Canada Tax Treaties with Other Countries

Canada has signed Double Taxation Agreements (DTA) with 94 countries.
The provisions of an income tax treaty between Canada and your country of residence may provide for a reduced withholding tax rate or may also be exempt from withholding tax.
Many countries allow foreign tax credits to be claimed for the Canadian tax paid to eliminate or reduce double taxation.

Canada Tax Treaties with China 
Canada Tax Treaties with Taiwan 

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Manager Cindy Victoria Speaks in Bahasa, English, and Chinese.
Whats App +886-989-808-249
wechatid: victoria141193

We set up below judgment criteria on Treaty application:

Scenario:
If you are not a Canadian legal resident, and if your resident country has DTA with Canada, and if you are without PE (Permanent Establishment), please go to Section Ａ.
If you are not a Canadian legal resident, and if your resident country has DTA with Canada, and if you are with PE (Permanent Establishment) please go to Section Ｂ.
If you are not a Canadian legal resident, and if your resident country has no DTA with Canada, please go to SectionＣ.

Section Ａ:
Scenario:

If you are not a Canadian legal resident, and if your resident country has DTA with Canada, and if you are without PE (Permanent Establishment), it will be redeemed as “non-Canada Domestic Sourced Income”.
That means Canada will levy zero-tax.
However, you still need to send a zero-tax application to Canada Tax Bureau for being approved.
Below, we will let you understand through Q&A.

DTA-Q-10:
加拿大的哪些外國法律居民公司可以依DTA申請沒有常設機構(PE)下零稅率?
In Canada, which foreign legal resident company can apply for a zero tax rate without PE under DTA?

DTA-A-10:
Canada has signed DTAs with the following 94 countries:

DTA-Q-20:
為什麼在DTA下該國外資沒有常設機構 (PE)之外資所得，可以享受零稅率?
Why does the Country’s foreign capital without a permanent establishment (PE) in Canada, under the DTA enjoy zero tax rate?

DTA-A-20:
It follows Article 5 and Articles 7 in the DTA Treaty. Article defines if a foreign entity has PE in Canada.
Article 7 regulates if no PE, non-Canada domestic sourced income will not be levied tax in Canada.

DTA-Q-30:
哪些情況被視為沒有PE，外資在該國設立子公司會被視為外資的在該國的子公司嗎?
Under what circumstances are deemed to have no PE, and will the establishment of a foreign-funded subsidiary in Canada be regarded as a foreign-funded subsidiary in Canada?

DTA-A-30:
According to DTA Article 5 item 7, A Wholly Foreign Owned subsidiary in Canada will not be treated as PE because it is a separate legal entity.
That means if a Canada Subsidiary pays a service fee to non-Canada Parent Company through a service contract signed between a subsidiary and non – Canada Parent company as an investor, a non- Canada Parent Company can apply zero tax.
As for if the paid amount is reasonable, it will get involved TP (Transfer Pricing) judgment by Canada Tax Bureau.
Please see Canada Transfer Pricing webpage.

DTA-Q-40:
外資在加拿大設立分公司或辦事處，可否適用沒有PE下的零稅率?
If a foreign company establishes a branch or office in Canada, can the zero-tax rate without PE be applied?

DTA-A-40:
According to DTA Article 5 item 2, If a foreign company sets up a branch or office in Canada, then will be considered as Canada domestic Income.
But According to DTA Article 5 item 4, if an Office is only doing a preparatory or auxiliary activity, will apply zero-tax rate.

DTA-Q-50:
加拿大依DTA沒有PE下零稅率申請的程序為何?
What is the procedure for Canada to apply for zero tax rate under DTA without PE?

DTA-A-50:
A non-resident may be able to claim an exemption from Canadian income tax on such business profits if the non-resident is a resident of a country with which Canada has entered a double-tax treaty and does not maintain a permanent establishment in Canada.
If you receive Canadian-source income exempt from tax in Canada because of a tax treaty, you can ask the payer not to withhold tax.

Fill up a standardized treaty-based Regulation 105 waiver application form (Form R105) which is available from any Tax Service Office (TSO) or Centre of Expertise (CoE) and is available from the CRA website at: Canada.ca/revenue-agency.
Submit at least 30 days prior to the initial payment for the related services. If the officials at the tax office agree you qualify, they will send you a waiver letter to give to your payer.
Only when a waiver is issued by the TSO or CoE, may the waiver applicant make full payment to the recipient(s) without withholding.
Refer to the website for information:

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/rendering-services-canada/where-send-completed-waiver-non-resident-employer-certification-applications.html

Submit the application via My Account.

Section Ｂ:

Scenario:
If you are not a Canadian legal resident, and if your resident country has DTA with Canada, and if you are with PE (Permanent Establishment), your income will be considered as Canada domestic sourced income.
As for levying Tax Rate, please be aware:
if Canada Tax rate > DTA Rate, adopt DTA Rate; if Canada Tax rate < DTA Rate, adopt Canada Rate.
Below, we will let you understand through Q&A

DTA-Q-60:
被視為加拿大來源所得的判定要素?
What are the factors that are deemed to be the country’s domestic source income?

DTA-A-60:
Canadian source of income includes income earned from carrying on a business in Canada, rental income from Canadian real estate, interest, dividends that have a Canadian source.

DTA-Q-70:
DTA第五條及第七條優先於加拿大來源所得的判定要素?
Do Article 5 and Article 7 in the DTA take precedence over the Canada determination factors on Canada domestic sourced income?

