Carrying on Business in Canada Through a Branch Operation

Carrying on Business in Canada Through a Branch Operation

See Chinese version below [中文版参阅下文].

Further to our last blog post, we highlight below some principal tax considerations when carrying on business in Canada through a branch operation.

Subject to the provisions of any applicable income tax convention, a non-resident corporation will be subject to Canadian income tax on business profits from carrying on business in Canada through a branch operation. A non-resident carrying on business in Canada must also pay a branch tax. The branch tax essentially takes the place of the withholding tax that would have been payable on dividends paid by a Canadian subsidiary carrying on the business. Because the withholding tax is imposed on dividends when they are paid and the branch tax is imposed when the profits are earned, it may be favourable in some circumstances to establish a subsidiary by the foreign business rather than a branch.

If the non-resident of Canada is: (i) a resident of a jurisdiction that has entered into an income tax convention with Canada; and (ii) entitled to the benefits of that convention, generally the non-resident will be taxable on its business profits earned in Canada only to the extent that such profits are attributable to a permanent establishment situated in Canada. Under certain of Canada’s income tax conventions, a non-resident may have a significant business presence in Canada without being deemed to have a permanent establishment in Canada. As noted in our last blog post,, in the case of the U.S. Convention, treaty benefits are generally available only to U.S. residents who are qualifying persons. A thorough review of the applicable convention is crucial in determining the relative merits of establishing a branch or a subsidiary business in Canada.

Generally, the income of the branch will be computed under the same rules that are applicable to the computation of the subsidiary’s income, including the thin-capitalization rules.

If the Canadian operation will incur start-up losses, it may be possible for the non-resident to deduct these losses in computing its income for its domestic tax purposes if the Canadian business is carried on through a branch operation. When the Canadian business becomes profitable at a future time, it may be possible to transfer the branch operation to a newly incorporated Canadian subsidiary with no significant adverse Canadian income tax consequences.

通过加拿大分公司经商

继上一篇博客，我们在下文讲解通过分支机构在加拿大开展业务时的需要考虑的一些主要税务问题。

除某些适用的所得税条约的规定外，非居民企业通过分公司在加拿大经营获得的利润须缴纳所得税。非居民在加拿大经商还须缴纳分公司税。分公司税基本上等同于一个加拿大子公司支付红利时所要上缴的预扣税。由于预扣税只有在支付股息时才须缴纳，而分公司税在赚取利润时就须缴纳，对外国企业而言在某些情况下建立子公司比采用分公司更加有利。

如果非加拿大居民是（i）与加拿大签订所得税公约的司法管辖区的居民并（ii）有权受益于该公约，一般情况下，非居民仅须就其源自于加拿大常设机构的商业利润缴税。根据某些加拿大所得税公约条例，非加拿大居民可能在加拿大具有大量商业活动的情况下并不被视为拥有加拿大常设机构。如上一篇博客所述，在《美国公约》中，一般只有那些“符合条件的人”才能受益于此公约。当决定在加拿大设立子公司或分公司时，对相关的公约进行彻底审查至关重要。

一般来说，分公司所得收入的计算规定与子公司所得收入的计算规定相同，包括资本弱化规则。

如果在加拿大的业务时初始发生亏损，非居民在计算其国内所得税收入时可能可以将该分公司在加拿大的亏损申报抵税。当加拿大业务在未来某一时期盈利时，非居民又可将该分公司转变成在加拿大新设立的子公司来运作，这种做法在加拿大所得税方面不会有太大不利的影响。