I'm a U.S. Company and I want to hire a Canadian. Help, eh?

We see it all the time.  We're working with a U.S. based company and a request comes in from someone there letting us know that they want to make a new hire.  But this isn't just any new hire, it's a special new hire.  It's an international new hire.  And the worker that this company wants to hire lives in Canada.  "Where do we start" they ask....

We've put together a bit of a checklist/reality check that you can use to get the ball rolling on bringing on board your new Canuck.  Note that this is just a starting place, and not an exhaustive list, when it comes to what you should or shouldn't be doing in order to employ your new Neighbor to the North.

Here's where to start:

• Gather Information - This might be the most important step in the process.  Find out as much as you can about this new worker.  What province do they live in? What province will they be working in? What exactly will they be doing? Where will they be doing it? Are they a Canadian citizen or just living in Canada? Do they have employment authorization?

• Determine Employee Vs. Independent Contractor - This can be a confusing step.  Much like U.S. workers, you'll need to determine if the work this person is doing qualifies them as an employee or an independent contractor.  Canada's version of the IRS (the CRA) can be helpful in figuring this out.  There are also different rules for those in Quebec.

• Employee -  If they're an employee, you'll need to figure out how to employ them in Canada.  Have you set up an entity in Canada? That's one option.  Can you employ them through a payrolling company in Canada? That's another option.  Can you register for a business number and and set up a payroll deductions account? There's a third option. Regardless of what you do, you're going to need to withhold Income Tax, Canadian Pension Plan (CPP) withholdings, and employment Insurance (EI) for your employee (and pay on behalf of the company as well).  You'll also need to have the employee fill out some forms and you'll need to register with the WISB.   

• While employment law in Canada is primarily provincial/territorial, Canada does have an Employment Standards Act - the ESA - that covers most employees (and most provinces/territories like to follow it). U.S. folks can think of this as bits of the FLSA, OSHA, and NLRA wrapped up in a neat box with a red maple leaf stamped on it. 

• Contractor - If your worker is an independent contractor you'll need to have them sign a W-8BEN or a W-8BEN-E and keep it on file.  Remember, no W9 because they're not going to be issued a 1099.  Banking info is needed, and remember, because your worker will be using a Canadian bank you'll need their SWIFT number and account number (sorry Yankee, no Account and Routing number in these colder parts of the world). 

• Paperwork - Next we need to figure out how we are going to "paper" this person.   Do you have an agreement in place with this person? You should.  Has it been localized to where they live? Does it need to be in English and French?  If they're an employee we should probably put an offer letter in place and include things like: their rate, when they're paid, what they'll be doing, when they start, time off, benefits, etc.  

• End of Year - You'll need to figure out what sort of end of year documentation your employee or contractor will need.  Do we need to issue a T4 or T4A? 

• Termination - Need to terminate your employee? Make sure you provide them with a Record of Employment!

There are also different and unique rules depending on what province you're in and sometimes what City your person is in.  And remember, special attention should be always be paid to Quebec. 

Keep in mind that just like the IRS, the CRA doesn't look kindly upon any companies, international or domestic, that misclassify employees as contractors.  

5 tax mistakes that international startups make

Startups that are doing business across borders have special needs when it comes to tax compliance. And who isn't doing business across borders these days? Most businesses have multinational founding teams, contractors abroad, and customers in multiple countries.

We know that entrepreneurs simply do not have time to figure out their tax problems, particularly when the company has 5 - 50 employees. At this state, all profits, if any, are reinvested in the product. Accordingly, we've boiled down 5 mistakes that are easy to avoid or fix for an international startup.

#1 Using a regular accountant to set everything up.

Do you use an architect or a plumber when you want someone to design your house? The answer is obvious. But, time and time again, we clean up companies' messes when they use their local accountant to set up their cross-border tax structure. Now, we love accountants, but only after we have given them the structure they need from a legal perspective. And, when your tax attorney directs your accountants, all information is privileged.

#2 Assuming that your foreign contractor is a contractor.

This one can really hurt. In some countries, anyone that a foreign business hires in that country will be an illegal employment relationship. This can cost huge fines and painful procedures. And, you'll have little in the way of protection against the employee's employment law claims. Oh, and you can kiss you IP goodbye. In almost every country, someone who works on the ground is subject to local payroll tax withholdings that you--the employer--must address. This is much easier to set up than it is to clean up!

#3 Not filing for local taxes

This might seems obvious to the casual reader, but compliance professional and entrepreneurs understand. For tax professionals, we see screwed up and missed filings all the time. As entrepreneurs, we know that entrepreneurial plates are often too full to make room for the nitty gritty. That said, unmet local tax liabilities can snowball out of control.

#4 Keeping multiple sets of books

You know what we mean: you have one system for your big enterprise customer, multiple spreadsheets for your other customers, a napkin for other customers, and a couple in your head. At the end of the month, you (hopefully!) email your bank statements over to your accountant, who can now bill you extra. This is bad for a couple reasons. First, you're paying more for your quarterlies by dumping a ton of accounting shit on your accountant. Second, you're losing a ton of data that, when organized, can offer you a ton of in valuable information for operations and, perhaps, the ammo you need when you sit down and explain your numbers with a potential investor.

#5 Not taking advantage of deductions

Okay, so you've only got 5 - 50 employees and you're not racking up profits, so why worry about deductions? Again, a couple reasons at first glance. First, you can almost always bank those deductions and use them in the future when you are profitable, which will save you a bunch on taxes. Second, this is a great opportunity to understand the stuff you need to know when you are ready to hire in-house CFO and accountants, who won't be able to bullshit you on what they don't know. It's never too early to at least understand the power of deductions on your business's after-tax bottom line.