Companies doing business in the United States must file U.S. corporate tax returns to maintain compliance with tax laws and regulations. Accurate and timely filing is crucial for avoiding penalties and ensuring financial stability. The cross-border tax accountants at Achen Henderson CPAs specialize in navigating these complexities. Our expertise helps businesses optimize strategies, identify savings, and minimize liabilities, providing tailored solutions that streamline the process and maximize efficiency. Leveraging their services ensures businesses meet their tax obligations effectively while optimizing their financial position.
You may be considered to be carrying on business in the U.S. if:
- You sell or ship goods to U.S. customers and provide an exemption from U.S. tax withholding to your customers.
- You provide services to U.S. customers and provide a tax exemption.
- Your employees regularly travel to the U.S. to market or sell your goods or services.
- You or your employees provide the company’s services in the U.S.
- Your corporation opens an office or place of business in the U.S.
Would your business be considered to be carrying out business in the U.S?
The Canada – U.S. Tax Treaty (also known as an income tax convention) provides rules agreed to by the two countries to govern items that could be taxed by both. Under the Canada – U.S. Tax Treaty, your income is only taxable in the U.S. if you carried on business through a ”U.S. permanent establishment” as defined in the treaty. A permanent establishment includes:
- A fixed place of business in the U.S. – an office, workshop, repair site, manufacturing plant
- An individual who has the authority to enter into contracts for the company and regularly exercises that authority, signing the contracts while in the U.S.
- Significant time spent in the U.S.—an individual manager or employee spends 183 days or more in the U.S. and his or her services provide more than 50 per cent of the revenue of the corporation during that time
- Multiple employees providing services to U.S. customers in the U.S. for a total of 183 days or more in the year on one project or a group of connected projects; a group of employees does not need to meet the revenue test
Here are the scenarios in which a Canadian company doing business in the US may not have to file a US corporate tax return:
- The Canadian company does not have a permanent establishment (PE) in the US.
- The company’s activities in the US do not meet the criteria for creating a PE, such as having a fixed place of business or significant presence.
- The company’s income from US activities is exempt from US taxation under a tax treaty between Canada and the US.
- The company’s US-source income falls below the threshold for filing requirements as defined by the IRS.
What is ‘The Canada – U.S. Tax Treaty’? And why it matters for your business
The Canada–U.S. Tax Treaty is an agreement between Canada and the United States that aims to prevent double taxation and facilitate cooperation between the two countries in tax matters. The treaty covers various aspects of taxation, including income taxes, estate taxes, and gift taxes.
For business owners, the treaty is significant because it can affect how their income is taxed when doing business across the border. Some key provisions of the treaty include:
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Business Profits: The treaty provides rules for determining how business profits are taxed, especially when a business has operations or activities in both countries. This can impact the tax liabilities of entrepreneurs with cross-border business interests.
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Permanent Establishment: The treaty defines what constitutes a permanent establishment (PE) in each country. This is important for determining where a business is considered to be resident for tax purposes and can affect how its income is taxed.
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Withholding Taxes: The treaty sets limits on the amount of withholding taxes that can be imposed on certain types of income, such as dividends, interest, and royalties when paid between residents of the two countries. This can be important for entrepreneurs receiving income from cross-border investments or business activities.
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Capital Gains: The treaty provides rules for the taxation of capital gains, which can be relevant for entrepreneurs who are buying or selling assets across the border.
U.S. Tax Return Filing Requirements for Corporations
Corporations with a permanent establishment are subject to U.S. tax on the net income of the permanent establishment and must file Form 1120-F, U.S. Income Tax Return of a Foreign Corporation.
Corporations with no permanent establishment may not be required to report net income to the U.S. but may need to file the Form 1120-F return to provide proof of the exemption from reporting under the Treaty on Form 8833, Treaty-Based Return Position Disclosure.
As Canadian corporations are taxable on their worldwide income they must include the net income earned in the U.S. in their Canadian tax returns. In most cases ,however, foreign tax credits can be claimed for the amount of tax paid to the U.S.
Corporate Tax Filing Due Dates to Remember
In Canada:
- Corporations that are small business corporations and have claimed the small business deduction in a tax year are due to pay their taxes 3 months after their fiscal yearend.
- In all other cases, corporate taxes are due to be paid within 2 months after yearend.
- All corporations in Canada must file their taxes within 6 months of their fiscal yearend.
In the U.S.:
- Corporations with a permanent establishment must file their taxes on the 15th day of the 4th month following the company’s year-end.
- Corporations without a permanent establishment must file their taxes on the 15th day of the 6th month following the company’s year-end.
In certain cases, U.S. filing deadlines may be extended by filing an extension request.
Thinking of expanding into the U.S.?
Expanding a Canadian business into the US market can be a strategic move for growth. However, it comes with complex tax and regulatory challenges. Achen Henderson CPAs specializes in cross-border tax matters and can provide valuable insights and assistance in structuring, federal and state taxes. Our experienced team can help Canadian businesses establish a solid financial foundation in the US market, navigate US tax laws, and ensure compliance with both Canadian and US regulations.
Why companies choose Achen Henderson CPAs for U.S Corporate Tax Returns
Companies should choose Achen Henderson CPAs for their US corporate tax returns because of our specialized expertise in cross-border tax matters. We understand the complexities of US tax laws and how they intersect with Canadian tax regulations, allowing us to provide tailored solutions for businesses operating in both countries. Our team has a deep understanding of the unique challenges faced by Canadian companies expanding into the US market, and we can help navigate these complexities to optimize tax efficiency and ensure compliance. With our knowledge and experience, clients can trust us to handle their US corporate tax returns accurately and efficiently, allowing them to focus on growing their business.
Make Sure You Get It Right
With many years of experience in both Canadian and U.S. tax return preparation. Contact us today so we can ensure you avoid penalties and minimize your tax liability.