Canada Entity Set Up

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Canada Subsidiary Entity Set Up

Global expansion into Canada usually means that you need to set up an in-country entity. However, by partnering with us you create the possibility to bypass this process and utilize our Canadian entity. By using our PEO-service, we take care of the complicated paperwork.

Expanding into a new country is always an adventure, but we believe this adventure should be exciting instead of just frustrating and time-consuming. Therefore, we have been supporting companies in over a hundred countries with their expansion plans.

In this guide, we will share which documents you need to establish an entity in Canada, but also where you will need to register your business address and company’s name. We will also break down the advantages and disadvantages of setting up an entity in Canada.

How to set up a Canada Subsidiary

First, choose the company type, which most typically will be a limited liability corporation, although a branch office is another (and less popular) option. Careful consideration must go into the choice of subsidiary vehicle, as each attracts different registration procedures and taxation regulations. These are some of the issues that need considered:

  • Corporations formed under federal law must have 25% of their directors as Canadian residents. This also applies to corporations formed only at the provincial level in Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador
  • In addition to being formed under federal laws of Canada, the subsidiary must be registered in each jurisdiction where it provides goods or services
  • If a company is registered only in a particular province or territory it is restricted to conducting business only in that jurisdiction
  • The company must file articles of association / incorporation as well as its corporate by-laws

Steps to set up a subsidiary include:

  • Decide on the type of subsidiary and register relevant documents with the Canadian Trade Register
  • Prepare incorporation documents, provide the Articles of Association, supply information on the parent company from the home country’s trade register
  • Once registered, the company must obtain a tax identification number and a Goods and Services Tax (GST) number, issued by the local offices of the Canada Revenue Agency (CRA)
  • Register for payroll with the CRA
  • Complete Form RC1 to obtain a Business Number (BN) and forward it to the relevant Tax Service Office or Tax Centre

What you need to set up a Canada Subsidiary

To set up a subsidiary corporation in Canada, federally or provincially, the company must have a unique company name and submit Articles of Incorporation or Association, which comprises of:

  • Company name
  • Registered office address (this cannot be a Post Office box)
  • Directors and/or incorporators
  • Share capital and any provisions regarding shares

The new subsidiary will then need to comply with various registration procedures via the Canada Revenue Agency (CRA), such as:

  • Obtaining a tax identification number and a Goods and Services Tax (GST) number, issued by the local offices of the CRA
  • Register for payroll with the CRA
  • Complete Form RC1 to obtain a Business Number (BN) and forward it to the relevant Tax Service Office (TSO) or Tax Centre (TC)

Benefits of setting up a Canada Subsidiary

Most non-resident investors prefer a subsidiary as it separates liability between the Canadian business and the parent company, generally freeing the parent company from responsibility for debts, losses, or legal liabilities. A subsidiary is simply a Canadian corporation whose controlling or sole shareholder is another corporation.

The subsidiary can apply for extra-provincial registrations to operate in other provinces from where they are incorporated. Additionally, the subsidiary can follow separate business opportunities and initiate its own contractual arrangements.

Other benefits for a subsidiary:

  • Easier to obtain regulatory approvals, loans and finance and enter into contracts with other Canadian companies
  • More impact with clients and suppliers as subsidiaries imply more permanency than branches
  • Employees feel there is more stability and job security than from being with a branch

Among the legal advantages of setting up a Canada subsidiary is that the shareholders and directors of the parent company have limited liability and the parent company itself is generally not liable for the activities, responsibilities, or debts of the subsidiary.

In the wider commercial sense opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets. Canada is a popular target for expansion with its vibrant business culture. Geographically, Canada’s location is another plus for further expansion with Pacific and Atlantic coastlines, plus land access to the US and Central and South America.

There is a more straightforward option to the risks and costs of setting up a subsidiary corporation in Canada.

Using a global Professional Employer Organization (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles, and be up-and-running within days, rather than months, and with all the difficulties of payroll, taxation, and compliance under control thanks to our Employer of Record (EOR) services.

Canada Subsidiary Laws

Subsidiaries in Canada can be incorporated and subsequently operate under federal, territorial, or provincial company laws. The Canadian Business Corporation Act governs legislation for the incorporation and maintenance of a Canadian federal corporation or subsidiary, or in a province or territory under similar regulations. The most popular choice to establish a foreign-owned subsidiary is the limited liability corporation, with regulations following these general guidelines:

Registration and Documentation

  • The parent foreign company must decide the type of subsidiary it wishes to set up
  • The parent company must be registered under the federal and/or provincial or territorial jurisdiction where it will be based or operating
  • The subsidiary must register an office address (not a post office address)
  • Documentation must be filed with the Canadian Trade Register
  • Articles of Association of the subsidiary must be prepared, with information about the parent company from the home country’s trade register
  • Obtain licenses and permits necessary to begin operations federally or in the relevant province and territory

Accounts and Taxation

  • Obtain a tax identification number and a Goods and Services Tax (GST) number, issued by the local offices of the Canada Revenue Agency (CRA)
  • Register for payroll with the CRA
  • The subsidiary files separate tax returns to the CRA and the parent company is not required to file returns
  • The subsidiary is subject to federal and provincial / territorial corporate tax on its worldwide income
  • The subsidiary corporation is taxed on its worldwide income
  • Must file annual tax returns to federal and, if applicable, province and territory tax authorities
  • Complete Form RC1 to obtain a Business Number (BN) and forward it to the relevant Tax Service Office (TSO) or Tax Centre (TC)

Management

  • Under federal incorporation 25% of directors must be Canadian residents; if there are four or fewer directors at least one must be a resident
  • At the provincial level Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador also require a minimum of 25% directors as Canadian residents
  • Shareholders required to meet to consider such as election of directors; annual meeting of directors required unless shareholders decide otherwise

Take a faster route into the Canada economy

The cost-effective and time-saving alternative to the expensive and lengthy process of establishing your subsidiary in Canada is to collaborate with a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs.

We have over 20 years’ global experience and our in-country specialists will steer you through the complexities of setting up operations by locating and onboarding new employees, then ensuring compliance with all employment and tax regulations.

You retain day-to-day control of your staff – who are in place and operational within days rather than the months it could take to incorporate a legal entity. There is no reason for international borders to stand in the way of your international expansion. Contact us today for more information.