Foreign companies expanding their operations in other countries have several choices; the subsidiary companies and the branch offices are often employed. These structures are also available in Canada and the parent company will usually choose the business form depending on various factors, such as taxation and the independence of the Canadian entity from the company registered abroad. According to Canadian legislation, a branch office is an extension of the foreign company, while the subsidiary is an independent company.
|Applicable legislation (home country/foreign country)||Canadian laws (for incorporation, taxation and compliance, employment, etc.)|
Best Used For
When the foreign company wants to replicate the same business model and to sell the same products/services.
It is most suitable for the banking and financial services industries.
Minimum share capital in Canada (YES/NO)
No – there aren’t any capital requirements to establish a branch in Canada.
|Time frame for the incorporation (approx.)||
The basic registration steps to establish a branch in Canada can be completed in 1-5 business days.
Additional registration procedures, such as the issuance of licenses, etc., can increase the overall registration to 21-35 days.
|Documents to be filed by parent company||
In order to establish a branch in Canada, one needs:
– the statutory documents of the parent company (articles of association, registration certificate, etc.),
– information on the company’s shareholders, directors and secretary,
– the application for registration,
– information on the appointed local representative.
Locals or foreigners who are residents of Canada
|Legal representative required (YES/NO)||
|Local bank account (YES/NO)||
|Independence from the parent company||
|Liability of the parent company||Fully liable|
|Corporate tax rate||
The standard federal corporate income tax is 38%, but companies can benefit from federal tax abatement and a general tax reduction, which can lower the tax rate to 28%, and 15%, respectively. Lower rates are available in certain Canadian regions, varying from 0% to 16%.
|Annual accounts filing requirements||
Yes, but fewer regulations apply compared to other company types.
|Possibility of hiring local staff (YES/NO)||
|Travel requirements for incorporating branch/subsidiary (YES/NO)||
|Double tax treaty access (YES/NO)||Yes|
Foreign companies setting up branches in Canada are subject to several requirements which can be explained by our local company formation advisors. You can also rely on us for assistance in expanding your company through a branch office in Canada.
The main characteristics of a Canadian branch
The branch office is an extension of a local or foreign company in Canada. It is also known as a satellite company as it will be completely dependent on the parent company. Starting from this aspect, these are the main features of a Canadian branch office:
- It will need to complete the same activities in Canada as the parent company, however it must obtain its licenses from the Canadian authorities.
- It has no separate legal personality from the parent company which will be entirely responsible for the branch’s obligations.
- From a taxation point of view, a branch will be levied on the income derived in Canada.
- It will bear the same name as the parent company and must appoint a legal representative in Canada in order to deal with the authorities;
- The registration requirements are simpler than in the case of a subsidiary company.
If you need guidance in starting a business in Canada under the form of a branch office, our agents can help you.
How to register a branch office in Canada in 2023
A foreign company starting a business in Canada and choosing the branch office must register this structure with the local authorities in the province it will operate. If the parent company wants to operate in several provinces, it needs to register the branch in each Canadian territory.
The documents to be filed with the authorities when creating a branch in Canada are:
- information about the parent company along with its certificate of incorporation;
- the incorporation documents of the branch office to be established in Canada;
- a declaration with the names of the branch directors and secretary;
- information about the local representatives of the parent company in the branch office.
The parent company must appoint local agents to carry out the Canadian branch registration process. Our company registration consultants in Canada can handle this procedure.
We also invite you to see our scheme showing the steps for opening a branch in Canada:
Activities completed by a branch in Canada
When deciding to establish a branch in Canada, a foreign company will usually decide to complete activities that are limited to those in its home country. This is why branch offices usually operate in the financial, more precisely in the banking sector. However, it is possible for a branch office to undertake other activities, as long as these match the undertakings of the parent company.
Another business form that can be employed by foreign companies is the non-resident company which offers a higher degree of independence compared to the branch. Our Canadian company formation representatives can also assist with the creation of a non-resident company.
Information about the parent company
Even if the branch office will operate in Canada, the parent company is required to provide specific information about it. After registering the branch, all the documents issued by it must also contain the following information about the foreign company:
- the country of origin of the parent company;
- the registration number;
- the legal form and the registered address;
- the place of registration of the branch office;
- the registration of the branch office.
It should also be noted that foreign companies seeking to register branch offices in Canada must complete the incorporation procedures in each province they want to operate in. This is one of the reasons why the parent company must also pay attention to the registration requirements of each Canadian province or territory.
