contractors or freelancers can rely on them as residents.
Read our blog on how to pay foreign contractors if you choose this type of worker.
Accounting is an important part of every business. It’s not only legally required and necessary to keep your business up and running. It also gives you insight into your finances so you can improve your strategy.
As Matt Remuzzi — founder of CapForge Bookkeeping & Tax — puts it:
“Having good bookkeeping is the cornerstone of being able to make good, data-driven management decisions about the business, including cash flow forecasting, optimizing profitability and funding growth. So, even though it’s not a popular task, it is one that should be given due consideration in getting it done accurately every month.”
- Matt Remuzzi, Founder, CapForge Bookkeeping & Tax
You first need to decide whether you want to handle your accounting internally or outsource the work to a professional accountant. If you choose to hire an external accountant, it’s probably best to find one that focuses on your specific area of business rather than a team of generalists.
Using accounting technology and automation can also be incredibly beneficial. Martin Chee, CFO and Co-Founder of Amaka, explains that:
"Whether you decide to do your accounting internally or work with a professional, introducing automation technology can minimize the resources spent on manual tasks and give you access to real-time, accurate data. For example, you can use an accounting integration that automatically syncs transactions from your eCommerce or POS system directly into the appropriate accounts in your accounting software. Amaka’s integrations take into account tax regulations in each region."
-Martin Chee, CFO and Co-Founder, Amaka
Before you can start making business transactions and collect payments from Canada, you need to first open a bank account in Canada from the US.
In order to open a Canadian bank account, your business needs to submit a couple valid forms of identification (a photo ID and a government-issued ID). You’ll also need to submit some other documents depending on your business structure.
Sole proprietorships require the following:
Master business license
Trade name registration
Partnerships require the following:
Trade name registration
Registered declaration of partnership
Copy of partnership agreement
Corporations require the following:
Two forms of ID (from corporation authorities)
Articles of incorporation
Corporate profile report
Certificates of compliance, existence, and status
Corporate annual government filing
Notice of assessment for income tax
Business number and business license
The “Big 6” banks in Canada all have their own requirements when it comes to opening a business account. As an alternative, opening or switching to an online business account is the most straightforward route.
A great way to streamline your payments is through virtual payment cards, which act as online debit or credit cards to facilitate transactions done online.
Virtual cards are created online and accepted practically everywhere. They allow your business to choose currencies, establish spending limits, and make hassle-free global payments.
Virtual payment cards from Airwallex are a popular choice for businesses because they charge zero international transaction fees and offer 1% cashback on all domestic transactions.
Inventory, shipping management, and advertising
You can either handle listing and managing your inventory internally or outsource these responsibilities. There are businesses that specialize in list creating, multiplatform cataloging, inventory syncing and more.
"Incrementum Digital is an eCommerce growth engine specializing in Amazon Marketing. We strive to be the best Amazon advertising crew this side of the Metaverse specializing in Amazon account management, influencer marketing, Google to Amazon ads and listing optimization. Success on Amazon doesn't come easily to anyone, which is why we provide clients with an army of analysts, strategists and creative scientists with every service we offer. Partnering with us is like growing an entire eCommerce team overnight."
-Liran Hirschkorn, Founder & CEO, Incrementum Digital
Finally, it’s time for advertising.
"If you're advertising in the US already, oftentimes you can leverage the data you've collected to jumpstart your advertising in Canada. Keep in mind that your brand awareness is lower than in the US. By launching a social blitz through influencers and social channels, coupled with search engine marketing and marketplace advertising, you can boost awareness of your brand and grow your presence in Canada quickly and effectively."
-Tik Yip, Co-Founder, PointStory
Contact Airwallex for your Canadian expansion
Expanding your business to Canada doesn’t have to be so hard — it can actually be exciting.
But if you need more support for your expansion outside of this guide, there are a number of things we can offer you. Airwallex provides virtual visa cards, online payment services, Global Business Accounts, and much more.
Don’t hesitate to get started — sign up for free today.
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