How to (and should) a Canadian Incorporate in the U.S. for consulting
May 4, 2024 2:22 AM Subscribe
I live in Canada I am a Canadian citizen. I have lived in the US and have a US SSN. I am looking to move into freelance/consulting/contract work. While I am happy to work for contracting organizations located anywhere, I know there is a lot more work available in the U.S.. I am planning to incorporate. Should I incorporate in the U.S.? Instead of in Canada or also in Canada?
I would be a solo corporation with no employees though I may hire some sort of money person at some point and I would probably have a lawyer review contracts, as I've been advised that's a good idea.
I assume incorporating in the U.S. would make me eligible for more RFPs? I assume also that then I wouldn't work from my corporation but rather would take money out as profits since I am not eligible to work in the U.S.? Can I get government contracts? I am a woman and in the U.S. would be considered a minority, can I get the minority-owned business boost in the RFP evaluations?
If I incorporate in the U.S. should I incorporate also in Canada separately and have one business handle Canadian contracts and the other U.S. contracts? Should I own both corporations directly or should one corporation own the other (and if one owns the other, which one should own which?)
Which state should I incorporate in? What's closest to me? Or Delaware? Everyone does Delaware, right? so I assume there's a reason?
You're going to tell me I need to talk to ...? Who is that i need to talk to and how much will that cost me?
If there's something I haven't asked that I should be asking here, please pretend I asked it and answer that question, too.
I would be a solo corporation with no employees though I may hire some sort of money person at some point and I would probably have a lawyer review contracts, as I've been advised that's a good idea.
I assume incorporating in the U.S. would make me eligible for more RFPs? I assume also that then I wouldn't work from my corporation but rather would take money out as profits since I am not eligible to work in the U.S.? Can I get government contracts? I am a woman and in the U.S. would be considered a minority, can I get the minority-owned business boost in the RFP evaluations?
If I incorporate in the U.S. should I incorporate also in Canada separately and have one business handle Canadian contracts and the other U.S. contracts? Should I own both corporations directly or should one corporation own the other (and if one owns the other, which one should own which?)
Which state should I incorporate in? What's closest to me? Or Delaware? Everyone does Delaware, right? so I assume there's a reason?
You're going to tell me I need to talk to ...? Who is that i need to talk to and how much will that cost me?
If there's something I haven't asked that I should be asking here, please pretend I asked it and answer that question, too.
I think you need a lawyer that specializes in “cross border” work - there are lots in Ontario on Google, for example, but someone referred to you by a friend or colleague or network would be best. In addition to the corporate structure issues you mention, I think there may be issues about permission to work in/on US work that need to be considered (e.g. work visa stuff). I’m skeptical that work visa requirements can be avoided by, say, declaring yourself a Delaware LLC, but who knows (actually, cross border lawyers will know).
posted by Mid at 4:13 AM on May 4
posted by Mid at 4:13 AM on May 4
I'd like to hit on a couple of points, starting with the most urgent:
...if you a just planning to stay a one person self employed person who pays for a lawyer and accountant, an LLC may work better.
No. No, it will definitely not work better. A US LLC owned by a Canadian-resident individual shareholder will create a special kind of tax hell that you will regret. And the tax treaty will not save you. Do NOT do this. DO. NOT.
Direct ownership in a US corporation is also likely not going to be the answer. But, this is where an international tax advisor may want to explore more specifics of your situation to determine whether it should still be on the table.
The most common setup I've seen in this type of situation is both a Canadian and US corporation, which makes the tax situation manageable and also can give you access to some kinds of contracts usually restricted for US-residents. There are different options for the ownership structure and that should definitely be reserved for paid advice.
The degree of complexity you want to explore in terms of structure will be a product of the magnitude of income you expect to be able to access. If this is a $100k/year business, you're going to want to keep things very simple. If you told me you were expecting $1M/year, you could afford to explore many more options.
