Contact UsIs it really Tax (in)efficient to run a USA S corporation as a US Cit living as a P.R. in Canada?
I need a new cross border CPA/CA. Can anyone comment on the relative tax (in)efficiences of running a US S corporation as a US Citizen that is a permanent resident in Canada. I'm starting publishing firm, and need to decide if I will incorporate as a US S corporation or a Canadian corporation. I've already determined that its perfectly legal to run a US S corporation as a USC living in Canada. But is that a good idea? Do I create extra tax burdens on myself (either for Cdn or US Taxes) by doing so?
Why would I incorporate as US company instead of Canadian one? If I can minimize tax impact, it has many advantages for me.
1) its easier for me to sign US authors
2) its easier for me to sell through distributors and retailers;
3) its an easier transition, if I move back to the USA in 2-5 years, which is likely
4) no need to get an ITIN and deal with 30% withholding
In 2015, I only expect perhaps gross revenue of $60,000 or less with expenses at maybe half of that. Is this doable, or totally unadvisable?
Why would I incorporate as US company instead of Canadian one? If I can minimize tax impact, it has many advantages for me.
1) its easier for me to sign US authors
2) its easier for me to sell through distributors and retailers;
3) its an easier transition, if I move back to the USA in 2-5 years, which is likely
4) no need to get an ITIN and deal with 30% withholding
In 2015, I only expect perhaps gross revenue of $60,000 or less with expenses at maybe half of that. Is this doable, or totally unadvisable?
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Tax Professional Answers
Claudia Ku CPA, CA, MBA
One of the key considerations is whether the corporation would be carrying on a business through a fixed place or permanent establishment (PE) in Ontario, Canada. If so, the Canadian taxes at the corporate level would be approximately 30% for an S-corp. versus 15.5% for a Canadian corporation. If not, the Canadian corporate tax would be 0% for an S-corp. versus 15.5% for a Canadian corporation.
On the distribution of the after-tax income by the corporation to you (assuming a Canadian resident), the Canadian personal tax would be much lower if the dividends are received from a Canadian corporation vs. an S-corp.
There could be potential double taxation if an S-corp. is used to carry on the business and the S-corp. does not distribute all of its after-tax income in the same year the income is earned. Nevertheless, the potential double taxation could be avoided by applying to the CRA to have the special provision under Article XXIX(5) of the Canada-US tax treaty applied.
It is prudent to consult a cross-border US tax practitioner for the potential US tax implications. My comments above are limited to the income tax considerations for Canadian tax purposes only. Additionally, my comments are general in nature and do not constitute professional advice.
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513 weeks ago
On the distribution of the after-tax income by the corporation to you (assuming a Canadian resident), the Canadian personal tax would be much lower if the dividends are received from a Canadian corporation vs. an S-corp.
There could be potential double taxation if an S-corp. is used to carry on the business and the S-corp. does not distribute all of its after-tax income in the same year the income is earned. Nevertheless, the potential double taxation could be avoided by applying to the CRA to have the special provision under Article XXIX(5) of the Canada-US tax treaty applied.
It is prudent to consult a cross-border US tax practitioner for the potential US tax implications. My comments above are limited to the income tax considerations for Canadian tax purposes only. Additionally, my comments are general in nature and do not constitute professional advice.