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I am a Canadian permanent resident and I want to go into business via franchise with in the USA with someone in the USA and bring this income to Canada. I want limited liability, and of course favourable Canadian tax treatment.
The idea of a US C Corp with a Canadian holding company has come up . I am wondering should a coy in canada invest directly with coy to do business in US or should a subsidiary coy in US be opened which now invest in the coy to carry out business in the US– but I wanted to inquire about how exactly income would be brought to Canada and the tax implications of this. Lastly, is there a better business structure than this to achieve what I’m looking for?
A US C-corporation owned by a Canadian holding company is a tax efficient structure for Canadians doing business in the US. The following points should be noted:
1. A US C-corporation pays a federal corporate tax to the IRS at a rate of 21% on business profits. State taxes are extra.
2. After-tax profits can be distributed by a US C-corporation to a Canadian holding company through a dividend.
3. Dividends are subject to a 5% withholding tax payable to the IRS.
4. The Canadian holding company can claim a tax deduction, in most cases, for the entire amount of the dividend received.
5. Dividends paid by the Canadian holding company to you will be classified as eligible dividends, which have a low tax rate.