Executive Guide to Cross-Border US Expansion
Expanding business operations from Canada into the United States offers massive market opportunities, but exposes Canadian enterprises to complex dual-jurisdiction tax obligations under the IRS and CRA.
1. Avoid Unintended Permanent Establishment (PE)
Under Article V of the US-Canada Income Tax Treaty, a Canadian corporation is subject to US federal income tax only if it conducts business through a "Permanent Establishment" in the US.
- Risk Factors: Having US-based employees with contract-signing authority, maintaining US inventory warehouses, or having senior executives spending excessive days working in the US.
2. Choosing the Right Legal & Tax Structure
- US C-Corporation: The gold standard for Canadian parents expanding into the US. Provides liability protection and clean corporate tax filing (Form 1120).
- US LLC Warning: Avoid using US Single-Member LLCs directly owned by Canadian individuals or corporations. The CRA treats US LLCs as corporations, while the IRS treats them as flow-through entities, leading to severe double taxation.
3. US State Sales Tax Nexus (Post-Wayfair)
Since the Supreme Court Wayfair decision, US states enforce economic sales tax nexus. Selling over $100,000 or 200 transactions into a US state triggers state sales tax registration requirements, even without physical presence.