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A foreign-owned business in Canada has three layers of rules to meet: the tax rules (a T2 return, plus withholding and reporting on payments to non-residents), the Investment Canada Act notice, and ordinary record-keeping. Compliance requirements for foreign-owned businesses in Canada start with one question you must settle first. Is the business a Canadian corporation with foreign shareholders, or a foreign company running a branch here? This page assumes the first and flags the second where it differs.
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 | Required when reportable transactions with non-arm’s-length non-residents exceed $1,000,000 |
| 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. The CRA says the T106 applies when the total reportable transactions with all non-residents combined exceed $1,000,000. For tax years from 2022, the detailed part of the form can be skipped for a particular non-resident when the total with that person is below $100,000. The T106 due date wasn’t on the pages we read, so check the form instructions.
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.
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 notice timing comes from the Investment Canada Act guidance published by Innovation, Science and Economic Development Canada, which we opened in October 2026. Rates in the example come from CRA corporation tax rates as of September 2026. This site has no tie to the CRA or any government, and 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.
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 by non-residents.
What is branch tax?
An additional tax of 25% on non-resident corporations carrying on business in Canada, unless a tax treaty reduces it.
When is a T106 required?
When total reportable transactions with non-arm's-length non-residents exceed $1,000,000. Check the form instructions for the due date.
When must a non-Canadian notify under the Investment Canada Act?
No later than 30 days after starting a new Canadian business. Filing at least 45 days earlier is encouraged.
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