Appointing a registered agent in Canada
Because the branch office will need to comply with the same registration requirements as an extra-provincial corporation, it will need to appoint a registered agent. This will deal with the incorporation with the Trade Register and the tax authorities in the selected Canadian province or territory. In certain cases, the agent can provide various services, such as registered address services.
If you want to open a branch office in Canada and need registered agent services, we can provide them for you. We can also offer virtual office services for temporary use. Below, we invite you to watch a short presentation on the process of opening a branch in Canada:
Requirements for branch offices operating in Canada in 2023
All branch offices of foreign companies operating in Canada must make sure all the official documents issued by them contain the following:
- information about the parent company, such its address in the foreign country;
- the name of the parent company must be present on all documents issued by the Canadian branch;
- the registration number assigned by the Canadian authorities to the branch office;
- the registered address of the branch office in the Canadian province;
Additionally, at the head office of the Canadian branch, the representatives must also display the name of the parent company. Branches are also required to obtain VAT numbers in Canada.
Taxation of branches in Canada in 2023
From a taxation point of view, the branch will be levied by the Canadian tax authorities with the profit tax on the income generated in this country. Also known as the branch profit tax, this levy implies the withholding tax paid by a local entity to the non-resident parent company as dividends. The following rates apply in respect to the taxation of branches in Canada:
- a 25% rate on the net income the non-resident company earns through the branch in Canada, provided that the income is not reinvested in the branch;
- under a double tax treaty, the branch profit tax can be reduced even at 5%;
- under some double tax agreements, a foreign company can be exempt from taxes on the first 500,000 CAD from the branch profit tax;
- other withholding rates applicable under Canadian double tax treaties are 10% and 15%.
In respect to the profits reinvested by the parent company in the Canadian branch, these can be exempt from taxation and this is usually determined based on the value of the properties employed for the branch’s activities.
Other important aspects to consider related to the taxation of branch offices in Canada is that the profit tax does not apply to businesses in the communications, iron, mining and transportation industries. Also, non-resident insurance companies benefit from special tax regulations.
In addition to these taxes, companies in Canada can be liable for the payment of the federal goods and services tax (GST), which is a type of value added tax, charged on the goods and services sold on the local market. In 2023, the GST is charged at a rate of 5%, but you must know that five Canadian regions apply a different type of tax – the harmonized sales tax, charged at rates of 13% and 15%. This tax includes the standard GST and it is applied in the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island.
A major change that was brought in 2023 refers to the personal taxation of those who obtain a taxable income in Canada. It must be noted that the income brackets modified as the indexation for 2023 was set out at 6.3% compared to 2.4% in the previous year.
Therefore, a tax rate of 20.5% is applied in 2023 to an income up to $53,359 (compared to the previous $50,197). Incomes above $106,717 are charged with a tax of 26% and those above $165,430 – with a tax rate of 29%.
Why open a branch in Canada?
The costs of opening a company in Canada are not very low, however, the branch is a suitable option for those seeking to invest a lower amount of money into a project. Also, the Canadian branch must bear the same name as the parent company, therefore the company name search and approval with the Trade Register is a step that can be skipped in the branch incorporation procedure.
The Canadian branch will be taxed for the profits made in this country, however, under the double tax treaties signed by Canada with many countries, the branch and the parent company can benefit from various tax reliefs.
Canada has a large number of branches. In 2020, the country had 5,800 branches operating in the banking sector, but the highest number of branches was registered in 2014, when there were 6,400.
Alternatives to branches
Besides the branch office, foreign investors have the possibility to operate through other types of entities regulated by the Canadian law.
Thus, if you want to open a business in Canada, you can open a partnership (limited and general), a corporation (which is the Canadian form of a limited liability company) or a joint venture. One can also establish a sole proprietorship. If you are interested in the procedure of starting a local business, you should also consider all the obligations deriving from this (regarding the internal management of the company).
For instance, you may need to hire a CPA in Canada, who is a type of accountant qualified to handle complex accounting procedures, which can always be the case for large businesses.
One of the options to relocate for business purposes is to participate in the Owner Operator program in Canada. Through this, the foreigner must provide evidence that he or she owns at least 50% of the company, and that the respective business will have a positive impact on the Canadian society and economy (such as creating job opportunities for Canadian residents).
Another program that is available for business/work purposes is the Intra Company Transfer in Canada. The program is available for persons who work in companies that have branches in Canada and who are qualified at an executive, managerial or specialized work levels. Besides this, the applicants must meet other basic requirements, such as working in the respective company for at least one year.
If you want to open a company or a branch office in Canada and need assistance, please feel free to contact our company formation agents.