For many US businesses, expanding into the Canadian market seems like a lucrative opportunity. This is especially true for American companies. Canada shares many cultural similarities with the US, and the geography is often similar. American business owners may feel they’re well-equipped to enter the Canadian market, and they perceive a demand for their products and services.

12 Things an American Company Looking to Pay a Worker In Canada Needs to Know

If a Canadian expansion is on your radar, there are many things you’ll need to consider carefully.

1. You’ll Need a Plan for Employee Severance

In the United States, employers and employees operate on the assumption of “at will” employment. This means that either employer or employee can choose to end the employment relationship at any time, without prior notice.

An employee who arrives to work today could be told not to return tomorrow, and this wouldn’t pose a problem.

In Canada, it’s a different story. Employees must be given proper notice of termination. This is often at least two weeks prior to the end date. For employees who have served for many years, the notice period may be longer.

If you don’t have time to give proper notice, such as in the case of mass layoffs, then you may need to pay severance instead. This will consist of paying the employees for the notice period. If an employee was entitled to two weeks’ notice and you only gave them one, then you’ll need to pay them a week of severance.

2. Sales Tax

You’ve likely thought a bit about taxation, but probably only within the context of how your business will be taxed. You may not have thought much about sales tax.

You’ll want to be sure you know the regulations for collecting tax in the province in which you operate. Federal sales tax of five percent applies throughout the country. Alberta doesn’t have a provincial sales tax, but Ontario applies eight percent. Quebec’s provincial sales tax is even higher.

You’ll need to collect and remit sales tax to the CRA as appropriate. If you don’t, it could result in penalties.

3. Income Taxes

Another tax issue you must contemplate before you expand into Canada is income tax. As a foreign company with sales in Canada, you’ll likely need to file income taxes.

It’s important to do this properly and on time, so as to avoid penalties. The penalties for not filing income tax can be significant. The CRA may decide to audit your records.

It’s important to understand the various tax treaties in Canada, and how your business structure affects what you’ll need to remit. Tax varies as the structure of the business changes, so you’ll need to explore the best option for your business.

4. The Treatment of LLCs

A limited liability corporation (LLC) is a common business structure for American companies. In Canada, LLCs are treated the same as any other corporation for taxation purposes.

This limits your ability to create a “flow-through entity,” which allows your income to be taxed in one country but not the other. This could create a situation where you face double taxation, so be sure to review your business structure options.

5. The Need for Counsel

When you decide to expand your business into Canada, the best thing you can do is get expert advice. Whether you’re trying to determine what business structure is best for you, or you want to know more about the regulations for employment, seeking advice is prudent.

One great option to consider is to get in touch with a professional employer organization (PEO) that operates on both sides of the border to ease the expansion process.