Hi Rizwan,

Thank you for your message and for outlining your objective clearly.

Since you wish to open a U.S. company that is linked to your Canadian corporation, and only pay 21% U.S. corporate tax (with no additional tax in Canada), here's the optimal structure and explanation:

✅ Recommended Structure:

Form a U.S. C-Corporation owned 100% by your Canadian corporation

• A U.S. C-Corp is a separate legal entity and pays U.S. federal corporate tax at 21% on its profits.
• The Canadian parent company will be the sole shareholder of this U.S. subsidiary.
• This structure avoids double taxation and provides access to a Canadian tax deduction for dividends received from the U.S. subsidiary.

💡 Tax Advantage – Deduction under ITA §113(1)(a)

When the U.S. subsidiary (C-Corp) pays a dividend to your Canadian corporation, the dividend is not taxed again in Canada, thanks to paragraph 113(1)(a) of the Canadian Income Tax Act.

How it works:

• The dividend qualifies as an “exempt surplus dividend” if the U.S. corporation is a foreign affiliate of your Canadian company and is carrying on an active business in the U.S.
• The Canadian corporation can claim a deduction under §113(1)(a) for the full amount of the dividend when calculating its taxable income.
• This results in no Canadian tax on the dividend, effectively limiting your total tax to only 21% in the U.S.

✅ This structure provides legal, tax-efficient profit repatriation from the U.S. to Canada without double taxation.

⚠️ Other Considerations:

• The U.S. may impose a withholding tax on dividends (typically 30%), but the Canada-U.S. Tax Treaty reduces this to 5% when the Canadian corporation owns at least 10% of the U.S. company.
• Avoid using a U.S. LLC, as Canada treats LLC income as directly taxable to the Canadian parent—resulting in double taxation.