If you are a Canadian resident and want to conduct an active business in the US, then the best structure is as follows:
– A Canadian corporation (parent company) owning a US Corporation (subsidiary company)
– You will be a shareholder of the Canadian corporation and the US corporation will carry-on the active business in the US
The following are the tax implications of such a set-up:
-The US corporate tax rate of 21% will be applied toward the business profits of the US corporation
– The after-tax corporate earnings of the US corporation can remain in a US corporate bank account or can be paid as a divided to the Canadian parent corporation
– If the funds remain in a US corporate bank account, there is no further taxation
– If the funds are paid to the Canadian corporation as a dividend, then a 5% dividend withholding tax will be deducted from the dividends paid. The Canadian parent corporation will not pay income tax on the dividends received.
– The Canadian corporation can keep the funds in its bank account or distribute the funds as a dividend to the shareholders. Dividends paid to Canadian shareholders will be classified as eligible dividends. Eligible dividends have a lower rate of tax.
The above structure will allow you to limit your liability and avoid double taxation.