If your company makes sales in Canada and sends non-resident employees to work temporarily in Canada, it’s essential to be aware of the obligations involved and the possible solutions.
In a previous article, we explained what a non-resident employee exemption is and demystified its benefits and requirements.
In this article, we’ll untangle the complexities of non-resident employer certification, providing you with the essential knowledge to navigate the Canadian tax landscape with confidence.
We’ll give you practical tips to help you better understand this solution.
By the end of this article, you’ll have a good idea of your company’s tax obligations when sending non-domiciled employees to Canada, and the tools to navigate this terrain with ease.
Why tax obligations?
Non-resident employees working temporarily in Canada have the same withholding, remitting and reporting obligations as Canadian resident employees.
This means that any employer, including a non-resident employer, must withhold amounts on behalf of the employee’s tax liability in Canada, even if the employee is likely to be exempt from tax due to a tax treaty.
To be exempt from withholding, the employee must apply for and obtain an income tax waiver from the Canada Revenue Agency (CRA) if the conditions are met.
However, eligible non-resident employers who pay employment income to eligible non-resident employees for the performance of duties in Canada may obtain a non-resident employer certification in order to benefit from income tax withholding relief
What is a non-resident employer attestation?
This certification serves as a mechanism to simplify tax compliance procedures for both employers and employees. When a non-resident company obtains certification, it means that it meets certain criteria set by the Canada Revenue Agency (CRA). Certification allows the company to be exempt from withholding and remitting income tax on behalf of its non-resident employees working in Canada.
What conditions must be met?
To obtain certification as a non-resident employer in Canada, the non-resident employer and its employees must meet certain criteria.
The employer must be a non-resident of Canada for tax purposes. This means that the corporation is not incorporated or resident in Canada and does not have a permanent branch in Canada. A permanent establishment is a fixed place of business, such as an office, branch or factory, through which the employer carries on business in Canada.
Eligibility for tax treaties
The employer must be resident in a country that has a tax treaty with Canada. Tax treaties are bilateral agreements that prevent double taxation and determine the tax treatment of cross-border activities.
Employees sent to work in Canada must also meet certain criteria (citizenship, country of residence, amount of salary paid in Canada, C$10,000 threshold, etc.) To be eligible, the total period of employment in Canada must not exceed 45 days during the calendar year. Employment in Canada must not exceed 90 days and eligible employees must not be present in Canada for more than 183 days in any 12-month period.
The employer’s activities in Canada must fall within the scope of the tax treaty and be eligible for certification. The most common eligible activities are participation in meetings, training programmes or the provision of expertise and advice on a temporary basis.
The application must be received at least 30 days before an eligible non-resident employee begins to provide services in Canada or the initial payment for employment services is made.
Application process: The employer must complete and submit the application for non-resident employer certification to the CRA. The application requires detailed information on the employer, the employees, the nature of the work in Canada and the tax treaty provisions.
Here are two case study examples that illustrate scenarios in which non-resident employees may trigger a withholding tax obligation for non-resident businesses operating in Canada:
Case studies: scenarios triggering a withholding tax obligation in Canada
Construction project contract
Example of ABC Construction (based in Europe)
Scenario: ABC Construction is awarded a major construction project in Canada. To carry out the project, it sends a team of skilled workers from its European headquarters. These European workers are non-residents of Canada. Since the construction project involves the provision of services in Canada, ABC Construction is required to withhold tax at source. The company must deduct and remit the required taxes on the salaries paid to the non-resident employees working on the project.
Example of an international consulting firm (based in the United States)
Scenario: An international consulting firm is hired by a Canadian client to provide consulting services. As part of the assignment, it sends a team of consultants from its New York offices to work on-site with the client. The consultants are non-residents of Canada.
Due to the nature of their work, non-resident consultants are deemed to be performing services in Canada. Accordingly, Global Consulting Firm is responsible for withholding and remitting taxes on their behalf in accordance with Canadian tax regulations.
These case studies highlight different scenarios in which non-resident employees working in Canada may give rise to tax withholding obligations for their respective companies.
What are the advantages of non-resident employer certification?
Relief from withholding tax
Certification of the non-resident employer allows certain source deduction obligations to be waived. Normally, when non-resident employees work in Canada, their employers are required to withhold and remit income tax on their behalf. However, eligible employers can be exempted from this withholding obligation, resulting in improved cash flow and reduced administrative costs.
By eliminating the need to withhold and remit income tax, certification can result in substantial savings for non-resident employers. Instead of allocating resources to tax compliance procedures, companies can spend these funds on other priorities, such as expansion, research and development, or employee development programmes. This can contribute to a more efficient and financially sound operation.
Simplification of payroll procedures
Managing the payroll of non-resident employees can be complex, given the various regulations and tax requirements. However, with certification, businesses benefit from simplified payroll processes. By eliminating the need to deduct tax at source, employers can streamline their payroll operations, reducing administrative complexity and improving efficiency. Certification can be valid for up to two years.
Improved employee satisfaction
When non-resident employees are subject to withholding tax, it can create complications and frustration. By becoming certified, you alleviate this burden for your employees, resulting in greater job satisfaction and improved morale. Happier employees are more likely to be engaged, productive and motivated, contributing to the overall success of your organisation.
What can ASD Group do for you?
Note: This article provides general information on tax obligations for non-resident companies sending employees to Canada and the tax exemption for non-resident employees. The content of this page is intended for information purposes only and does not constitute legal, financial or tax advice. However, tax laws can be complex and vary from case to case. You are therefore advised to contact us for advice specific to your situation.