Doing Business in the US From Canada: Entity, Taxes, and Visas

Setting up and running a US business from Canada means making four decisions well and then keeping up with the paperwork that follows: pick the right entity (usually a C-Corporation), form it in a state that fits your plans, get through the IRS and banking gauntlet, and stay ahead of federal filings that carry $25,000 penalties per missed form. Doing business in the US from Canada is not legally difficult, but the compliance load is higher than what most Canadian founders expect, and the cost of getting the structure wrong is real.

C-Corporation or LLC

Most Canadian owners end up in a C-Corporation, and the reason is a tax mismatch. The Canada Revenue Agency views a US LLC as a corporation for Canadian tax purposes, while the IRS treats it as a pass-through. That mismatch can leave a Canadian owner without foreign tax credits in Canada for US taxes the LLC pays, which risks double taxation on the same income.

A C-Corporation avoids the problem because both countries treat it as a separate taxable entity. The corporation pays US federal income tax at 21%, and when dividends flow back to the Canadian shareholder, the US-Canada tax treaty reduces the default 30% withholding on payments to foreign persons.¹ Under Article X of the treaty, withholding drops to as low as 5% on direct investment dividends where the Canadian parent owns at least 10% of the voting stock, and is capped at 15% on portfolio dividends.²

An LLC can still be the right structure in narrow cases, particularly when a Canadian corporation is the sole member and the right elections are made. If you’re not sure, pay for a cross-border tax consultation before you file anything. Fixing an entity choice after the fact is far more expensive than getting it right the first time.

Which State to Form In

Delaware, Wyoming, and Nevada are the three states Canadian founders pick most often, and each solves a different problem. Delaware is the standard for anything that will raise venture capital or aim at a public offering. Its General Corporation Law has more than a century of refinement behind it, and the Court of Chancery handles corporate disputes with specialized judges.³ Institutional investors expect it.

Wyoming and Nevada suit smaller operations that don’t need investor-facing polish. Neither state has a corporate income tax, though Nevada levies a commerce tax on businesses with more than $4 million in Nevada gross revenue.⁴⁵⁶

Registering to Operate in Other States

Forming in Delaware or Wyoming doesn’t let you operate everywhere. If you have employees, an office, or significant sales activity in another state, that state will typically require you to register there as a “foreign” entity by filing a certificate of authority with its secretary of state and paying an additional fee. Operating in a state without proper registration can block your ability to enforce contracts in that state’s courts, which is a problem you don’t want to discover mid-dispute.

Where Nexus Comes From

Forming an entity in a state creates a legal connection called nexus, which pulls you into that state’s regulatory and tax rules. Nexus extends beyond the state of formation. Employees, inventory, or crossing certain revenue thresholds in any state can trigger tax obligations there. For e-commerce sellers this matters a lot, because sales into dozens of states can create nexus in each of them, and each nexus creates a filing obligation.

The Actual Setup Steps

Start with a name that meets the state’s naming rules and doesn’t step on an existing trademark; most states let you search the business name database online before filing. Then designate a registered agent with a physical address in the state of formation to receive legal documents. Canadian founders rarely have a US address of their own, so professional registered agent services fill this role for roughly $50 to $300 per year.

The core filing is the Articles of Incorporation (for a corporation) or Articles of Organization (for an LLC), which state the company’s name, purpose, authorized shares, and registered agent. Most states accept online filings. Fees vary widely; Ohio charges $99, and other states run into the several hundreds.⁷ Once approved, the state issues a Certificate of Formation or equivalent.

A US business address helps for banking and mail. Virtual office services provide a dedicated mailing address with forwarding to Canada and are generally accepted by state filings and financial institutions.

Getting an EIN From Canada

Every US entity needs an Employer Identification Number from the IRS before it can open a bank account or file a return. You apply on Form SS-4.⁸ Because Canadian applicants have no Social Security Number, you enter “foreign” or “N/A” on line 7b.⁹

The IRS online application isn’t open to applicants outside the US or its territories, but international applicants have a faster route that many people miss: apply by phone at 267-941-1099, Monday through Friday, 6:00 a.m. to 11:00 p.m. Eastern time, and receive the EIN during the call.⁹ Faxed applications are typically processed in four business days. Mailed applications take four to five weeks. Nothing downstream works without the EIN, so plan the timing.

Opening the Bank Account

This is where more Canadian founders get stuck than at any other stage. US banks apply extensive Know Your Customer and anti-money laundering procedures, and foreign-owned entities get extra scrutiny. Expect to provide, at minimum, the EIN confirmation letter, articles of incorporation, and information on the beneficial owners.¹⁰ Many banks require a designated US officer to appear in person at a branch.

Larger national banks tend to have established onboarding for international clients; smaller community banks may decline outright. Line up all your formation documents before you start applying so you’re not cycling through rejections.

Whether the US Can Tax Your Business Profits

The Convention Between Canada and the United States governs cross-border taxation and prevents double taxation.¹¹ The concept that decides whether the US can tax your business profits at all is “Permanent Establishment.”

