Canadian based Corporation

otto · Post by **otto** » Fri Jan 09, 2009 3:56 pm

Hello!

What are the filing requirements in the US, if a US citizen who is a perm resident in Canada incorporates a business in Canada?

I can't understand the IRS website but it seems like not only would I have to report the corporation but all of it's transactions and dividends.

How much of a foreign corporation do I have to own to be subject to the filing?

The favorable tax treatment of Canadian small businesses that can retain earnings indefinitely would also be lost. Is this true?

What do American's who come to Canada and start business usually do ?

testone · Post by **testone** » Sun Jan 11, 2009 1:15 pm

I am not sure of the best entity to form in Canada, but if you do form a Canadian corporation, then you will need to file Form 5471 in the U.S. This form is somewhat complex and may be costly to have a professional prepare it for you. If you own more than 10% of the foreign corporation and U.S. persons own less than 50%, then you only need to file Form 5471 in the year of acquisition and the year of disposition. If you own more than 10% of the foreign corporation and U.S. persons own more than 50%, then you need to file Form 5471 annually.

otto · Post by **otto** » Sun Jan 11, 2009 4:31 pm

Thanks for the response. I will check into this more. I assume that I can run a sole proprietorship without additional filings though, right? I mean other than the usual self-employment reporting.

testone · Post by **testone** » Sun Jan 11, 2009 5:21 pm

Yes, no complexity with running a sole proprietorship. This would be reported on Schedule C of your Form 1040 and you would claim foreign tax credits or the foreign earned income exclusion for the earnings.

You should not owe U.S. self employment taxes. However, to prove this, you should get a certificate of coverage from the Canadian government for self employment tax purposes. See http://www.ssa.gov/international/Agreem ... anada.html for the SSA's description of the totalization agreement. The instructions to Schedule SE of Form 1040 discuss how to report no U.S. self employment tax.