Us company which format belong to canadian parent company

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Rizwan khan (anonymous) Posted 6 days ago

Good morning, I am a Canadian citizen and it has been four years since I opened my company. Now I want to open my canadian company in the US, and I don’t have a partner. Now I don’t understand which company format should I open in the US that connects with the Canadian parent company so that I don’t have to pay tax dividend profit in Canada means completly avoid double texation only wanna pay 21 percent income tax pay to United states So please suggest me which form of company should i open?

1 Answer

score 0 · Answer 1 · 2025-05-29T21:52:31+00:00

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.

Us company which format belong to canadian parent company

1 Answer

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