A non resident corporation carrying on a business in Canada will be subject to income tax in Canada under Canadian domestic legislation on its net income earned in Canada. In addition, the non-resident corporation will be subject to an additional Canadian branch tax. If the non-resident corporation is resident in a country that has a tax treaty with Canada (like the US), the non-resident corporation will only be subject to income and branch tax in Canada if it has a "permanent establishment" in Canada to the extent of profits in Canada attributable to that permanent establishment. The concept of a "permanent establishment" is quiet broad and includes a fixed place of business and employees in Canada with a power to contract, etc. It should also be noted that the branch tax rate will also be reduced from 25% to 5% under the Canada-US Tax Treaty. Also, the Canada-US Tax Treaty provides an exemption from branch tax on the first $500,000 CDN of branch profits in Canada.Even if a tax treaty exempts a non-resident corporation from taxation in Canada, it is still necessary to file an income tax return with the Canadian tax authorities claiming treaty benefits.
While it is not part of your question, your should be aware that US employees who are working in Canada may be subject to Canadian tax on their employment income earned in Canada.
Disclaimer
The nature of this facility is to provide a general response to a general question. Under no circumstances should anyone act on this information without obtaining analysis and counsel from a qualified advisor with respect to the specific situation.
Phillip Nadler, CA
Richter Usher & Vineberg
http://www.richter.ca
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