Non-Resident Corporation in Canada: T2 Filing, Tax Rates and US LLC Rules

A non-resident corporation in Canada pays Canadian income tax on three things only: profits from a business carried on in Canada, taxable capital gains on taxable Canadian property, and Canadian-source passive income caught by withholding tax. The filing rule is wider than the tax rule. The Canada Revenue Agency (CRA) requires a T2 return from every non-resident corporation that carried on business in Canada or sold taxable Canadian property in the year, even when a treaty exempts the profit, and charges a flat daily penalty when that return is late. This guide covers the definition, the T2 deadlines, the rates, branch tax, Regulation 105, GST/HST and how Canada taxes a US LLC.

What is a non-resident corporation in Canada?

A corporation is resident in Canada if it was incorporated in Canada after April 26, 1965, or if its central management and control is exercised in Canada, which in practice means the place where the board of directors meets and makes the real decisions. A non-resident corporation is any corporation that meets neither test. A company incorporated in Delaware whose directors meet in Texas is a non-resident corporation even if every customer it has is in Canada.

A corporation resident in Canada under Canadian law but resident elsewhere under a tax treaty is deemed non-resident by subsection 250(5) of the Income Tax Act; Article IV(3) of the Canada-US treaty breaks a corporate tie in favour of the country under whose laws the corporation was created. Residence decides what is reported, worldwide or Canadian-source income. It does not decide whether a T2 is due; that turns on what the corporation did in Canada.

When does a non-resident corporation have to file a T2?

Under subsection 150(1) of the Income Tax Act, as the CRA sets out in its T2 guide (T4012), a non-resident corporation must file a T2 Corporation Income Tax Return for any tax year in which it carried on business in Canada, had a taxable capital gain, or disposed of taxable Canadian property. The guide adds that this applies "even if the corporation claims that any profits or gains realized are exempt from Canadian income tax due to the provisions of a tax treaty". The one carve-out is narrow: a corporation whose only Canadian event was a sale of taxable Canadian property can skip the T2 if no Part I tax is payable, it owes nothing for earlier years, and every property sold was excluded property under section 116 or covered by a section 116 certificate.

Every non-resident corporation attaches Schedule 97. A corporation claiming a treaty exemption also attaches Schedule 91, which makes the filing a treaty-based return; the walkthrough is in our guide to the treaty-based return, Schedule 91 and Schedule 97. The return goes in Canadian funds only, because the functional currency election is open to corporations resident in Canada.

Situation	T2 required	What else applies
Sells from abroad, no staff, agents or property in Canada	No, unless it sold taxable Canadian property	Part XIII withholding on Canadian-source dividends, interest, rents or royalties; possible GST/HST registration under the digital-economy rules
Performs services in Canada without a permanent establishment	Yes, with Schedule 91 and Schedule 97	15% Regulation 105 withholding on the fees, refunded through the T2; no Part I tax under the Canada-US treaty
Operates a branch that is a permanent establishment	Yes, with Schedule 97 and Schedule 20	Part I tax at federal and provincial rates, plus Part XIV branch tax; GST/HST registration
Owns a Canadian subsidiary	The subsidiary files as a Canadian resident; the parent files only if it separately carried on business in Canada	Part XIII withholding on dividends, interest and royalties paid to the parent, reduced by treaty

The branch and subsidiary rows are the two structures most foreign companies choose between; the trade-offs are in Canadian subsidiary versus branch.

Do non-resident corporations follow the same T2 deadlines?

Yes. The T2 is due six months after the end of the tax year, with no distinction for non-residents: a December 31 year-end files by June 30. Any balance of tax is due on the balance-due day, two months after year-end. The three-month balance-due day exists only for Canadian-controlled private corporations claiming the small business deduction, and a non-resident corporation can never be a CCPC.

The penalties are where non-residents are treated differently. Every corporation that files late owes 5% of the unpaid tax plus 1% for each complete month late, to a maximum of 12 months, under subsection 162(1), rising to 10% plus 2% a month for up to 20 months under subsection 162(2) on a repeat failure. For a non-resident corporation, subsection 162(2.1) makes the penalty the greater of that amount and the greater of $100 and $25 for each day the return is late, up to 100 days. Most treaty-exempt returns show nil tax, so the flat figure is the one that bites: a Schedule 91 return filed 30 days late costs $750, and 100 days late or more costs $2,500, for a corporation that owed Canada nothing.

Obligation	Deadline	Consequence for a non-resident corporation
T2 return, including a nil treaty-based return	Six months after year-end	Greater of the ordinary late-filing penalty and the greater of $100 and $25 a day, capped at 100 days ($2,500)
Balance of Part I and Part XIV tax	Two months after year-end	Arrears interest from the balance-due day
Ordinary late-filing penalty where tax is owing	Same six-month date	5% plus 1% a month for up to 12 months; 10% plus 2% a month for up to 20 months on a repeat failure

How much tax does a non-resident corporation pay in Canada?

