Legal & Tax

Information on the Canadian German tax treaty (to avoid double taxation) and on tax implications of a permanent establishment (‘Betriebsstätte’) in Canada. 

• Regulation 105 Waiver Application (regarding fees, commissions, or other amounts paid to non-residents for services provided in Canada)
• Regulation 102 Waiver Application (regarding salary, wages, or other remuneration paid to non-resident employees for employment services)
• Form RC473, Application for Non-Resident Employer Certification (for non-resident employers who have non-resident employees working in Canada)

• T1 Income Tax and Benefit Return for non-residents of Canada
• T2 Corporation Income Tax Return for treaty-based exempt corporations in Canada
• GST/HST - preparation and filing of the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST)

Correspondence with CRA (Canada Revenue Agency).

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.

Incorporating your business in Canada is simple and can be completed within a short period of time. The cost is relatively low, and the transaction does not require you to be in Canada.

As a Canadian corporation, your company will be treated as a resident taxpayer. This creates transparent accounting and tax conditions and avoids security deposits with tax authorities.

Canadian corporations regularly benefit from significant simplification in legal and business transactions like signing insurance policies, opening bank accounts, and financial reporting. The Canadian government also prefers doing business with corporations registered in Canada.

Unlike the registration of a branch office, a Canadian corporation has extensive liability limitations.

Only your own Canadian business address, telephone number and e-mail address will establish the Canadian identity which is so important when conducting business in Canada. 

In addition to a small monthly fee, there are only costs for additional services that would have to be agreed on separately.

Via the representation office you can be reached by your Canadian customers during normal business hours from Mon - Fri (9.00am - 5.00pm). The time difference of 6 hours is no longer relevant for you.

Companies that are not incorporated in Canada often need a special license from the respective province. The existence of the mother company abroad, e.g. in Germany, must be proven. Furthermore, the name of the branch office in Canada cannot conflict with existing local companies and a local agent must be regularly appointed. 

Canadian companies are also often required to register in provinces where they do not have their registered office. This also applies to companies incorporated federally.

The most important factor for an obligation to license or register depends on the fact whether and to what extent the characteristic of "carrying on business" is fulfilled. The possibility of a "carrying on business" in the respective province can be determined, if for example, an office has been set up or an employee has been hired.

If a German company is conducting business in Canada without having established an own Canadian corporation, its activities might be viewed as those of a branch office (Betriebsstätte). As a consequence, subsequent payment of taxes might occur at home and abroad.

In the event of breaching provincial license or registration obligations, severe penalties may be imposed, depending on the province, the level of the breach and the legal form of the company.