Can a Canadian start a business in the US?

The United States has the world’s biggest economy, making it one of the best places to start a business. So, can a Canadian start a business in the US?

Yes, anyone can start a business in the US. EB-5 Green card and E-2 Treaty Investor Visa are the common options for Canadians, but E-2 Treaty Investor Visa is the best. Factors to consider when starting a business here include location, type of entity, tax ID, permits and taxes, and bank account.

Although there are requirements when applying for an E-2 treaty investor visa, they’re not too complex or strict. Here, we discuss whether Canadians can start a business in the US and what to consider when doing so.

Best Visa for Canadians Seeking to Start Business in the US

Canadians moving to the US will have to obtain a visa. If the move is for business purposes, the most suitable options are:

1.   EB-5 Green Card

This visa is for those who want to live in the US without being in charge of the business’s day-to-day operations. The EB-5 green card is obtainable through the US Citizen and Immigration Services regional centers. You’ll need to invest around $900,000 into a US business to get this visa.

2.   E-2 treaty Investor Visa

The E-2 treaty investor visa is the most common method to start a business in the US. It’s open to the citizens of all countries that are part of the North American Free Trade Agreement. Canada is one such country. It requires investing a significant amount into any eligible US business. The visa allows Canadians to own and operate their business in the US while living in the US. The visa is renewable every five years, and there’s no limit to how many times you can renew as long as the business is operating.

The applicant’s dependent spouse and minor children can also live in the US under the same conditions. The spouse can get a work permit for any job during that period, but dependent children can’t seek work permits. Thus, this is the best visa for most people.

Requirement for E-2 Treaty Investor Visa

Before anyone can apply for this visa, the business must already be in place. Even though all kinds of businesses, including franchises, will qualify, the business must be a real and active commercial enterprise or entrepreneurial enterprise. It can’t be a shell company or just a speculative or passive investment. The business shouldn’t be a marginal enterprise as well. A marginal enterprise is a business that can’t generate enough income to provide a minimal living for the treaty investor and their family.

The sources of investment funds must be legitimate, and applicants must have control of the funds at the investment time. In addition, such funds must be committed to the US business irrevocably with the risk of loss if the business fails.

How much do you have to invest?

There’s no minimum investment to qualify for the E-2 treaty investor visa. Instead, the US consulates will generally consider the percentage of applicant investment in proportion to the total cost of acquiring or starting the business. The proportionality of investment reduces as the cost of starting or acquiring a business increases. Generally, about US$100,000 is enough as it satisfies the proportionality. But even less can be acceptable.

How to set up a business in the US

Setting up a business in the United States is similar to setting up a federal corporation in Canada. But there are differences, especially in terms of compliance. Here are the factors to consider when setting up a business in the US.

1.   Location

Setting up a business in the US matters a lot because the US doesn’t have a national corporation like Canada. This means all business entities will be governed at the state level. Each state has its peculiarities. So, you need to check to see the state that fits your situation. Conditions such as taxes, fees, etc., can help you decide which place is right.

2.   Type of Entity

Most states in the US allow foreigners to establish a limited liability company without becoming citizens. So, Canadians can set up a company with sole control and ownership in the US. They can also decide to invest in a US corporation and be shareholders. But a Canadian can’t be the sole shareholder of an S corporation. This type of corporation enjoys special tax benefits under the law in that they don’t pay income tax. In addition, the US tax code allows a foreigner non citizen resident alien to be an S-corporation shareholder. So, if you would be living in the US, it’s possible to have an S-corporation.

3.   Bank Account

You’ll also need to have a US bank account for your company. Opening a US bank account as a foreigner might be complex and take time. Some banks will require that you provide a US address. You can do this through a Registered Agent or use a mail service that does not use a post-office-styled mailbox. Since all you need is a physical street address to get your mail, some companies offer such spaces for rent. You can find them online.

4.   Tax ID

Banks will also request certified copies of company documents and social security numbers or an Individual Tax Identification Number (ITIN) for non-US citizens. You can request this from the IRS using Form W-7. It might take between 6 – 8 weeks after filing the paperwork before you can get your ITIN. So, make sure you do it on time as soon as you decide to start a business in the US. In addition, you’ll need the ITIN to apply for another tax number for your company. This is the Federal Employer Identification Number (FEIN) you’ll apply for using IRS Form SS-4. It might take a few weeks too. So, plan for it as well.

5.   Permits and Taxes

These will depend on where you’re setting up the business and the kind of business it is. You should make inquiries early on to know the local business licenses, taxes, and permits that you may require. You can get this information from the local business bureau or any tax or bookkeeping service in the area. Many won’t even charge you for this as they’ll hope to make you a client once you’ve established your business.

In Conclusion

Canadians can easily start a business in the US. All you need to do is the E-2 treaty visa, which allows you to live in the country. There are factors to consider when starting a business in the US, of course, but nothing outside of the ordinary.

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