The federal Part I rate starts at 38%, drops to 28% after the 10% federal abatement on income earned in a province, and ends at a net 15% after the general tax reduction. The 9% small business rate is for CCPCs only. Provincial tax is added where the corporation has a permanent establishment in a province: the CRA's table shows a higher rate of 11.5% for Ontario and 12% for British Columbia, while Alberta and Quebec collect their own. A US branch with a permanent establishment in Ontario therefore pays roughly 26.5% before branch tax.

The treaty sits on top. Article VII of the Canada-US treaty makes business profits of a US resident taxable only in the United States unless the business is carried on in Canada through a permanent establishment. Article V defines one as a fixed place of business, adds a building site or installation project lasting more than 12 months, and, since the Fifth Protocol, adds a services permanent establishment where an individual is present in Canada for 183 days or more in any 12-month period and generates more than 50% of the enterprise's gross active business revenue, or where services on a connected project run 183 days or more in any 12-month period. Under those thresholds a US corporation files the T2, claims the exemption on Schedule 91 and pays no Part I tax. The wider picture, including the limitation on benefits article, is in our guide to the Canada-US tax treaty and its implications.

What is branch tax?

Branch tax is the Part XIV additional tax on non-resident corporations: 25% of after-tax Canadian business profits not reinvested in Canadian property, calculated on Schedule 20 and entered on line 728 of the T2. It puts a branch in the same position as a subsidiary, which would pay Part XIII withholding tax when it paid dividends. Treaties usually limit branch tax to corporations with a permanent establishment and cut the rate to the treaty dividend rate. Under Article X(6) of the Canada-US treaty the rate is 5%, and the first $500,000 of Canadian branch earnings, measured cumulatively over the life of the branch, is exempt.

How is a US LLC taxed in Canada?

Canada taxes a US LLC as a corporation. The CRA stated in Income Tax Technical News No. 38 that, having analysed the characteristics of US LLCs, it concluded they are corporations for Canadian tax purposes, and it has held that view since. That the IRS treats a single-member LLC as disregarded, or a multi-member LLC as a partnership, changes nothing on the Canadian side. An LLC that carries on business in Canada is a non-resident corporation: it files a T2 with Schedule 91 and Schedule 97, owes Part I tax on profits attributable to a Canadian permanent establishment, is subject to branch tax, and has 15% withheld under Regulation 105 on fees for services performed here. The LLC, not its members, is the Canadian taxpayer.

The treaty is where an LLC parts company with a US C-corporation. A fiscally transparent LLC pays no US tax in its own name, so the CRA's view, restated in a 2019 internal interpretation, is that it is not a resident of the United States for treaty purposes. Before 2008 that meant no treaty at all. The Fifth Protocol, signed September 21, 2007 and in force since December 15, 2008, added Article IV(6): income, profit or gain is treated as derived by a US resident where that person is considered under US tax law to derive it through an entity that is fiscally transparent under US law, provided the US treatment is the same as if the person had earned it directly. The LLC still files the T2 and remains the taxpayer, but it claims treaty benefits on Schedule 91 to the extent its members are US residents who qualify under the limitation on benefits article.

LLCs lose treaty benefits in four recurring situations. A member who is not a US resident brings no relief for their share, so the exemption is partial; a US member who fails the limitation on benefits test is in the same position. Article IV(7), effective January 1, 2010, denies benefits where one country treats the entity as transparent and the other does not, the rule that removed treaty rates on payments from Canadian unlimited liability companies to US LLCs. On branch tax, the CRA has confirmed the 5% rate through a chain of LLCs owned by qualifying US persons, but its published interpretations have not extended the reduced rate to profits attributable to individual members, so an LLC owned by individuals should budget 25% on that share until it holds its own ruling. And the LLC must document the residence and eligibility of every member for every year it claims the exemption.

Canadian outcome	US LLC (disregarded or partnership for US tax)	US C-corporation
Classification in Canada	Corporation	Corporation
US resident under the treaty	No; benefits flow only through Article IV(6) for qualifying US-resident members	Yes, in its own right
Business profits with no permanent establishment	Exempt for the share attributable to qualifying US-resident members; taxable for the rest	Exempt under Article VII
Branch tax rate and $500,000 exemption	5% confirmed through corporate members; individual members' share exposed to 25%	5% after the first $500,000
Regulation 105 on Canadian service fees	15% withheld; waiver and refund depend on member-level eligibility	15% withheld; waiver and refund on the corporation's own treaty position

The cleanest fixes are structural. An LLC that elects corporate tax status in the United States pays US tax in its own name and is a US resident under the treaty without Article IV(6); confirm that election with a US adviser. A US C-corporation or a Canadian subsidiary avoids the member-by-member analysis altogether.

What is Regulation 105 withholding on services?

Regulation 105 requires anyone paying a non-resident a fee, commission or other amount for services rendered in Canada to withhold 15% of the gross amount, remit it to the CRA, and report the payment on a T4A-NR slip by the last day of February. It applies with or without a permanent establishment. The CRA describes the withholding as a payment on account of the non-resident's Canadian tax liability, not a final tax, so a treaty-exempt corporation recovers it by filing the T2 with Schedule 91. The two ways to avoid parking 15% of revenue with the CRA for a year are a treaty-based waiver applied for before the work starts, covered in our Regulation 105 waiver application guide, and the refund route after the fact, set out in how US companies recover Regulation 105 withholding through a treaty-based T2.