A Permanent Establishment exists when your business maintains a fixed place of operations in the US, such as an office, factory, or warehouse you control. It can also arise when a dependent agent in the US regularly exercises authority to conclude contracts on your behalf. Activities that are purely preparatory or auxiliary, like advertising or storing goods in a third-party fulfillment center, generally don’t create one, though the line can be blurry.

Without a Permanent Establishment, your business profits may be fully exempt from US federal income tax under Article VII of the treaty.² Claiming that exemption is not automatic; it requires affirmative filings.

Federal Filings That Are Easy to Miss

Even when your Canadian corporation owes no US tax, the filings don’t disappear. Skipping them can cost deductions, trigger heavy penalties, or both.

Form 1120-F Protective Return

A foreign corporation claiming treaty exemption should file Form 1120-F as a “protective return.” This preserves the right to claim deductions and credits against any income later determined to be effectively connected with a US trade or business. Skip it, and a foreign corporation can lose the right to those deductions entirely.¹² The return must be filed with Form 8833 to disclose the treaty-based position.¹³

Form 5472 for Foreign-Owned US Entities

Any US corporation with at least one direct or indirect 25% foreign shareholder must file Form 5472 for each tax year in which reportable transactions occur with a related party.¹⁴ Foreign-owned single-member LLCs treated as disregarded entities are also subject to it. Reportable transactions include loans, service fees, rent payments, and effectively any financial flow between the Canadian parent and the US entity.

The penalty for a missing or incomplete Form 5472 is $25,000 per form. Continued non-compliance after IRS notice triggers additional $25,000 penalties for each 30-day period. This is one of the most commonly missed filings for Canadian-owned US businesses, and the penalty is large enough to threaten a small operation on its own.

Transfer Pricing on Intercompany Transactions

When a Canadian parent and its US subsidiary transact with each other through management fees, licensing, or intercompany loans, the pricing has to be what unrelated parties would agree to at arm’s length. The IRS has broad authority under Section 482 to reallocate income between related entities when pricing doesn’t match market terms.¹⁵ Contemporaneous documentation showing how you set the price is the best defense against an adjustment. For a small Canadian-owned US entity, that usually means a written rationale for why a management fee or royalty rate matches what an unrelated party would charge.

Beneficial Ownership Reporting

The Corporate Transparency Act created a federal beneficial ownership information reporting requirement administered by FinCEN, and the rules changed significantly in March 2025. Entities formed in the United States are now exempt from BOI reporting. Entities formed under foreign law that have registered to do business in a US state remain subject to it.¹⁶

The distinction is directly relevant to Canadian businesses. A Canadian corporation that registers as a foreign entity in a US state (rather than forming a new US subsidiary) is a reporting company under the revised rules. Foreign entities registered before March 26, 2025, had a filing deadline of April 25, 2025. Those registering on or after that date must file within 30 calendar days of receiving notice that their registration is effective.¹⁷

Willful violations carry civil penalties of up to $591 per day, adjusted annually for inflation, plus potential criminal penalties of up to two years imprisonment and a $10,000 fine.¹⁷ A Canadian corporation that instead forms a brand-new US subsidiary is a domestic entity and, under the March 2025 interim final rule, currently exempt from BOI reporting. That is another reason the entity structure decision has downstream consequences.

Sales Tax and Economic Nexus

The United States has no federal sales tax. Forty-five states and the District of Columbia impose their own, each with its own rates and rules. After the Supreme Court’s 2018 decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect and remit sales tax once they exceed economic thresholds, without any physical presence in the state.

The most common threshold is $100,000 in sales or 200 transactions in a state during the current or prior calendar year, though several states use higher thresholds or have dropped the transaction count. California sets its threshold at $500,000 in gross sales. Once you cross the line in a state, you have to register for a sales tax permit there and start collecting on applicable sales.

For Canadian e-commerce sellers, this creates a patchwork of obligations. Selling through platforms like Amazon that use US fulfillment centers adds another layer: storing inventory in a state creates physical nexus regardless of sales volume. Many Canadian businesses underestimate this and end up facing back-tax assessments when states catch up. Sales tax automation software can handle multi-state filings, but the initial registration and rate setup still needs attention.

Hiring US Employees

If the US entity hires employees, a set of federal and state payroll obligations comes with it that don’t map neatly onto Canadian equivalents.

Form I-9 Verification

Every employer must complete Form I-9 for each new hire to verify identity and work authorization. Section 1 has to be completed by the employee no later than the first day of work, and the employer must complete Section 2 within three business days after that.¹⁸ Canadian owners who aren’t physically in the US can designate an authorized representative to complete the form, but the employer remains liable for any violations.

