Form a US Corporation From Canada: Steps, EIN, Bank, T1134

Can a Canadian incorporate in the US and run the company alone?

Yes. Delaware, for example, lets a person form a corporation regardless of where that person lives, needs only one director who is a natural person, and lets one person hold every office (8 Del. C. § 101; §§ 141 and 142). What Delaware does require is a registered agent with a physical street address there (Delaware Division of Corporations). Other states write their own rules; check the formation state's statute. That answers corporate law only: working for the company while you are in the US is an immigration question this page does not cover.

The company will be a C corporation. An S corporation cannot have a nonresident alien or a corporation as a shareholder (IRS: Form 2553 instructions). This page assumes you are neither a US citizen nor a US tax resident; long US stays can make you one (see snowbirds and US residency). Still choosing between a US corporation, a US LLC and a Canadian corporation? Compare them first in US business for a Canadian resident.

What makes it more than a filing: two countries from the first year. For a calendar year, the corporation's first Form 1120, often with Form 5472, is due April 15 unless extended, and, if you hold the shares yourself, your first T1134 October 31 of the same year (a Canadian corporation that holds them files 10 months after its own year-end). Who owns the shares is hard to change once they are issued. Board decisions made in Canada raise a residence question. Money you put in or spend for the company without paperwork becomes a reporting problem at the first return.

Gather from day one:

• Certificate of incorporation, bylaws and the board consent that issued the shares
• Share register: who holds which shares, what was paid and when
• The IRS's EIN notice (CP 575)
• Every bank statement of the corporation
• A list of every payment between you (or your Canadian corporation) and the US corporation: date, amount, currency and purpose, with a signed note for any loan

Who should own the shares: you or your Canadian corporation?

Either can. The choice decides who files the T1134 and the treaty cap on US tax on future dividends; the US corporation's own filings stay the same. Decide before the shares are issued: moving them later is a separate transaction that needs its own review in both countries.

The US corporation withholds that tax and reports each dividend on Forms 1042 and 1042-S; without a valid form it may have to withhold 30%, and it is liable for tax it should have withheld (IRS: Form 1042 instructions).

Canada taxes the dividend differently in each case; see Canadian owner of a US corporation and holding shares through a Canadian holding company. If your Canadian operating company is forming the US company, see setting up a US subsidiary from Canada.

How do you register a US company from Canada, step by step?

Follow this order: the EIN needs the company's legal name and formation date, and the bank needs the EIN. Delaware is the example; the steps are similar elsewhere.

1. Choose the state. See which state to form in.
2. Appoint a registered agent with a physical street address in that state (Delaware). It receives legal papers; it is not your business address. See registered agents.
3. File the certificate of incorporation. It states the name, the registered office and agent, the purpose (any lawful activity is enough), the number of authorized shares and their par value, and the incorporator (8 Del. C. § 102). Authorized shares and par value drive the Delaware franchise tax.
4. Adopt bylaws and first resolutions. The incorporator or initial directors adopt bylaws and elect directors and officers at an organization meeting, which may be held outside the state or replaced by written consent (8 Del. C. § 108).
5. Issue the shares and record the payment. The board approves the issue and sets what is paid for the shares (8 Del. C. § 152). The buyer, you or your Canadian corporation, pays from its own account into the corporation's account once it is open (step 7); enter the issue and the date paid in the share register. For further funding, see putting money into your US corporation.
6. Get the EIN (next section).
7. Open the bank account. A US bank must identify and verify each individual who owns 25% or more of the company and one individual who controls it (FinCEN). Documents, addresses and opening from abroad: see US business address and bank account.
8. Register in any other state where it does business. See registering in another state.

How do you get an EIN without an SSN?

Apply on Form SS-4 by fax, or by mail if you cannot fax. The online application is only for applicants in the US, and the principal officer needs an SSN, ITIN or EIN to use it (IRS: Form SS-4 instructions). The international phone line (267-941-1099) assigns EINs only to companies formed outside the US: IRS phone staff treat a corporation formed in a US state as domestic and refer the caller to fax or mail (IRM 21.7.13).

On the form:

• Lines 7a–7b: the responsible party, the person who ultimately owns or controls the company, must be an individual, even when a Canadian corporation owns the shares. If that person has no SSN or ITIN and is ineligible to get one, enter "foreign" or N/A on line 7b; an entry is required.
• Line 12: the month the corporation's tax year will end. December gives a calendar year; a company formed mid-year then has a short first year.

Keep the IRS's EIN notice; you may need it to open a bank account (IRS: CP575). More detail: EIN without an SSN.

What does the US corporation file in its first year?

Form 1120, even with no income, plus Form 5472 if it had a reportable transaction with you or another related party. State filings follow the formation state and any state where it does business.

If the corporation transacts its business and keeps its books outside the US and Puerto Rico, it gets an automatic extension to file and pay until the 15th day of the sixth month after year-end, with a statement attached. Whether it qualifies depends on where it actually does business, and interest on unpaid tax still runs from the regular due date (IRS: Form 7004 instructions). Taxable income is taxed federally at 21% (IRS). A first year with only setup costs: see first corporate return with no revenue.

Three Form 5472 points decide most first years (IRS: Form 5472 instructions):

• Your loan is reportable. Line 17 shows amounts borrowed from you.
• Buying new shares for cash is not a reportable transaction for a corporation; contributions are reportable only for a foreign-owned disregarded entity.
• Bills you pay personally for the company are a loan to it, a payment for shares or a contribution, depending on the facts and your paperwork, and that changes what Form 5472 shows. Record each one when it happens; see putting money into your US corporation.

