KARMA GLOBAL AIMS TO FIND A RADICAL APPROACH TO A CHANGE IN MINDSET, METHODS, AND EMPLOYMENT LAWS BENEFICIAL TO THE TECHNOLOGICAL WORLD OF TODAY!
Karma Global has now become Karma Global which was incorporated in the year 2004, having now completed almost 19 years of its existence.
As late as April 2021, Karma Global took a very bold step of venturing into foreign shores in terms of shoving up its business prospects in countries like US, UK, UAE, Canada, South East and South East Asia.
It has already made its mark in terms of providing excellent services in the areas of payroll, outsourcing, recruitment and talent acquisition, facility management services, and regulatory compliances including immigration, negotiations, and employment contracts in these foreign countries as well.
The major services provided by Karma Global include Regulatory Audit, Management Consulting, Strategy Consulting, Financial & Tech Advisory, Risk Advisory, and Legal.
Towards the end of April and the first fortnight of May 2023, Pratik Vaidya, MD & CVO of Karma Global was in the U.S. and Canada attending the Select USA Investment Summit 2023 which came to a close, marking the largest Investment Summit in Select USA history, with 4,900 attendees spanning 83 international markets that was well represented.
There were a lot of interactive sessions at Bay Area Houston where the delegates were briefed about business divisions in Franchise, Business Brokerage, Consulting, Education, Technology, and Business Immigration and assistance was also offered to the delegates in buying or selling businesses with more than 400 franchise opportunities.
This delegation in association with the Consulate General of India, US Commercial Service of Dallas, IACC of Greater Houston, the Greater Houston Partnership, and Economic Development Offices is another step in IACC’s development of relations with the United States of America.
CANADA’S TAX COMPLIANCE 101!!
U.S. and Canada – as similar as they may appear, there are distinct differences in accounting, tax, and legal requirements that need to be navigated carefully to maintain compliance – and avoid possible fines and interest charges.!
Accounting in Canada
Foreign investors should know that accounting is a sensitive matter when it comes to starting a business in another country and starting a company in Canada is simple from certain points of view, such as the legal requirements.
However, when considering accounting matters, one must pay attention to two main aspects: federal and regional or territorial regulations.
A brief overview of the Canadian taxation system
In order to know what accounting services one needs, it is best to gather some information on the taxation system in Canada. Taxation in Canada is imposed at a federal or provincial level, it all depends on where one resides or how a company is registered.
Canada imposes the following taxes:
- the income tax levied on the income earned by individuals residing in Canada;
- the corporate tax which is applied to the income generated by companies in Canada;
- the sales tax which is also known as the Harmonized Sales Tax or Value Added Tax;
- the property tax which is applied to the income derived from owning residential property.
All taxes are collected by the Canadian Revenue Agency. The federal taxes applied on income are levied at various rates based on certain thresholds of income; the taxes applied to companies in Canada are also levied at different rates.
The main tax laws in Canada
Both foreign and local entrepreneurs and individuals residing in Canada must abide by the following laws related to taxation:
- the Income Tax Law which is the main act governing taxation at federal and regional levels;
- the Tax Rebate Discounting Law which provides for the refund of taxes paid in Canada;
- the Income Tax Conventions Interpretations Law which provides for the tax agreements signed by Canada;
- the Income Tax folios which is a set of regulations establishing the taxation of special categories of taxpayers.
Canadian Legislation and Regulations
No matter how big the business is, understanding and complying with Canada’s various forms of legislative and regulatory requirements can be daunting.
With Federal and Provincial governments each having their own and sometimes competing set of regulations, the risk of non-compliance for businesses is real. This is further complicated by the differing regulatory requirements that occur by industry, product, service offering, and even the type of legal entity under which a business operates. Add to this, the cross-jurisdictional requirements that a national operation has to navigate and the complexities can become dizzying.
Take, for example, a health-related business: approvals and packaging are governed at the Federal level, but consumer protection regulations fall under the Provincial governments across the country. And if you operate with a distribution network or franchise that spans multiple jurisdictions, the levels of compliance only compound.
The key to compliance is expert planning. The reality is that business requirements and regulations in Canada are not abating, but rather becoming increasingly prescriptive and complex. This creates a significant challenge for businesses earnestly attempting to comply. Strategic preparation is critical to navigating the Canadian legislative and regulatory landscape.
Can I open a business in Canada as a non-resident?
Yes, non-residents are eligible to start businesses in Canada. Any foreign entrepreneur that wants to start a business in Canada will have to go through the business immigration process if the entrepreneur wants to run the business while in Canada. Depending on your country of origin, you may be eligible for faster processing of your immigration application.
How much does it cost to register a company in Canada as a foreigner?
It costs anywhere from $60 to $1000 to register a company in Canada. This depends on which province the company will be registered in or if it will have federal incorporation. However, as a foreign resident, you must account for the additional costs of business immigration and actually starting your business. We recommend setting aside a minimum of $250,000 CAD for starting your business in Canada which would cover the start-up costs, business immigration costs, and miscellaneous expenses. Of course, this figure is highly variable, depending on your business type.
