Canadian Branch of a Foreign Parent Corporation

Doing what is legally best for your business and its advancement into Canada, as opposed to protecting prior legal work.

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

A Canadian branch of a foreign parent corporation is a direct extension of the foreign company operating in Canada. Unlike a subsidiary, it's not a separate legal entity. The parent corporation is fully liable for all of the branch's debts and obligations in Canada.

The key attributes of a Canadian branch of a foreign parent corporation, as distinguished from a subsidiary, include:

• Legal and Operational Structure

  • No Separate Legal Identity: A Canadian branch is not a distinct legal entity. It is a direct part of the foreign parent corporation. This means it operates under the parent's name and legal framework.

  • Registration: To operate in Canada, the foreign parent corporation must obtain an extra-provincial license in each province where the branch will conduct business. This is generally a simpler and less costly process than incorporating a new subsidiary.

  • No Resident Director Requirement: Incorporating a subsidiary corporation in certain jurisdictions (i.e., federal, Manitoba, Saskatchewan) imposes a Canadian resident director requirement, together with other pervasive disclosure requirements about ownership (including actual foreign ownership), while other jurisdictions do not have such requirements / disclosure obligations (i.e., Alberta, Ontario, British Columbia).

  • Administrative Simplicity: Management of the branch is centralized, with the parent company retaining direct control. This can streamline decision-making for short-term projects.

• Liability

  • No Limited Liability: This is a major difference from a subsidiary. Because a branch is an extension of the parent company, the parent corporation is fully liable for all debts, obligations, and legal claims against the branch in Canada. This exposes the parent's global assets to risk.

• Taxation

  • Canadian Corporate Income Tax: A Canadian branch is subject to Canadian corporate income tax on the income it earns from its business activities in Canada. The tax rates are generally the same as those for Canadian resident corporations.

  • Branch Profits Tax: In addition to regular corporate income tax, a branch is subject to a special branch profits tax (under Part XIV of the Income Tax Act). This tax is meant to approximate the withholding tax that a subsidiary would pay when it distributes dividends to its foreign parent. The branch profits tax rate is 25%, but this rate is often reduced by tax treaties. For example, the Canada-U.S. tax treaty reduces the rate to 5% and may exempt the first $500,000 of income from the tax [more on branch profit tax].

  • Losses: A significant tax advantage of a branch is that its losses can often be used to offset the parent company's profits in its home country, subject to the tax laws of the parent's jurisdiction.

  • Record-Keeping: The parent corporation is required to make all books and records related to its Canadian operations available for audit by the Canada Revenue Agency.

To learn more about how our law firm stands apart when it comes to expanding your business into Canada, in what we do differently from most larger law firms and how this can properly protect and advance your Canadian commercial venture, contact our law firm today for a confidential initial consultation at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.  

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