DTA-A-70:
When DTA is applied, in the event of a different PE definition between Canada domestic tax laws and Article 5 in the DTA, the definition under the DTA shall prevail the domestic regulations.
When DTA is applied, if a foreign company is defined as without PE (Permanent Establishment) in Canada, then will be considered non-Canada domestic sourced income, in the event business profit is relevant to this issue, the clause in Article 7 in the DTA zero-rate tax can be applied accordingly.
In this scenario, please see section A.

DTA-Q-80:
當非加拿大稅務居民有加拿大來源所得，不考慮DTA 情況下，加拿大稅法扣繳稅率多少?
When non-tax residents of Canada have Canadian domestic sourced income, what is the withholding tax rate according to Canada tax regulations excluding DTA?

DTA-A-80:
Part XIII of the Income Tax Act sets out rules for determining when payments from Canadian residents (for tax purposes) to non-residents become taxable.
Non-residents in Canada are levied a 25% withholding tax on certain types of income on Canadian-sourced.
Payer must withhold the required amount and remit it to the Canada Revenue Agency (CRA) within a prescribed period.

The withholding tax rates under domestic law are:
Business Profits – 25%
Dividend – 25%
Interest (General loan) – 0%/ 25% (Note 1)
Royalties fee – 0%/ 25% (Note 2)
Technical services – 15%/ 25% (Note 3)
Professional services – 15%/ 25% (Note 3)

Note:

1. 0% withholding tax on interest paid to an arm’s length lender is exempt. 25% withholding tax on interest paid to a non-arm’s length lender.
2. 0% withholding tax applicable to payments with respect to copyright of literary, dramatic, musical or artistic works, certain payments made by railway companies, payments made in the context of a genuine cost-sharing arrangement with respect to research and development (R&D) expenses, where the person making the payments acquired an interest in the results of the R&D, and payments made to an arm’s length person that are deductible for the payer in computing income from a business carried on outside Canada for Canadian tax purposes.
3. Under Regulation 105, a nonresident receiving income from the provision of services in Canada is subject to withholding tax of 15%.
   Generally, payments for services made to nonresidents that are not taxable as business profits derived from carrying on business in Canada are subject to a 25% withholding tax.

DTA-Q-90:
If DTA Tax Rate is higher than Canadian tax rate, apply which tax rate?

DTA-A-90
As for levying Tax Rate, please be aware: if Canada Tax rate > DTA Rate, adopt DTA Rate; if Canada Tax rate < DTA Rate, adopt Canada Rate.

DTA-Q-A0:
當非加拿大稅務居民有加拿大來源所得，依DTA優惠稅率申請的程序為何?
When non-tax residents of Canada have Canadian domestic sourced income, what is Canada’s application procedure based on the DTA preferential tax rate?

DTA-A-A0:
While the use of Form NR301 is not mandatory for payers to withhold at a reduced rate, it indicates what to expect from CRA before withholding at a reduced rate.

Fill up Form NR301 Declaration of eligibility for benefits (reduced tax) under a tax treaty for a non-resident person.
Without Form NR301, the payer may not be allowed to use the entitlement of treaty benefits for the application of less than the full 25% Part XIII tax rate.
A completed NR301 form is valid for 3 years.
If the form is signed under a duly authorized power of attorney for the beneficial owner, attach a copy of the power of attorney form when email the NR301.
Even if you do not get Form NR301 to support the beneficial owner’s country of residence and eligibility for tax benefits, you may apply a tax treaty rate if all the following are true:

1. Obtained complete address of residence that are not post-office boxes or care-of addresses.
2. The payee is an individual.
3. No reason to suspect the information is inaccurate, misleading, or the payee is not entitled to the tax treaty benefit.
4. There is procedures in place so that changes in the payee’s information will result in a review of the withholding tax rate.

Section Ｃ:

DTA-Q-B0:
As an investor, if your country has not signed DTA with Canada, what kinds tax rates when you have Canada relevant income?

DTA-A-Q0:
Part XIII of the Income Tax Act sets out rules for determining when payments from Canadian residents (for tax purposes) to non-residents become taxable.
Non-residents in Canada have levied a 25% withholding tax on certain types of income on Canadian-sourced.
The payer must withhold the required amount and remit it to the Canada Revenue Agency (CRA) within a prescribed period.
The withholding tax rates under domestic law are:

Business Profits – 25%
Dividend – 25%
Interest (General loan) – 0%/ 25% (Note 1)
Royalties fee – 0%/ 25% (Note 2)
Technical services – 15%/ 25% (Note 3)
Professional services – 15%/ 25% (Note 3)

Note:

1. 0% withholding tax on interest paid to an arm’s length lender is exempt. 25% withholding tax on interest paid to a non-arm’s length lender.
2. 0% withholding tax applicable to payments with respect to copyright of literary, dramatic, musical or artistic works, certain payments made by railway companies, payments made in the context of a genuine cost-sharing arrangement with respect to research and development (R&D) expenses, where the person making the payments acquired an interest in the results of the R&D, and payments made to an arm’s length person that are deductible for the payer in computing income from a business carried on outside Canada for Canadian tax purposes.
3. Under Regulation 105, a nonresident receiving income from the provision of services in Canada is subject to withholding tax of 15%.
   Generally, payments for services made to nonresidents that are not taxable as business profits derived from carrying on business in Canada are subject to a 25% withholding tax.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

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Manager Cindy Victoria Speak in Bahasa, English, and Chinese.
Whats App +886-989-808-249
wechatid: victoria141193

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