Canadian Company with Consulting Project in USA

Hello. I am new in the forums. I think my question has probably been answered before by very knowledgeable and helpful people but I can't seem to find the replies. Hence, this query:

Situation:

My business colleague and I set up a CCPC based in Vancouver. We do consulting business in Vancouver. In January 2011, our company signed a consulting contract with a US company based in Seattle. In April 2011, my business colleague, who is an American and a Canadian PR, began working in Seattle for that client. My business colleague is an employee of the CCPC that we set up. The US company pays us via check in the US. We deposit our check in the US (we opened a US bank account) then remit the US$ to our US$ account in Canada then convert the amount to Canadian $ to help pay our salaries and meet business costs. Note that we also get revenues in Canada from our clients based in Canada (Vancouver).

Several questions:

1. For FY 2011, are we deemed to be doing business in the US? From our understanding, we are not because we have no permanent establishment in the US. We computed the number of days my colleague will be in the US this fiscal year 2011 and we have determined that it will be less than 180 days. We do not have an office in Seattle. My business colleague works at the client's site.

2. Depending on the answer in No. 1, do we need to file anything with the IRS in the US? We plan to simply file everything with the CRA for fiscal year 2011.

3. For our Seattle client, we get paid in US$. How do we declare this for Canadian tax purposes? What's the appropriate exchange rate to use? Note that every month, we transfer the US$ amount from the US to our US$ account in Canada then convert to Canadian $.

4. Our contract is for 1 year and potentially renewable for another year. If this is the case, we forsee than in Fiscal Year 2012 (next year), we may be deemed to have a Permanent Establishment in the states because my business colleague will be in the US for more than 180 days during a 12 month rolling period. If this is the case:

- What are the tax implications, US-wise?
- We understand that US corporate tax is higher than Canadian corporate taxes. How do we minimize the tax?
- Will there be a need for us to form a US entity to help minimize taxes?

5. Sometime this year, we plan to hire a Canadian to work for our company. Like my business colleague, that person will be sent by our company to work in Seattle. Unlike my business colleague, this employee is Canadian....not American. In this scenario:

- What are the tax implications for Fiscal Year 2011? We assume we still have no PE in 2011 and wonder if this assumption is correct.
- What visa would our Canadian employee have to get in order to work in Seattle.

*Note that our company provides consulting work for the US company. Our company, which is Canadian, will send its employees to Seattle to provide the consulting work.

I know this forum is awesome. I am looking forward to a better understanding of the issues I raised. Thank you in advance for your help and answers.

Welcome to the forums! Most of your questions seem to be tax, not immigration, related and may I suggest the following website as the better place to address these questions:

http://forums.serbinski.com/

The only question of an immigration nature seems to be the following:

5. Sometime this year, we plan to hire a Canadian to work for our company. Like my business colleague, that person will be sent by our company to work in Seattle. Unlike my business colleague, this employee is Canadian....not American. In this scenario:

...

- What visa would our Canadian employee have to get in order to work in Seattle.

...

If they qualify for TN status, and the nature of the work qualifies for the same TN status, then a TN might be appropriate. I believe that since you have no real presence in the USA, the TN would need to be sponsored by your US client although you would be the ones actually paying the employee. AFAIK this is legal.

B1 status might also work although generally I think of B1 status being used by people attending business meetings to support a project where the actual work product is being produced in Canada. If the nitty gritty of the work is being done in the USA, I'm not sure it technically qualifies for a B1.

Of course, since the person hasn't been hired yet, there's no reason why you couldn't hire an American who lives in the USA for this role, perhaps on a consulting basis, not a FTE. In general they don't bite.

Thanks for your reply.