Does Canada have a tax treaty with the US?
Yes — Canada has an active income tax treaty with the United States. The treaty's main effect for company owners: reduced withholding tax rates on cross-border payments, clearer permanent establishment definitions, and access to the Mutual Agreement Procedure for disputes.
Key treaty provisions for company owners
| Income type | Default US rate | Treaty rate (typical) |
|---|---|---|
| Dividends (portfolio investor) | 30% | 15% |
| Dividends (substantial holding — 10%+) | 30% | 5% (or 0% in some treaties) |
| Interest | 30% | 0–10% |
| Royalties | 30% | 0–10% depending on type |
| Capital gains on real estate | Taxable | Often still taxable (FIRPTA) |
| Business profits without permanent establishment | Taxable as ECI | Generally not taxable |
⚠️ These are typical rates — your specific treaty may differ. Always check the actual treaty text.
How to claim treaty benefits
- Determine if you're treaty-eligible. Must be a tax resident of Canada (not just a citizen) and meet the treaty's "limitation on benefits" (LOB) clause.
- Apply for an ITIN or EIN from the IRS (needed to claim treaty rates on Form W-8BEN/W-8BEN-E).
- Provide W-8BEN-E (entity) or W-8BEN (individual) to your US payer. Claim the treaty article and the reduced rate.
- The US payer withholds at the reduced rate. If they over-withhold, you can file Form 1040-NR / 1120-F to claim a refund.
- Document everything: treaty article cited, residence certificate from Canada tax authority, LOB-clause analysis.
Permanent Establishment (PE) — the trap
A Canada company is not subject to US income tax on its business profits — unless it has a "permanent establishment" in the US. PE triggers include:
- Fixed place of business in the US (office, factory, warehouse used for storage).
- Dependent agent with authority to conclude contracts on the company's behalf.
- Construction or installation site lasting more than 6-12 months (treaty-specific).
- Provision of services in the US exceeding 183 days in a 12-month period (services PE — newer treaties).
Pure online sales to US customers from Canada generally do NOT create a US PE. Hiring a US-based employee or sales contractor often does.
What this means for your structure
- If you sell from Canada into the US online, no US tax is owed (no PE). You can claim treaty rates on any US-source dividends.
- If you hire a US sales rep or open a US office, you've likely created a PE. US corporate tax then applies on US-source business profits.
- For US customers paying you via Stripe in Canada: no US tax, no PE issue. Just normal Canada corporate tax.
Treaty analysis is jurisdiction-specific. Always confirm with a cross-border tax professional before structuring large flows. See our non-resident US LLC tax calculator for the related US-side math.