Does a non-resident corporation have to register for GST/HST?

A non-resident corporation must register under the normal GST/HST regime if it makes taxable supplies in Canada in the course of a business carried on in Canada and is not a small supplier, meaning worldwide taxable revenue above $30,000 in a single calendar quarter or over the last four consecutive quarters. A non-resident with no permanent establishment in Canada must also post a security deposit of 50% of estimated net tax for the year, minimum $5,000 and maximum $1 million. Voluntary registration below the threshold unlocks input tax credits on Canadian costs.

Since July 1, 2021, a second regime has applied to non-residents that do not carry on business in Canada in the traditional sense. A non-resident vendor whose sales of digital products or services to Canadian consumers exceed $30,000 over any 12-month period must register under the simplified GST/HST regime and collect tax from those consumers. Simplified registrants cannot claim input tax credits, so a vendor with meaningful Canadian costs may prefer normal registration.

Before a non-resident corporation can invoice a Canadian customer, receive a Regulation 105 refund or remit GST/HST, it needs somewhere to hold Canadian dollars, and a traditional Canadian bank account is hard to open without a Canadian entity.

How does a non-resident corporation take profits out of Canada?

A branch has no shareholder to pay, so its after-tax profits leave freely and the only exit charge is Part XIV branch tax. A Canadian subsidiary pays its parent by dividend, interest, royalty or management fee, and each payment to a non-resident attracts Part XIII withholding tax at 25%, reduced by treaty: Article X(2) of the Canada-US treaty brings dividends to 5% for a corporate parent owning at least 10% of the voting stock and 15% otherwise, and the rates for every payment type are in our guide to Canadian withholding tax for non-resident companies and their shareholders. Where the parent is a US LLC, the Article IV(6) analysis decides, member by member, whether the reduced rate applies. Intercompany charges must be priced at arm's length under Canada's transfer pricing rules. And a corporation that never opened a Canadian account will find receiving a CRA refund harder than it should be, which is why we wrote a separate guide to opening a Canadian business bank account remotely as a non-resident.

Frequently asked questions

What is a non-resident corporation in Canada?

A corporation that was not incorporated in Canada after April 26, 1965 and whose central management and control, normally where the board meets, is exercised outside Canada. It pays Canadian income tax only on Canadian business profits, gains on taxable Canadian property and Canadian-source income subject to withholding tax.

Does a non-resident corporation have to file a T2 if a tax treaty exempts its income?

Yes. The CRA's T2 guide states that a non-resident corporation that carried on business in Canada must file even if it claims the profits are exempt under a tax treaty. The exemption is claimed on Schedule 91, filed with Schedule 97, in Canadian funds.

Do non-resident corporations follow the same T2 deadlines as Canadian corporations?

Yes. The T2 is due six months after the end of the tax year and any balance of tax two months after year-end. The three-month balance-due day is only for CCPCs claiming the small business deduction, and a non-resident corporation cannot be a CCPC.

What is the penalty for a non-resident corporation that files a T2 late?

Under subsection 162(2.1) of the Income Tax Act (or, where no tax is payable, paragraph 162(7)(b) at the same rate, per Exida.com, 2010 FCA 159), the greater of the ordinary late-filing penalty (5% of unpaid tax plus 1% a month for up to 12 months) and the greater of $100 and $25 for each day late, up to 100 days. A nil treaty-based return filed 100 days late or more costs $2,500.

How is a US LLC taxed in Canada?

Canada treats a US LLC as a corporation regardless of its US classification. An LLC carrying on business in Canada files a T2 with Schedule 91 and Schedule 97, pays Part I tax on profits attributable to a Canadian permanent establishment, is subject to Part XIV branch tax, and has 15% withheld under Regulation 105 on fees for services performed in Canada.

Can a US LLC claim Canada-US tax treaty benefits?

Not in its own right, because a fiscally transparent LLC pays no US tax and is not a US resident under the treaty. Under Article IV(6), added by the Fifth Protocol, it can claim benefits to the extent its members are US residents who qualify under the limitation on benefits article. Non-US members get no relief.

What is branch tax and how much is it?

The Part XIV additional tax on non-resident corporations, charged at 25% of a branch's after-tax Canadian profits not reinvested in Canada and calculated on Schedule 20. The Canada-US treaty reduces it to 5%, exempts the first $500,000 of cumulative branch earnings, and limits it to corporations with a permanent establishment.

Does a non-resident corporation need to register for GST/HST?

Yes, under the normal regime, if it carries on business in Canada and its worldwide taxable revenue exceeds $30,000 in a calendar quarter or over the last four quarters, with security of 50% of estimated net tax ($5,000 to $1 million) if it has no Canadian permanent establishment. A non-resident selling more than $30,000 of digital products or services to Canadian consumers over 12 months registers under the simplified regime instead.