In an era of globalization, companies competing in a global marketplace can simply expand beyond their domestic borders and establish an international presence. Through technological advancements, looking for new markets and new business opportunities has never been easier.
However, no matter how advanced technology becomes, there will always be a need for people to be the engine that drives business. Today’s employees are mobile; they are no longer tied to an office in one location. To operate on a global scale, companies need international employees that are willing to go relocate to support a firm’s growth strategy. Having the right people on the ground is critical to an organization’s success, regardless of international boundaries.
Companies with a global workforce may not always be aware of the wide range of tax, payroll and compensation issues that arise in the countries in which they operate. Without proper planning, international assignments often lead to compliance issues and unnecessary costs for companies, as well as for their employees.
Canada provides attractive economic opportunities for international companies, especially south of the border, to expand their operations into an increasingly diverse and growing market. However, Canada also has a complex taxation system for foreign companies to navigate. Ensuring compliance means putting a process in place that does not lead to the Canada Revenue Agency to come knocking, with penalties and interest in hand. These tax rules not only apply to the corporation, they also apply to the international employee that is relocating to Canada.
As part of our ongoing series, our Global Employer Services (GES) practice has put together a list of items that should be reviewed to ensure a smoother transition:
You may need to have foreign employees set up on a Canadian payroll, and they may be subject to Canadian payroll source deductions. Some of the payroll deductions may be reduced with the use of a waiver. The Canadian payroll requirements apply regardless of the amount of time the foreign employee is physically working in Canada.
Income Tax Withholding and Canadian Social Security
Canadian payroll source deductions consist of Canadian income tax (federal and provincial), Canada Pension Plan (CPP), and Employment Insurance (EI).
Provincial Payroll Registrations and Costs
The employer may have to register with a particular province and pay additional provincial payroll costs, such as provincial health tax, workers compensation, etc. These programs and associated costs vary among provinces.
Individual Income Tax
While working in Canada, the foreign employee may be subject to Canadian individual taxation on employment, and to file a Canadian individual income tax return.
Tax Number Registrations
The employer and the employee may have to apply for Canadian taxation account numbers to facilitate their compliance requirements.
In order to work while physically in Canada, the foreign employee may require a Canadian work permit.
Having foreign employees working in Canada may cause the employer to be deemed to be carrying on business in Canada. The employer may be required to file a Canadian corporate tax return and pay Canadian corporate tax on their net income earned in Canada.
The employer may be subject to the Canadian sales tax system (Goods and Services Tax or Harmonized Sales Tax) that would require them to charge and collect this tax on revenues earned in Canada. The employer may need to file a GST/HST return and remit the collected tax.
Tax Equalization Policy
The employer may have to provide incentives to the employee in order for them to take an assignment in Canada, as well as cover any additional tax costs the employee may face. The idea is to keep the employee whole, where they will have no advantage or disadvantage from coming to Canada to work. This may require having a policy in place to document “who pays what?”
When preparing for an international assignment for your employees, working with tax professionals who are familiar with Canadian tax laws and regulations could save you the time and money of dealing with any non-compliance issues that may arise later. A successful international assignment is not only beneficial for your business, but also a seamless experience for your employee and the host country in which you are expanding.