Establish a Branch in Canada
Foreign companies setting up branches in Canada are subject to several requirements which can be explained by our local company formation advisors. You can also rely on us for assistance in expanding your company through a branch office in Canada.
The main characteristics of a Canadian branch
The branch office is an extension of a local or foreign company in Canada. It is also known as a satellite company as it will be completely dependent on the parent company. Starting from this aspect, these are the main features of a Canadian branch office:
- it will need to complete the same activities of the parent company in Canada, however, it must obtain its licenses from the Canadian authorities;
- it has no separate legal personality from the parent company which will be entirely responsible for the branch’s obligations;
- from a taxation point of view, a branch will be levied on the income derived in Canada;
- it will bear the same name as the parent company and must appoint a legal representative in Canada in order to deal with the authorities;
- the registration requirements are simpler than in the case of a subsidiary company.
If you need guidance in starting a business in Canada under the form of a branch office, our agents can help you.
How to register a branch office in Canada in 2021
A foreign company starting a business in Canada and choosing the branch office to do that must register this structure with the local authorities in the province it will operate. If the parent company wants to operate in several provinces, it needs to register the branch in each Canadian territory.
The documents to be filed with the authorities when creating a branch in Canada are:
- information about the parent company along with its certificate of incorporation;
- the incorporation documents of the branch office to be established in Canada;
- a declaration with the names of the branch directors and secretary;
- information about the local representatives of the parent company in the branch office.
The parent company must appoint local agents to carry out the Canadian branch registration process.
Our company registration consultants in Canada can handle this procedure.
We also invite you to see our scheme showing the steps for opening a branch in Canada:
Activities completed by a branch in Canada
When deciding to establish a branch in Canada, a foreign company will usually decide to complete activities that are limited to those in its home country. This is why, branch offices usually operate in the financial, more precisely in the banking sector. However, it is possible for a branch office to undertake other activities, as long as these match the undertakings of the parent company.
Another business form that can be employed by foreign companies is the non-resident company which offers a higher degree of independence compared to the branch. Our Canadian company formation representatives can also assist with the creation of a non-resident company.
Information about the parent company
Even if the branch office will operate in Canada, the parent company is required to provide specific information about it. After registering the branch, all the documents issued by it must also contain the following information about the foreign company:
- the country of origin of the parent company;
- the registration number;
- the legal form and the registered address;
- the place of registration of the branch office;
- the registration of the branch office.
It should also be noted that foreign companies seeking to register branch offices in Canada must complete the incorporation procedures in each province they want to operate in. This is one of the reasons why the parent company must also pay attention to the registration requirements of each Canadian province or territory.
Appointing a registered agent in Canada
Because the branch office will need to comply with the same registration requirements as an extra-provincial corporation, it will need to appoint a registered agent who will deal with the incorporation with the Trade Register and the tax authorities in the selected Canadian province or territory. In certain cases, the agent can provide various services, such as registered address services.
If you want to open a branch office in Canada and need registered agent services, we can provide them for you. We can also offer virtual office services for temporary use.
Requirements for branch offices operating in Canada
All branch offices of foreign companies operating in Canada must make sure all the official documents issued by them show the following:
- information about the parent company, such its address in the foreign country;
- the name of the parent company must be present on all documents issued by the Canadian branch;
- the registration number assigned by the Canadian authorities to the branch office;
- the registered address of the branch office in the Canadian province;
Additionally, at the head office of the Canadian branch, the representatives must also display the name of the parent company. Branches are also required to obtain VAT numbers in Canada.
Taxation of branches in Canada in 2021
From a taxation point of view, the branch will be levied by the Canadian tax authorities with the profit tax on the income generated in this country. Also, known as the branch profit tax, this levy implies the withholding tax paid by a subsidiary to the non-resident parent company as dividends. The following rates apply in respect to the taxation of branches in Canada:
- a 25% rate on the net income the non-resident company earns through the branch in Canada, provided that the income is not reinvested in the branch;
- under a double tax treaty, the branch profit tax can be reduced even at 5%;
- under some double tax agreements, a foreign company can be exempt from taxes on the first 500,000 CAD from the branch profit tax;
- other withholding rates applicable under Canadian double tax treaties are 10% and 15%.
In respect to the profits reinvested by the parent company in the Canadian branch, these can be exempt from taxation and is usually determined based on the value of the properties employed for the branch’s activities.
Other important aspects to consider related to the taxation of branch offices in Canada is that the profit tax does not apply to businesses in the communications, iron ore mining and transportation industries. Also, non-resident insurance companies benefit from special tax regulations.
In addition to these taxes, companies in Canada can be liable for the payment of the federal goods and services tax (GST), which is a type of value added tax, charged on the goods and services sold on the local market. In 2021, the GST is charged at a rate of 5%, but you must know that five Canadian regions apply a different type of tax – the harmonized sales tax, charged at rates of 13% and 15%; this tax includes the standard GST and it is applied in the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island.
We also invite you to watch our video on how to open a branch office in Canada:
Why open a branch in Canada?
The costs of opening a company in Canada are not very low, however, the branch is a suitable option for those seeking to invest a lower amount of money into a project. Also, the Canadian branch must bear the same name with the parent company, therefore the company name search and approval with the Trade Register is a step that can be skipped in the branch incorporation procedure.
From a taxation point of view, the Canadian branch will be taxed for the profits made in this country, however, under the double tax treaties signed by Canada with many countries, the branch is deemed a permanent established and the parent company can benefit from various tax reliefs.
If you want to open a company or a branch office in Canada and need assistance, please feel free to contact our company formation agents.