us citizen trying to start a corporation in Canada

georgeyn · Post by **georgeyn** » Fri Jan 25, 2013 11:11 pm

Hello JGCA,

I'm a us citizen trying to start a professional corporation in Canada, mainly want to lower tax rate (from 39% to ~28%) and defer tax. Do I still have to pay corporation tax to the US gov.? and how much would be? Is it true I will pay the amount I saved in Canada to the US gov.?

Many thanks.
George.

JGCA · Post by **JGCA** » Sun Jan 27, 2013 12:36 pm

You will be starting a professional corp in Canada, I imagine you are a professional that has been afforded the right to practice in a corp enviroment as opposed to an individual or regular partnership as has been the trend in recent years to allow professionals to incorporate for tax purposes. Your corporation will only pay tax in Canada as long as it has no permanent establishment in the US. You on the otherhand as a USC you are taxed personally on your worldwide income including any salary and or dividends you take out of this corp. You will be able to exclude up to about $95K a year in salary using the form 2555 from US tax but not any dividends this will only entitle you to get credit on form 1116 for tax paid in Canada by you on this but not the entire amount . In Canada we have the dividend tax credit in the US dividends are taxed at about 15% so you have to see what is the best mix. The corp tax rate in Canada for an active prof business is 15% for the first $ 500K of Net Income afterwards its 28% on the excess, so it probably pays to take salary to not only avoid the US tax but to also bonus down to get the corp to pay the lower 15% rate in Canada.

As a USC you do have reporting requirements to inform the IRS of your CND corp forms such as 5471,926,8938 as well as FBAR .

georgeyn · Post by **georgeyn** » Sat Feb 02, 2013 2:30 am

Thank you so much JG.

I have another question, the benefit of the incorporation is deferral tax in Canada. For instance, if I make 200k each year, and I take out 100k as salary, pay lower tax, and keep the other 100k in the corporation for investment. But I heard that US doesn't allow the CFC to do so, only allow 150k to keep in a CFC, if it's true, I guess there is no point to incorporate, am I right?

Thanks JG