Business planning · Canada

Where is better to setup a startup? US vs Canada?

Dan J Tech Leader, Looking for problems & business ideas to solve by SAAS Application, domain knowledge

October 8th, 2020

I live in Vancouver, Canada. And, I found a partner in the US to help me with Sales. We are already in the process of talking with our first customer which we agree to provide a custom solution for him, as he needs the Software As A Service (SAAS) for his business, he lives in the US as well.

I need to set up a corporation for me and my Sales partner. I am wondering which one is better, set it up in Canada or the US?

I found this article useful:

In short, Canada provides lower income tax for the corporation than the US which is good, that was my initial thought of open it here in Canada.

Also, I can apply for a grant from the Provincial or federal government down the road.

Lastly, as I read this article, I realized Canadian-controlled private corporations (CCPCs) are another option that Canada provides. However, since my partner is not a resident of Canada, I do not think our corporation would be eligible for CCPC.

I would like to hear your thought or experince about it. Thank you!

Aria Consulting Clear, Practical, Solutions in Action

October 8th, 2020

Ultimately, it really depends on a combo of how you can realistically get the company funded, your ability to qualify for SR/ED (and for how much), as well as longer term growth. As to Canadian tax being cheaper than in the US, I think you misinterpreted some of what is in that article. IF you qualify for SR/ED (and at an attractive rate), and IF the ownership and control structure maintains qualification for CCPC, and depending how much revenue and GP you make and when in the life of the corp, Canadian tax could be lower during the first couple of years. After THAT though (meaning the expiry of SR/ED benefits), Canadian corp, and definitely personal, tax rates are definitely higher than the US.

But also look at outward facing tax considerations (for the business's customers) such as GST, PST, HST vs. what might apply in whatever jurisdictions you might look to incorporate and 'headquarter' in in the US. Would our sales tax structure be an issue for growth? And if a large percentage (doesn't even have to be an actual majority) of your sales would be south of the 49th, would that sales tax structure, combined with customs/duty considerations be more of a limitation or not.

Another consideration is that US patents (if you're going after SR/ED, I assume you would then be seeking patents on what you create) tend to be much stronger than Canadian patents, both in N.A. and much of the rest of the world.

Finally, you should also take into consideration factors on the personal side for taxation and other things such as our provincial health care advantages depending on how you pay yourself.

Paul Garcia marketing exec & business advisor

October 9th, 2020

Better for what? Remember that no matter where your company is incorporated, if you're doing business with customers in another country you still will have to deal with cross border regulation of trade, banking, liability, tax, and many other considerations that depend on locus. Perhaps best to speak to an accountant familiar with international trade.