A late, missing or substantially incomplete Form 5472 carries a US$25,000 penalty; if the failure continues more than 90 days after an IRS notice, another US$25,000 applies for each 30-day period or part of one.

What do you file in Canada in the first year?

Form T1134, if the US corporation is your foreign affiliate: you own at least 1% of it, directly or through other corporations, and you plus persons related to you, such as your spouse or a corporation you control, own at least 10% (Income Tax Act, s. 95(1)). It is due within 10 months after your tax year ends (s. 233.4(4)); for an individual, that is October 31. File it electronically or on paper separately from your T1 (CRA).

The T1134 has a summary and a separate supplement for each affiliate. A quiet first year may need only the summary: no supplement is filed for an affiliate if, under the T1134 instructions:

• your cost of the shares was under C$100,000 at all times in the year, and
• the corporation's gross receipts were under C$100,000, counting loans and other money received, not only sales, and
• its assets were never worth more than C$1,000,000.

You still file the summary, listing the affiliate's name, your cost, its gross receipts and revenue, and the kinds of assets it holds. A late T1134 costs C$25 a day for up to 100 days, at least C$100 and at most C$2,500 (s. 162(7)). A knowing or grossly negligent failure costs C$500 a month for up to 24 months, less the daily penalty, and more after that (s. 162(10) and (10.1)). Incomplete or false returns are penalized too, under sections 162 and 163 (T1134 instructions).

While the US corporation is your foreign affiliate, no T1135 is needed for its shares or for a loan to it: shares and debt of a foreign affiliate are excluded from specified foreign property (s. 233.3(1)). Other foreign property, such as a personal US bank account, still counts toward the C$100,000 test.

Could the US corporation also be treated as Canadian?

Possibly, and the treaty then decides. The CRA treats a corporation as resident where its central management and control is exercised, usually where the board meets (CRA), so a Delaware corporation whose directors decide everything in Canada can be resident in both countries. For a company created under US law and not Canadian law, Article IV(3) of the treaty makes it resident only in the US, and section 250(5) then deems it non-resident of Canada. Whether its work in Canada still creates a Canadian filing is covered in Canadian owner of a US corporation.

Does a US corporation owned from Canada file a BOI report?

No. Under FinCEN's final rule, companies created in the US are exempt from beneficial ownership information reporting (FinCEN). Only certain foreign companies registered to do business in a US state still report, such as a Canadian corporation that registers itself in a state.

Example

Illustrative figures: US dollars for the US company, Canadian dollars (C$) for Canadian thresholds. Each owner is a Canadian resident who is neither a US citizen nor a US tax resident; every company uses a calendar year.

A Montreal founder owns the shares herself

She forms a Delaware corporation with 1,000,000 authorized shares, buys all of them for US$1,000 and lends it US$20,000 under a signed note. Its first Form 1120 answers Yes to the foreign-ownership question and attaches Form 5472 showing the loan on line 17: US$0 at the start of the year, US$20,000 at the end. The share purchase is not reported.

In Canada she files T1134 by October 31 of the next year. Her share cost is far under C$100,000. If the company's receipts, counting her loan and share money, stay under C$100,000 and its assets under C$1,000,000, she files the summary with base information and no supplement. If it also collects US$90,000 of sales, its receipts, converted to Canadian dollars, pass C$100,000 and a supplement is due.

Before paying Delaware, she compares both methods: 1,000,000 authorized shares cost US$8,665 under the authorized shares method, while the assumed par value capital method can be the US$400 minimum for a company with few assets; see Delaware franchise tax.

An Ottawa owner's Canadian corporation holds the shares

Her Canadian holding corporation buys all the shares. It files T1134 within 10 months after its own year-end, in addition to its T2. The US corporation files Form 1120, with Form 5472 for any loan or other reportable transaction with the holding corporation or with her, since she owns it. Years later the US corporation pays a US$100,000 dividend. With a valid W-8BEN-E and treaty eligibility, it withholds US$5,000 at 5% and reports the dividend on Forms 1042 and 1042-S; a personal owner would face US$15,000 at 15%. Canada taxes the dividend differently in each case, so the US rate alone does not show which structure costs less.

A founder runs every board meeting from Edmonton

The sole director makes every decision at home in Edmonton. Under the central management and control test, the CRA could treat the Delaware corporation as resident in Canada; because it was created only under US law, the treaty makes it resident only in the US and Canada deems it non-resident. It still files Form 1120, and Form 5472 for any reportable transaction with its owner; whether its Edmonton work creates a Canadian filing is a separate review.

Different for you?

• The first Form 1120, Form 5472 and T1134 are coming due together, or you have already moved money in or out: get cross-border tax help with both countries' first returns.
• The shares were issued to the wrong owner, you or your Canadian corporation: get cross-border tax help before moving them; a transfer is its own transaction in both countries.
• You have not chosen the structure yet: compare a US corporation, a US LLC and a Canadian corporation in US business for a Canadian resident.
• You already formed a US LLC: see fixing a US LLC owned by a Canadian.
• You will raise money from US investors: see Delaware or Canadian corporation for a startup.
• A Form 5472 or T1134 was missed: see missed foreign-owner filings and missed foreign affiliate report for a US company, then get cross-border tax help.
• You run the company from Canada or work for it there: the yearly filings, dividends and residence questions are in Canadian owner of a US corporation.
• You are a US citizen or green card holder living in Canada: see Americans living in Canada.