Company registration in Canada: Easy guide to foreign entity setup in Canada

Canada is an attractive destination for businesses looking to expand their global footprint—and that’s no surprise. With a stable economy, skilled workforce, and favorable trade agreements, the Great White North offers a bounty of opportunities across industries from technology to natural resources to manufacturing.

According to recent data, foreign direct investment in Canada has been on the rise, reflecting the nation's welcoming business environment and robust economic performance. In this guide, we’ll pull back the curtain for employers considering establishing a legal entity in Canada by covering the legal requirements, business structures, and alternative options, like partnering with an Employer of Record service to hire in Canada without going through the time and effort of establishing your own legal entity there.

Why set up a foreign entity in Canada?

Registering a company in Canada is a strategic move for foreign businesses looking to hire and pay employees directly, without relying on third-party services like an Employer of Record (EOR). Setting up your own legal entity can give you greater control over operations, compliance, and brand representation in the Canadian market. Businesses may opt for their own legal entity to fully integrate into the Canadian market, build lasting relationships, and capitalize on local opportunities.

Pros and cons of a legal entity vs. EOR

Canadian subsidiary vs. branch office

When expanding into Canada, foreign companies typically choose between the two most common types of business structures for non-Canadian business owners: a subsidiary corporation or a branch office. Each structure offers unique advantages:

Advantages of setting up a branch office in Canada

• Lower startup costs: Branch offices generally require less capital and fewer administrative procedures compared to subsidiaries.
• No Canadian resident director requirements: Branch offices are generally not subject to the same director residency mandates as foreign corporations.
• Simplified oversight: The parent company maintains direct control, which allows for streamlined decision-making and unified corporate policies.
• Less time to start up: Starting a branch office doesn’t require going through the time-consuming process of setting up a local entity—but the disadvantage is that a branch is not a separate legal entity and therefore your foreign company and Canadian branch share liabilities.

Advantages of setting up a subsidiary corporation in Canada

• Limited liability: A subsidiary operates as a separate legal entity, shielding the parent company from liabilities incurred by the subsidiary.
• Separate legal compliance and application of Canadian laws: Subsidiaries adhere to Canadian laws independently, which can be advantageous for legal and regulatory considerations.
• Independent taxation and separate tax returns: Subsidiaries file their own tax returns, potentially unlocking tax planning opportunities.
• Enhanced market presence: Being perceived as a local entity can improve credibility with customers, partners, and employees.
• Access to financing: Subsidiaries may find it easier to secure local financing and qualify for Canadian government incentives.
• Employee appeal: The stability and permanence of a subsidiary can make it more appealing to prospective employees.

Deciding where to incorporate in Canada

Canada offers the option to incorporate either federally under the Canada Business Corporations Act (CBCA) or provincially under individual provincial or territorial statutes, such as the Business Corporations Act in Ontario or the Quebec Business Corporation Act (QBCA) in Quebec—though this only applies if you’re setting up a subsidiary with its own local entity, not if you choose to start a branch office.

The law you choose to incorporate under—and, more importantly, where in Canada you choose to incorporate—can have important implications for your business. Most notably, several Canadian provinces’ incorporation laws have residency requirements for directors of business entities established there. For example, the CBCA requires that at least 25% of directors be Canadian residents, or if the board has fewer than four directors, at least one must be a resident Canadian.

On the other hand, British Columbia, Nova Scotia, Prince Edward Island, New Brunswick, Quebec, Alberta, and Ontario don’t have any director residency requirements in their provincial incorporation acts.

Requirements for foreign company setup in Canada

If your company has any interest in doing business in countries other than where it’s based, you’re probably already aware of the legal and regulatory requirements that can be involved. As a non-resident employer, unless you are going down the branch office route, setting up a legal entity is the first step to take before engaging in business activities in Canada, like hiring employees. 

The Canada Revenue Agency (CRA) and the Canadian government have slightly different business registration processes depending on whether your business is located in the US or somewhere else:

Requirements for US corporations

The two main requirements are to:

• Run a name search report
• Submit articles of incorporation, which contain your new entity’s:
• Name (unless it’s a numbered company)
• Registered office address (not a post office box)
• First director(s) and/or incorporator(s)
• Share capital and any share provisions

After incorporating, the entity also needs to:

• Approve its bylaws
• Set a banking authority
• Appoint directors and officers
• Issue shares

If you plan to finance your new Canadian company, you’ll need to choose a capitalization method.

