Love First But Business Priorities Too

You can't start an S-corp without being a resident of the US for tax purposes, i.e. move your tax home there, and that creates all the consequences with departure tax, your corporation becoming a regular Canadian corp. etc. So yes you can do your plan, but at one end or the other you're going to get hit with the full whack of corporation tax, because either you need a C-corp in the US or a regular corporation in Canada, you can't do both simultaneously.

I suppose you could do a C-corp in the US, but all the invoicing and so on is done via the Canadian corporation and the C-corp is basically a paper entity that you're using to make your L-1 application look more convincing. Problem with that is you're supposed to pay US corporation tax using Form 1120-F on your US-source income, so in reality there is no tax advantage unless you lie (and of course you can always evade taxes by lying). But you might want to check into what the rates actually are (usually 36% I think).

If there were no departure tax, it would probably be better to move your tax home to the US as you will have to if you get LPR status, and then the Canadian corporation essentially becomes defunct but is a paper entity for the purposes of the L-1. The problem is of course it has to be largely valueless to avoid the departure tax. So you would have to pay out all the cash in the company first to do it that way - which may or may not be a problem depending on how much cash there is (because of income tax, obviously).

But that would work, because all of your income would probably be US source anyway, so there would be no corporation tax to pay in Canada (so it doesn't matter that it's no longer a CCPC) and you can use an S-corp to lower the rates (if you haven't figured it out yet, US corporation rates are higher than in Canada - the benefits of using an S-corp are not as good as using a CCPC in Canada, especially if you are a high-income earner).

Once you've got LPR status if you do it that way you just dissolve the Canadian corporation.

The only thing I'm a bit unsure about is the ownership, there may be some catch in the tax laws I'm unaware of, i.e. one corp has to own the other corp in order for the L-1 to work so there may be implications there because one corp is earning all the money and there is nothing in the other. I don't think there is, but you may want to check with an accountant who specialises with corporations. Certainly you don't want to put any money into the other one, because not only is there income tax but the corp would be subject to CGT when the other was dissolved.

The new tax treaty (just coming into force) requires proportional payment of tax, i.e. as an individual you have to pay tax based on where you are when the work is performed, plus it also eliminates the "fixed base" provision and re-defines it as a "permanent establishment", i.e. more than 50% of the work is performed there or you physically present for 183 days or more where the work is performed.

This makes it harder to fudge the tax situation.

Isn't it great that the law has actually changed since I posted above.

The other thing to bear in mind is that if you do set up an S-corp (plus all the payroll stuff), pay out all that money, remove CCPC status etc. and then at some point USCIS decide they don't want to let you in, your tax situation is going to be one for the ages, really. I think my head would explode.

TN-1 isn't an option because it has be an arm's length situation according to the regs. I've heard of people who've done it, i.e. set up a corporation, get their friend to write the letter on company letterhead and that gets you TN-1 but it's illegal. And you still have to set up a US corporation anyway and so the situation from a tax standpoint is pretty much the same as you have a CCPC already. The only difference would be that one doesn't have to own the other.

Doesn't matter what visa you use really, E-2 would probably be the best way but you've still got to figure out some way of moving the business to the US without getting hit by lots of taxes.

Oh yeah, bear in mind non-resident aliens cannot set up S-corporations. However I'm not sure that applies to people who have moved their tax homes to the US. Even if it does, I can't see how the IRS would ever figure that out.

I can however own an LLC as a foreigner. A California accountant I talked to suggested that the LLC be taxed as a S-Corp, not be an s-corp. (Still figuring that one out)and once I get Visa I could be paid.

I was intrigued by your post to someone else on the boards when you suggested they start a US affiliate or subsidiary that owns their Canadian Corp. I like the idea but want to know if it has legs.

What it might allow me to do is start a US LLC and have it sponsor my L1A. Or get an L1A for 1 year to start-up a US affilate/sub.

i realize I need to then get staff in Canada. somewhere I read I should have at least 3 full time staff in Canada.

I can rent office space, get the company growing down there. slowly transition the big income to the US and go from there.

At that point, if I get married, change my status and then dismantle the canadian company, or sell it.

Thots?

I think what he means is that the full amount of corporate income is paid out as salary, thus it would be subject to personal income tax rates like an S-corporation. However the tax forms would be the same as a C-corporation. The reason S-corporations were invented by the IRS was to save on all that paperwork, but there's no reason you couldn't still do it that way.

A foreign corporation cannot own a CCPC under Canadian law, if it did it would cease to be a CCPC and be taxed at the full corporate rate. However I think a CCPC can own a US corporation, provided the total income remains under the CCPC limit.

I think what you really need to do in your situation is to kill the CCPC, i.e. have it have no income and remove the money that's already in it so you don't get hit by departure tax. That will depend on how much money you have in it obviously, because if it's a lot you will have to pay a lot of income tax. Then simply change the status of the corporation to a regular provincial corporation.

You can have $50,000 of capital gain and not get hit by departure tax, so assuming your only asset subject to departure tax is your CCPC, reduce the value of it to less than $50,000, cease any income to it (or at least pay it all out as salary every year after you've moved your tax home to the US) and that's it basically. Then the US corporation can take ownership of it to establish the link, and you pay yourself through the US corporation and you can move your tax home to the US.

I'm not sure what the implications of an S-corporation owning a Canadian corporation are or even if it's allowed, you'll have to check. It will be a lot of paperwork if you use a C-corp because of the EIN, all the withholding taxes, etc. but I assume you already do that with your Canadian corporation.

Visa-wise you've got a fair number of options, E-1, E-2, maybe L-1 which would be the best because it's the simplest, if you can meet the requirements for it.

I wonder if USCIS accept an S-corporation as valid for intra-company transfer for an L-1A. Hmm. Wonder if they're even bright enough to catch on.

Bright enough to catch on?

That makes me think it might be a bit of a stretch to pull it off. Or at least suspect.

Maybe I should just get married first.

Seems that might be the easier way.

Well to enter the US for immigration purposes it will be easier, yes, but you need to make sure you've got the tax situation straight before you do that, i.e. the implications for your CCPC and the departure tax.