Tax Registration

The Canadian Business Number (BN) is a tax number that enables a company to be uniquely identified for tax purposes. Various sub accounts, so called "program accounts", can be activated under the business number, e.g:

• GST/HST: The GST/HST sub account is comparable to the VAT identification number. If this sub account is activated, the sales tax can be shown on invoices and paid sales tax can be refunded as part of the pre-tax alowance. An activation can done be voluntary or due to a registration obligation. Such an obligation usually exists if certain turnover thresholds are exceeded and the conditions of "carrying on business" under VAT law are met.
• Payroll: If employees are employed in Canada, taxes and levies must be paid. For this purpose, the sub account "payroll" must be activated with the CRA. For employees from Quebec, the relevant registrations must be made with the Revenu Quebec Provincial Finance Administration. 
• Import/Export: It is more convenient if the Canadian customer or importer acts as an "importer of records" and carries out customs clearance. In practice, however, the opposite is often expected. In this case, the German company can register itself with the CRA, activate the "import/export" sub account and be responsible for customs clearance.

 In Canada, sales tax is generally payable at federal and provincial level. It includes the nationwide sales tax GST (Goods and Services Tax) as well as any other taxes at the provincial level.

Many provinces have a so-called Harmonized Sales Tax (HST), so that federal and provincial taxes can be calculated, reported and paid together. However, some provinces do not participate in this system of harmonization (e.g. Quebec).

This may require registration with the respective provincial tax authorities (e.g. taxe de vente du Québec (TVQ) / Quebec Sales Tax (QST), Manitoba Retail Sales Tax (RST), British Columbia Provincial Sales Tax (PST), etc.).

In principle, the reverse charge procedure known in the EU does not apply to trade in goods in Canada. The "importer of records" carrying out customs clearance actually has to pay the GST/HST.

If a Canadian company is the "importer of records", the exporting German company issues a net invoice and is not involved in further GST/HST processing. If the German company itself is the "importer of records", it is obligated to pay the GST/HST, but can claim pre-tax allowance if the tax accounts are activated accordingly.

In principle, services provided by German companies in Canada are taxable depending on where the company receiving the services is located, i.e. in Canada. If the German company is not registered for VAT in Canada, a withholding tax of 15% is most of the time levied on the service directly with the Canadian client.

There is a high probability for the Canadian company to deduct this amount from the invoice of the German company. Under certain circumstances, a special tax return can be filed to recover the Canadian withholding tax. This requires a tax registration of the German company in Canada and the issuance of a business number. It is also possible to apply for a tax exemption in advance (so-called waiver).

The procedure must be initiated before exporting goods to Canada. Several weeks or even months of lead time must be considered, and the procedure is quite time consuming. Since the procedure involving tax advice is also comparatively expensive, it is only worthwhile in the case of extensive orders.

Registration with Canadian tax authorities is also option for companies domiciled in Germany. Due to the existing double taxation agreement between Germany and Canada, there are no significant differences in the level of taxation in most cases. However, the treatment of a company as a "non-resident taxpayer" can lead to major disadvantages.

When registering a foreign company, a processing time of many weeks must be expected and, in many cases, depending on the turnover, a security deposit of several thousand dollars must be deposited with the tax authorities for potential tax debts.

In Canada, the appointment of a fiscal representative is not mandatory. If a tax declaration has been made, however, there is an obligation to report to the tax authorities during the year and to comply with certain reporting obligations. For this purpose, it is recommended to hire an accountant or tax consultant.