For tax purposes, the following information must be provided to the CRA:

• Proof that shares are widely held:
• Public corporations must show evidence that shares are widely held and actively traded on a recognized US stock exchange.
• Private corporations must provide proof that shares are widely held and confirm they are registered with the US Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934.
• Type and value of shares or assets distributed to Canadian residents, the date it was distributed, and its fair market value at that time
• Names and addresses of all Canadian residents (including brokers and intermediaries) who received the distributed property
• Evidence that neither your company nor the spin-off company has ever been a resident of Canada
• Proof that the distribution isn’t taxable in the US:
• A copy of an IRS ruling letter stating that the distribution isn't taxable for US residents
• If you don’t have a ruling letter, proof from your filings with the SEC that your company and the spin-off intended the transaction to be tax-free for US shareholders, or copies of communications where your company gave US shareholders tax instructions indicating the distribution was tax-free.

Requirements for non-US corporations

Non-US companies follow the same steps for business registration. Then, they provide the same information to the CRA, with a few changes:

• The designated stock exchange doesn’t need to be in the US.
• Evidence that the distribution is tax-free should come from tax authorities in the jurisdiction where the distribution took place.

How to register a foreign company in Canada

To register a foreign business in Canada, follow these steps:

1. Choose your business structure. Decide between a branch office and a subsidiary corporation based on the factors covered above, like liability, control, and tax implications.
2. Choose between federal and provincial incorporation. Incorporating federally allows your entity to operate under the same name across Canada, but may have stricter residency requirements. Incorporating in a specific province, on the other hand, might offer more flexibility and local incentives, like tax credits.
3. Choose a company name. Conduct a NUANS (Newly Upgraded Automated Name Search) corporate name search to make sure your business name is unique. Be sure to comply with naming regulations set by federal or provincial authorities.
4. Prepare and file the required documents. Depending on where you incorporate your business and the laws that apply, these may include articles of incorporation to define your corporate structure and purpose, a registered office address, and director and officer information.
5. Obtain a Business Number (BN) and register for Canadian tax. Register with the CRA to obtain your BN. Enroll for corporate tax, income tax, Harmonized Sales Tax (GST/HST), payroll deductions, and other applicable tax accounts.
6. Open a Canadian bank account. Establish a business account to manage local financial transactions.
7. Obtain any necessary license or permits. Secure any industry-specific licenses or municipal permits required for your business to operate.
8. Notify Industry Canada. The Investment Canada Act requires foreign businesses to provide notification of establishment and investment.

Employer of Record: A time- and money-saving alternative to setting up a legal entity in Canada

If establishing a legal entity isn’t feasible, one alternative is to partner with an Employer of Record (EOR) service.

An EOR is a third-party service provider that helps companies legally hire employees in other countries without setting up their own legal entities, while still complying with local employment laws and tax regulations. The EOR acts as the official legal employer for the company’s international workforce—it establishes the local entity and then takes on the employment-related HR duties, like payroll processing, tax compliance, employment contracts, and benefits administration on the company’s behalf.

If you want to hire a Canadian employee—but don’t necessarily need an established business presence in Canada—an EOR can be a great way to hire and pay someone in Canada without going through the time-consuming and potentially costly process of setting up a Canadian entity of your own. Plus, EORs navigate a lot of the legal and compliance risk on your behalf, helping mitigate some of the potential pitfalls that come with international hiring.

Rippling EOR can help you hire employees in Canada quickly and compliantly. And if you set up your own entity in Canada, Rippling can still support your employees with global payroll—or even a complete workforce management platform.

Frequently asked questions about foreign entity setup in Canada

Can a foreigner register a company in Canada?

Yes, foreign nationals, entrepreneurs, foreign investors, corporations, and more can register a company in Canada. They have to meet certain requirements—such as providing appropriate documentation and, in some cases, appointing resident directors—but Canada generally encourages foreign investment and business development.

What is a foreign entity for tax purposes?

A foreign entity for tax purposes refers to a business incorporated or organized outside of Canada that conducts business activities within the country. These types of entities may have tax obligations in Canada, especially if they have a permanent establishment, such as a fixed place of business or significant presence.

How are Canadian branches vs. subsidiaries taxed?

Is it required to have a physical office in Canada?

A physical office is not strictly required, but you must have a registered office address in Canada for legal and correspondence purposes. This address can be provided by a registered agent or legal service provider if you do not maintain a physical presence.

How long does it take to register a business in Canada?

The registration process duration varies by jurisdiction and completeness of your application. Generally, incorporation can take from a few days to several weeks. Additional time may be needed for obtaining licenses, setting up bank accounts, and fulfilling other regulatory requirements.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.