Payroll Taxes

US employers withhold and remit several payroll taxes. Social Security tax is 6.2% on wages up to the annual cap, and Medicare tax is 1.45% on all wages; the employer matches both. The Federal Unemployment Tax Act imposes a 6.0% tax on the first $7,000 of each employee’s wages, though most employers qualify for a credit of up to 5.4%, bringing the effective rate to 0.6%.¹⁹ State unemployment taxes add another layer, with rates that vary by state and employer history. Use a payroll provider that handles US tax deposits; missed deposit deadlines trigger automatic penalties.

Getting Yourself Into the US to Run It

Canadian citizens who need to work in the US on behalf of the company have a few visa options, each with different rules.

TN Status Under USMCA

The TN classification is available to Canadian professionals in specific occupations listed in the USMCA, including engineers, management consultants, accountants, and computer systems analysts.²⁰ Canadian citizens can apply directly at a US port of entry without a prior petition to USCIS, which makes it one of the faster categories. You’ll need a letter from the US entity describing the professional services, proof of qualifications (typically a bachelor’s degree or equivalent), and proof of Canadian citizenship.

Management consultants get more scrutiny than other TN categories because the role is broadly defined. The qualifying requirement is a bachelor’s degree, five years of experience in a related specialty, or a professional credential attesting to five years of consulting experience. A clear, well-documented consulting agreement helps at the border.

L-1A Intracompany Transferee

The L-1A allows a Canadian company to transfer an executive or manager to a US office, including a new one. The employee must have worked for the Canadian entity for at least one continuous year in the three years before the transfer, and there has to be a qualifying relationship between the two entities (parent, subsidiary, branch, or affiliate).²¹

For a new US office, the initial period of stay is limited to one year. After that, USCIS expects the office to have grown enough to support a genuine executive or managerial role, meaning the business needs staff or revenue rather than being a paper entity.²¹ That one-year check is where many new-office L-1A petitions fail, so plan hiring and revenue accordingly.

E-2 Treaty Investor

The E-2 is available to Canadian citizens making a substantial capital investment in a US enterprise. There’s no fixed minimum, but the investment has to be large enough relative to the total cost of the business to show real financial commitment.²² The lower the total cost of the enterprise, the higher the percentage of it you need to have invested. A $50,000 investment into a $500,000 business will face harder questions than $50,000 into a $60,000 business. The investor also has to be coming to the US to develop and direct the enterprise, not just to hold a passive stake.

Staying in Good Standing Each Year

Formation is one-time; staying in good standing is annual. Most states require periodic filings and fees, and the amounts vary.

Delaware corporations owe a minimum franchise tax of $175 per year under the Authorized Shares Method (or $400 under the Assumed Par Value Capital Method), plus a $50 annual report fee.²³ If your articles authorize a large number of shares, which is typical for venture-backed setups, the franchise tax under the Authorized Shares Method can be dramatically higher. Founders regularly get a bill in the thousands because they authorized 10 million shares without running the numbers. Calculate under both methods and pay the lower amount.

Other states charge more modest annual report fees; Virginia, for example, charges $50 per year for LLCs.²⁴ Missing these filings leads to administrative dissolution or revocation of authority, which can strip your ability to enforce contracts or conduct business in that state. If you’ve registered as a foreign entity in additional states, each has its own annual filing and fee schedule. A Delaware corporation doing business in California and New York has three sets of annual filings to track, and a compliance calendar or paid service is worth the small cost.

1
Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens
2
Internal Revenue Service. United States – Canada Income Tax Convention
3
Delaware Code Online. Delaware Code Title 8 – General Corporation Law
4
Nevada Legislature. NRS Chapter 363C – Commerce Tax
5
Tax Foundation. State Corporate Income Tax Rates and Brackets
6
Wolters Kluwer. Why Incorporate or Form an LLC in Delaware, Nevada, or Wyoming
7
Ohio Secretary of State. Business Filing Forms and Fee Schedule
8
Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN)
9
Internal Revenue Service. Instructions for Form SS-4 (12/2025)
10
Trade.gov. A Checklist for Foreign Companies Opening a Bank Account in the United States
11
Department of Finance Canada. Convention Between Canada and the United States of America
12
Internal Revenue Service. Instructions for Form 1120-F
13
Internal Revenue Service. Foreign Corporation Form 1120-F Filing Responsibilities
14
Internal Revenue Service. About Form 5472, Information Return of a 25% Foreign-Owned US Corporation
15
Office of the Law Revision Counsel. 26 USC 482 – Allocation of Income and Deductions Among Taxpayers
16
FinCEN. Beneficial Ownership Information Reporting
17
FinCEN. Beneficial Ownership Information – Frequently Asked Questions
18
U.S. Citizenship and Immigration Services. Instructions for Form I-9, Employment Eligibility Verification
19
Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment Tax Return
20
U.S. Citizenship and Immigration Services. USCIS Policy Manual Volume 2 Part P – USMCA Professionals (TN)
21
U.S. Citizenship and Immigration Services. L-1A Intracompany Transferee Executive or Manager
22
U.S. Citizenship and Immigration Services. E-2 Treaty Investors
23
Delaware Division of Corporations. Annual Report and Tax Instructions
24
State Corporation Commission. Annual Registration Fees