Canadian Corporation in the United States

[ericlis]

Hello,

I have been reading some previous threads which have been very helpful. I do have a couple of quesitons about my specific scenario.

My business partner and I have previously worked for a U.S based company both on TN-1 visas and we would like to start our own CCPC in Canada. However, alot of our clients are based in the U.S and it is a neccessity for us to also work in the States in order to generate revenue. Our company is a software company and we want to be based out of Canada and VPN to US based clients.

The following is our scenario:
1. We want to create a CCPC in Canada.
2. We want to create a wholly-owned subsidiary of our CCPC in the
US via a Corporation.
3. We want to do alot of the day to day business and residence to
remain in Canada.
4. We want to employ about 3-8 employees either contract/full-time
to work for our CCPC in either the US or Canada based on our
clients needs. Is either contract or full-time a better option?
5. We want to also work in the US as full-time employees of the
CCPC, we have both qualified in the past for TN-1 visas.
6. ** We want a US based corporate prescense as some of our clients
only prefer to do business with US based corporations.**
Questions:
1. Is my above scenario plausible or feesible?
2. Are their any potential problems with us getting a TN-1 and who
will sponsor us as we are partners of the CCPC?
3. I have seen previous posts about a C-corp, does this make sense
for our scenario?
4. Will this setup with a US corp subsidiary make it look as we are a
local prescence in the US and not make any of clients jump
through hoops as a CORP-to-CORP as our headquarters is based in
Canada?

Thanks in advance for helping out with my questions.

[Steven]

You can do it two ways, either register your CCPC in the US with the IRS and get it an EIN and set up a US payroll or set up a C-corp and the CCPC owns 100% of it, or you do. And that corp gets an EIN and sets up the US payroll.

From the standpoint of someone doing business with you, either way they're dealing with a corporation so it doesn't really matter to them (unless there is no fixed base in the US, in which case it would need to file 8233s with the client). Likewise it doesn't matter to your US employees because either way they get a W-2 from the company.

Whether it makes sense for the people running the company depends on various things, mainly how big your company is going to be and who is going to do the paperwork. If you plan on using a US accountant then the separate C-corp route is probably the better idea and the US accountant doesn't even need to be aware of the Canadian company. The US corp issues you a W-2 essentially and the CCPC is a completely separate entity used purely to service Canadian clients.

If it's going to be a small company and you're going to be doing all the payroll paperwork and the T2 and 1120-F though it's probably easier to keep track of if you just register the CCPC with the IRS and get an EIN for it.

The point to bear in mind is that US corporation taxes are way higher than those on a CCPC so you need to structure it carefully so your US expenses are maximized to minimize the US corporation tax. I.e. if you have the choice between paying for something in Canada or the US, generally speaking it's better to do it in the US.

You cannot do TN-1 in this situation, it has to be arm's length (clearly it isn't) and software development isn't covered by any TN-1 category I'm aware of anyway. You'd probably be looking at E-1 or E-2, have a read of: http://toronto.usconsulate.gov/content/ ... ment=evisa

The other big snag is that a CCPC requires the controlling shareholders to be resident in Canada for tax purposes (which you may not think is a problem until you decide you prefer living in the US). Also if you've got eight employees it sounds like quite a large undertaking, I doubt you'd be able to stay under the small business limit so a CCPC may not even be feasible.