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A foreign-owned business in Canada has three layers of rules: tax (a T2 return, plus withholding and reporting on payments to non-residents), the Investment Canada Act notice, and ordinary record-keeping. First settle whether you run a Canadian corporation with foreign shareholders or a foreign company with a branch. This page assumes the first and flags the second.
Does a foreign-owned company file a T2?
Yes. The CRA says every corporation that carries on business in Canada, or disposes of taxable Canadian property, files a T2 each year. For a non-resident corporation that return is due six months after the tax year ends. A Canadian corporation owned by foreigners files the same T2 on the same schedule as any other.
A branch has an extra cost. The CRA describes an additional tax of 25% on non-resident corporations that carry on business here, unless a tax treaty reduces it. The idea is to put the branch in about the same position as a subsidiary paying dividends to its foreign parent.
What changes for the tax rate?
Quite a lot. Only a Canadian-controlled private corporation can claim the small business deduction, and the CRA’s definition says a CCPC can’t be controlled, directly or indirectly, by non-residents. So a company controlled from abroad pays the general rate on all of its income.
Put numbers on it. An Ontario corporation with $150,000 of active income and non-resident control pays $22,500 federal and $17,250 provincial, $39,750 in total, a 26.5% rate, according to our corporate tax calculator. Untick the CCPC box to reproduce that. A Canadian-controlled company in Alberta with the same income pays 11%, so control matters more than the province. The gap on that $150,000 is $39,750 against $16,500, which is $23,250 a year. The calculator ignores several rules, so treat the output as an estimate.
Which payments to non-residents need withholding?
When a business pays certain kinds of income to a non-resident, the payer may have to withhold Part XIII tax and report it on an NR4. The CRA points to guide T4061 for the detail, and the rates depend on the type of payment and any treaty. The rates themselves weren’t something we verified, so look at T4061 and the treaty before you pay a foreign parent.
| Obligation | What to know |
|---|---|
| T2 return | Every year, within six months of year end |
| Branch tax | 25% unless reduced by treaty (non-resident corporations) |
| Part XIII withholding and NR4 | On certain payments to non-residents, see guide T4061 |
| T106 | Detail can be skipped for a non-resident under $100,000 (tax years from 2022) |
| Investment Canada Act notice | No later than 30 days after starting a new business |
| Records | Six years, kept in Canada unless the CRA permits otherwise |
Do related-party dealings need a T106?
If you buy from, sell to, or borrow from a foreign parent or sister company, you may. For tax years from 2022, the CRA’s de minimis policy lets you skip the detailed part of the form for a particular non-resident when the total with that person is below $100,000. The same page describes the $1,000,000 total across all non-residents as the 1998 rule, and we found no current CRA page that applies it today. The T106 is due with the return, so six months after year end for a corporation.
Don’t confuse it with the T1134. That return is for Canadian residents who own foreign affiliates, so it matters if your Canadian company owns a company abroad, not the other way round.
Does a sample set of related-party payments reach the T106 line?
A worked example shows why the log matters. Say a Canadian corporation pays its foreign parent a $120,000 management fee and $30,000 of loan interest in a year. That is $150,000 in total, well under $1,000,000. Now say it also buys $900,000 of goods from the parent. The total becomes $1,050,000, which is over the line, and because the parent’s total is more than $100,000 the detail part of the form would apply to it for tax years from 2022.
Whether each item counts as a reportable transaction is a question for the form instructions or an accountant, so treat the example as an illustration of the arithmetic only. The habit that helps is a running list of every payment between the two companies, with the date, the amount and the reason. If you own the foreign company from Canada, the page on accounting for international subsidiaries covers the T1134 side.
What does the Investment Canada Act ask for?
A non-Canadian who sets up a new Canadian business, or buys control of an existing one, must notify the government. The ISED Investment Canada Act FAQ gives 30 days after the investment is implemented as the outer limit and encourages filing at least 45 days before in some cases, particularly for state-owned investors. Some investments get a full review, and national security review can apply to others, so the notice is where you learn which path you’re on. That is a legal question and worth an hour with a lawyer who does it regularly.
What should a foreign owner do in the first year?
- Work out whether you’re running a Canadian corporation or a branch, because that decides the tax rate and the extra branch tax.
- Put the Investment Canada Act notice date in your calendar before the business starts, not after. A 30-day window goes quickly when you’re also hiring, renting space and opening a bank account.
- Write down every payment between the Canadian company and its foreign owner, so Part XIII and T106 questions are easy to answer.
- Set up a place in Canada for the books from day one.
Everyday obligations people overlook
Payroll runs as it would for any employer. For one Ontario employee paid $2,200 every two weeks, the payroll remittance calculator shows $453.16 held back and $173.09 added by the employer, $626.25 to remit per period. Use the take-home pay calculator to see what the employee receives.
Records need attention too. The CRA expects books at your place of business or residence in Canada. Data accessed here but stored abroad doesn’t count as a Canadian record, and storing electronic records outside the country needs the CRA’s written permission.
Provincial registration, licences, and sales tax registration vary by where you operate and what you sell. They aren’t listed here, so check the provincial sites.
How we checked the figures
The T2, branch tax, Part XIII, T106 and record keeping points come from CRA pages on non-resident corporations, foreign reporting and record retention. The T106 per non-resident amounts are from the CRA de minimis policy page, which we opened in November 2026. Notice timing comes from the Investment Canada Act guidance of Innovation, Science and Economic Development Canada, opened in October 2026. Rates come from the CRA corporation tax rates page. None of this is legal advice.
Frequently asked questions
Does a foreign-owned Canadian corporation file a T2?
Yes. Every corporation that carries on business in Canada files a T2 each year, within six months of its tax year end. A Canadian corporation with foreign shareholders files on the same schedule as any other. A non-resident corporation carrying on business here also files a T2 on the same six month timing.
Can a foreign-controlled company use the small business rate?
No. The small business deduction is for Canadian-controlled private corporations, and a CCPC cannot be controlled, directly or indirectly, by non-residents. On $150,000 of Ontario active income, our calculator shows about 26.5% combined at the general rate against 11% in Alberta for a Canadian-controlled company.
What is branch tax?
An additional tax of 25% on non-resident corporations that carry on business in Canada through a branch, unless a tax treaty reduces it. It puts a branch in roughly the same position as a subsidiary that pays dividends to its foreign parent, so check the treaty rate for your country before you plan the structure.
When is a T106 required?
When you have transactions with non-arm’s-length non-residents. For tax years from 2022, the CRA says the detailed part can be skipped for a non-resident whose total is below $100,000. The older $1,000,000 total across all non-residents is described as the 1998 rule. The T106 is due with the return, so six months after year end for a corporation.
When must a non-Canadian notify under the Investment Canada Act?
No later than 30 days after starting a new Canadian business or acquiring control of one. The government’s guidance encourages filing at least 45 days before in some cases, particularly for state-owned investors. Some investments get a full review or a national security review, so a lawyer who does this work is worth an hour.
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