VAT in Canada

Updated on Friday 10th January 2020

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Foreign investors interested in starting a business in Canada must take into account the taxes they must pay once the company has started its activities. The Canadian taxation system implies direct and indirect taxes, with the most important indirect one being the Goods and Services Tax, also known as the value added tax, or VAT. An important aspect of the Canadian VAT is that it applies at federal and provincial level, which is why the rates vary.

Our company formation consultants in Canada can offer more information on the taxation system in this country.

Legislation related to the VAT in Canada

There are several laws which provide for how the GST in applies in Canada. These are:

-          the First Nations Goods and Services Tax Law;
-          the Excise Tax Law;
-          the GST/HST Rulings, where HST stands for Harmonized Sales Tax;
-          the GST/HST Policy Statements.

According to the law, the VAT in Canada applies based on the following principles:

-          the type of products or services;
-          the destination of the services or products;
-          who the beneficiary of the products or services is.

Our Canadian company registration agents can offer more information on the legislation related to the value added tax.

GST/HST rates in Canada

As mentioned above, the value added tax in Canada is applied at federal level at a rate of 5%, but also at provincial level where the rate varies between 5% and 15%. There are only 3 territories in Canada in which the VAT is levied at the rate of 15%: New Brunswick, Newfoundland and Labrador and the Prince Edward Island. There is also the Ontario region where the VAT is levied at a 13% rate.

However, there are also goods and services which are exempt from the VAT or are levied a 0% rate of the GST.

Who must pay the VAT in Canada?

The value added tax is applied on most goods and services bought by the population, however it is collected by companies in Canada and forwarded to the tax authorities. In order to be able to collect the VAT, a company must have a GST number and account attached to it.

Foreign companies selling goods and services in Canada must also register for VAT as long as the taxable supplies exceed 30,000 CAD in any quarter of the year.
In order to simplify the collection of the GST, it should be noted that the Canada follows the OCED standards which is popular in all European countries.

For full information on the value added tax in Canada, please contact us. We can also help those interested in starting a company in Canada.


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