I would expect to spend about $10,000 in exploratory consulting between tax advisors and lawyers and I would proceed as follows:
-speak with a Canadian tax advisor who works regularly with the US tax system as well. Expect to spend about $250-$500/hr on this. I would avoid US domestic accountants and they're usually clueless about Canadian tax affairs. Determine a couple of structures that would be suitable from a tax perspective
-speak with a US-based employment lawyer to make sure that you wouldn't be violating any employment law or that you wouldn't require a work permit to carry out your activities
-determine which of the tax structures would allow you to access the kind of US domestic opportunities that you're seeking and try to quantify the value of that kind of work so that you have a sense of how much you can afford to spend on annual administrative and professional services
Only then would I loop back with the tax advisor and an incorporation lawyer to establish any entities after you have all the facts and fully understand the setup yourself. Do not agree to things that you yourself don't understand just based on the advice of professionals! Unfortunately, accountants and lawyers sometimes love to run with complicated setups that their clients don't fully understand. :(
posted by bkpiano at 7:49 AM on May 4 [5 favorites]
...if you a just planning to stay a one person self employed person who pays for a lawyer and accountant, an LLC may work better.
No. No, it will definitely not work better. A US LLC owned by a Canadian-resident individual shareholder will create a special kind of tax hell that you will regret. And the tax treaty will not save you. Do NOT do this. DO. NOT.
Direct ownership in a US corporation is also likely not going to be the answer. But, this is where an international tax advisor may want to explore more specifics of your situation to determine whether it should still be on the table.
The most common setup I've seen in this type of situation is both a Canadian and US corporation, which makes the tax situation manageable and also can give you access to some kinds of contracts usually restricted for US-residents. There are different options for the ownership structure and that should definitely be reserved for paid advice.
The degree of complexity you want to explore in terms of structure will be a product of the magnitude of income you expect to be able to access. If this is a $100k/year business, you're going to want to keep things very simple. If you told me you were expecting $1M/year, you could afford to explore many more options.
I would expect to spend about $10,000 in exploratory consulting between tax advisors and lawyers and I would proceed as follows:
-speak with a Canadian tax advisor who works regularly with the US tax system as well. Expect to spend about $250-$500/hr on this. I would avoid US domestic accountants and they're usually clueless about Canadian tax affairs. Determine a couple of structures that would be suitable from a tax perspective
-speak with a US-based employment lawyer to make sure that you wouldn't be violating any employment law or that you wouldn't require a work permit to carry out your activities
-determine which of the tax structures would allow you to access the kind of US domestic opportunities that you're seeking and try to quantify the value of that kind of work so that you have a sense of how much you can afford to spend on annual administrative and professional services
Only then would I loop back with the tax advisor and an incorporation lawyer to establish any entities after you have all the facts and fully understand the setup yourself. Do not agree to things that you yourself don't understand just based on the advice of professionals! Unfortunately, accountants and lawyers sometimes love to run with complicated setups that their clients don't fully understand. :(
posted by bkpiano at 7:49 AM on May 4 [5 favorites]
Do you have any obligation to file taxes in the USA? Similar to the above, owning a Canadian corporation will make your US tax filing a nightmare. My US tax return was 75 pages long and I had to redo my corporate financials. What a nightmare. Gary Gauvin is a suitable guy to talk to about your options, which I wish I had done before I incorporated.
posted by shock muppet at 4:31 PM on May 4
posted by shock muppet at 4:31 PM on May 4
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The cost of this would vary depending on the professional.
It is worth noting that some states, though not all, require a business to maintain a physical location in the state in order to incorporate. It’s also worth considering other forms of business like an LLC which has similar liability protections but is typically less initial work to set up than a corporation. If your goal is to eventually expand then a corporation may be a better form for you but if you a just planning to stay a one person self employed person who pays for a lawyer and accountant, an LLC may work better.
posted by donut_princess at 3:56 AM on May 4