What business can immigrants do in Canada?
Immigrants can start any type of business in Canada. There are generally no restrictions on what type of business one can start as long as it complies with federal and provincial laws and regulations. In our experience, we have seen foreign entrepreneurs open car repair shops, convenience stores, hair salons, transportation companies, jewellery wholesale companies, and much more.
Is it difficult to start a business in Canada?
Starting a business in Canada can be challenging for some entrepreneurs. The key to success is having the right team support you and your business throughout the journey. Many foreign entrepreneurs have started numerous businesses in Canada and have successfully immigrated here with their families. One thing that they all have in common is that they sought professional advice when entering the Canadian market.
A patchwork of sales tax regimes
The first critical difference lies within Canada’s sales tax regime. Overseas businesses must register and understand the appropriate sales tax processes when operating within Canada, or risk facing financial losses, late payment penalties and interest charges.
One recent example saw a client company neglecting to register for sales tax for a number of years, and finding itself liable for the payment of the accumulated taxes it had failed to charge its own customers, as well as late payment fines – a substantial financial hit that should have been avoided.
Canada levies Goods and Services Tax (GST) at the federal level on most goods and services at a standard rate of 5%. On top of this, Canada’s provinces and territories also levy their own sales taxes at varying rates, and in a variety of ways, making things more complicated.
Sales tax reporting obligations and compliance procedures vary across Canada. Most businesses must file regular sales tax returns to the Canada Revenue Agency (CRA), reporting the total sales, sales tax collected, and eligible input tax credits. The frequency of reporting depends on the business’s annual sales and remittance history. Simplified reporting options are available for small businesses.
The majority of Canada’s provinces and territories levy – known as the Harmonized Sales Tax (HST) – is a combination of federal and provincial sales taxes, which is levied on goods and services provided at the provincial level at a variety of rates. For example, the HST rate in Ontario is 13%, while in New Brunswick, Newfoundland, Nova Scotia, and Prince Edward Island it is 15%.
For these provinces, a single, combined GST/HST return is made to the CRA, showing all GST/HST collected, and all GST/HST paid in the participating provinces. Participating provinces do not require separate returns.
However, the provinces of British Columbia, Manitoba and Saskatchewan levy and separately administer a more traditional single-incidence retail sales and use tax (PST) on the provision (or use) of most goods and certain services in the provinces. The PST general rates are as follows: British Columbia 7%; Saskatchewan 6%; and Manitoba 7%. Separate returns for PST need to be made to the provincial tax authorities in these provinces.
A special case is the province of Quebec, where a value-added tax called Quebec Sales Tax (QST) is levied on the provision of most goods and services in the province, as well as on certain imports. The QST rate is 9.975%, meaning the effective combined rate for companies selling in Quebec is 14.975%. Here, a combined QST¬–GST/HST return needs to be filed in French with a separate tax body, Revenue Québec. It is also now a requirement in Quebec for financial documentation, including invoices, to be in French by default.
Corporate income tax differences
Another potential pitfall is the variation in corporate tax treatment across Canada.
Canada levies a federal corporate income tax (CIT) at a general rate of 15%. In addition, provincial CIT is levied at rates varying from 8% to 16%, with the largest jurisdictions (Ontario, Québec and British Columbia) charging between 11.5% and 12% – meaning combined rates are most commonly 26.5% to 27%. In most provinces, companies can submit a single CIT return, which combines federal and provincial taxes to the CRA. However, in Alberta and Quebec, companies also need to submit CIT returns separately to the provincial tax authority.
US companies also need to be aware that they may be subject to both US and Canadian corporate taxes. The US has a worldwide tax system, meaning that US companies are generally taxed on their global income, regardless of where it is earned. Canada has a territorial tax system, which means that companies are taxed on their income derived from Canadian sources. This difference can lead to complications when determining tax obligations and may require careful planning to minimize tax liabilities.
Business structure is another key consideration. The choice of operating either as a branch or incorporating in Canada may have significant tax implications, specifically on CIT rates.
Overall, companies need to ensure that their accounting systems, and especially their Enterprise Resource Planning (ERP) system, are set up to properly calculate and charge the correct taxes to their customers, based on their province. Similarly, systems need to be set up properly to allocate purchase costs to the right tax account, so the appropriate amount of tax can be reclaimed.
It is essential for US businesses to understand the nuances of Canadian accounting, tax, and legal systems – perhaps with professional help – before setting up shop. It’s not as simple as extending US practices into the Canadian landscape. With proper preparation, sound advice, and appropriate compliance measures in place, US businesses can ensure a smooth transition into the Canadian market.
Proprietary blog of Karma Global
This blog has been collated and compiled by the internal staff of Karma Global with the knowledge and expertise that they possess, besides adaptation, illustration, derivation, transformation, collection, and auto-generation for its monthly newsletter Issue 14 of August 2023 and in case of specific or general information or compliance updates for that matter, kindly reach out to the Marketing Team – Kush@karmamgmt.com / yashika@karmamgmt.com