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Tax Law (Questions About Taxes)/Canadian citizen owning shares in US c corp

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Question
Hi

I am a Canadian citizen and will be offered equity in a US C-Corp

Can you please advise any tax implications I should be aware of from the united states side of things?

Are foreign share owners treated differently in any way?

Thanks

Answer
Sorry for the late reply.

US corporations can have non-us owners of their stock. No problem there.

Taxes only manifest themselves if value is transferred, if the corporation pays a dividend, or you sell the stock and experience a gain or loss. And as a Stockholder that is the extent of ways that you can get money from your stock ownership.

Let's take dividends first.

The corporation has income, it reduces its gross income by its expenses, and shows a not profit at the year end. The corporation will pay taxes and whatever is left can (but doesn't have to) be paid out to the stockholders as a dividend. Dividends are not deductible, so the money has already been taxed once. Then it is given to the stockholder and the stockholder pays taxes on it at their prevailing rate of taxation. The US and Canada have a tax treaty where both countries agree to withhold a certain amount from all payments made to foreigners from US companies. The corporation would have to withhold 35% of your dividend, and give it the IRS.

You in turn would claim on your Canadian Tax return that you received that amount and that 35% was withheld at the border so to speak. You would get a credit for the 35% on your tax return. If you owe more than 35% you would have to pay the rest to Canada. If you woe less than 35% you might get a refund.

Gains. If you sold the stock to someone else, the gain would be the difference between your basis (what you paid for the stock), and the sale price. You said you would be offered equity, I'm guessing that you wont be paying for it, so your basis is zero.

That payment, if you just got a check in US funds and deposited in the bank in Canada, there would be no withholdings you'd simply have to pay all the taxes on the entire amount of the check.

Hope that covers your question. If not please contact me directly.

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Richard Fritzler

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Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.

Experience

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

Organizations
National Small Business Owners Association.
Publications
Contributing author to "The Corporate Standard Newsletter".


Publications
Contributing author to "The Corporate Standard Newsletter".
Ezinearticles.com articlesbase.com

Education/Credentials
I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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