DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

What’s You Tax Issue? Non-Resident Providing Services

In Canadian Income Tax, Non-residents on August 23, 2010 at 9:30 am

The Tax Issue:

Can a Canadian Corporation employ a non-resident (Swedish citizen) on its Canadian payroll, directly, take off withholdings etc. This individual resides in Sweden, works with us from there and visits twice yearly for a month at a time. If we can do that, it is beneficial for him as paying his consulting company in Sweden is even more onerous for him.

The Answer:

It is up to you to decide to enter into a contract with a consulting company or with an individual personally. I can’t comment on what the Swedish tax implications would be in either case. Also, whether this person is an employee or is self-employed is another issue that must be addressed. Either way though, if he is performing services in while Canada, his fees are likely subject to Canadian withholding taxes of 15% under Regulation 105 (see my previous post on this topic).

Payroll withholding generally only applies to employees who regularly report to work at an establishment in Canada. A non-resident employee is generally exempt from this withholding, provided he is subject to tax in his country of residence.

Whether he is actually subject to income tax in Canada with respect to services rendered here is another question, and it depends on the total length of time he spends here, and the provisions of the Canada-Sweden tax treaty. He will likely have to file a Canadian income tax return in any case, to recover the withholding taxes.

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