Canada draws plenty of interest from companies looking to plant a flag in North America. A skilled, multilingual workforce and easy access to U.S. markets make it a logical choice. That said, actually establishing a legal entity here means wading through months of legal filings, tax registrations, and administrative hoops.
Having your own Canadian corporation gives you direct control and shows the market you're serious. But it's not the only route. Companies dipping their toes into Canada or bringing on just a handful of people often discover that quicker, leaner options that don't require full entity setup are a better option.
Key takeaways:
- Federal vs. provincial incorporation comes down to scope. Federal costs CAD 200 and protects your name nationwide, but you’ll still register in each province where you operate. Provincial is simpler but limits you to one jurisdiction.
- Director residency can be a dealbreaker or a non-issue. Federal corporations need 25% Canadian-resident directors. But Ontario, British Columbia, Alberta, and several other provinces have dropped this requirement entirely for provincial corporations.
- The real work starts after incorporation. You’ll register for a Business Number, set up payroll accounts for CPP and EI contributions, and determine whether GST/HST registration applies based on your revenue.
When Setting Up a Legal Entity in Canada Makes Sense
You don't automatically need to open a Canadian corporation just because you're expanding there. It really comes down to your long-term plans. If you're building a sizable team, selling directly to Canadian customers, or operating in regulated sectors like banking or telecom, the investment usually pays off.
A local entity also carries weight with partners and clients. Government contracts and large enterprise deals sometimes require vendors to have boots on the ground in Canada, so incorporation becomes a practical stepping stone.
But if you're still testing whether the market wants what you're selling, or you only need a couple of employees, the time and money involved might not be worth it yet. Between incorporation costs, tax filings, and ongoing compliance, you're signing up for a real commitment. Plenty of businesses hold off on entity setup until they've proven demand.
Choosing the Right Type of Legal Entity in Canada
Foreign companies typically weigh three options: a branch office, extra-provincial registration, or a subsidiary corporation.
A branch is an arm of your foreign parent company — simpler to set up, but the parent stays liable for everything the branch does, and profits typically get taxed as if the parent earned them directly. Most foreign businesses incorporate a subsidiary instead. This creates a separate Canadian corporation where liability stops at what you’ve invested. Subsidiaries also offer greater flexibility for tax planning and can hold assets, enter into contracts, and operate independently under Canadian law.
Federal vs. Provincial Incorporation
Once you've settled on incorporating, you'll choose between going federal under the Canada Business Corporations Act or incorporating in a specific province. Your choice shapes where your name is protected, where you can operate, and what compliance looks like going forward.
Federal incorporation locks in your name nationwide and lets you do business anywhere in Canada under one corporate identity. You'll still need to register extra-provincially wherever you actually operate, though.
The federal filing fee is CAD 200 online, but you'll also pay extra-provincial registration fees in each province where you conduct business. Ontario charges CAD 300; British Columbia runs around CAD 350. Provincial incorporation covers just that province. Federal gives you nationwide name protection; provincial means registering again if you expand.
Key Requirements Before Incorporation
Before you file anything, you'll need to sort out a few foundational pieces that affect your timeline and options.
Business Name and Registration
Your proposed name must stand apart from existing businesses and trademarks, include a legal ending like "Inc.," "Ltd.," or "Corp.," and avoid restricted terms. Federal incorporations require a NUANS report (CAD 13.80) to flag conflicts. Alternatively, opt for a numbered corporation and operate under a trade name.
Directors and Residency Requirements
Under the Canada Business Corporations Act, at least 25% of directors must be Canadian residents. Several provinces — Ontario, British Columbia, Alberta, Quebec, Nova Scotia, New Brunswick, and Saskatchewan — have eliminated this requirement for provincial corporations. If you need Canadian directors but don’t have any, professional director services exist.
Registered Office Address
Every Canadian corporation needs a registered office — a physical street address (not a P.O. box) within the incorporating province for provincial corporations, anywhere in Canada for federal ones. Companies without a Canadian location typically use registered agent services.
Step-by-Step Process to Establish a Legal Entity in Canada
Now comes the paperwork. Here’s what the actual incorporation process looks like from start to finish.
Preparing Incorporation Documents
Your Articles of Incorporation are the foundation. This document spells out the basics:
- Your corporation’s name
- Where the registered office sits
- What share classes you’re issuing
- Any restrictions on transferring shares
- How many directors you’ll have
- Whether there are limits on what the business can do
You’ll also need a set of initial resolutions that cover your first decisions as a corporation: who serves as officers, what bylaws you’re adopting, when your fiscal year ends, and which banks can hold your money. These details matter more than they might seem. Get your share structure wrong, and you could create serious problems down the road when investors or acquirers start digging into your cap table.
Filing With Federal or Provincial Authorities
For federal incorporation, you’ll submit everything through Corporations Canada’s Online Filing Centre. The standard online process typically wraps up within a business day. Need it faster? An extra CAD 100 gets you four-hour express processing. Approval brings you a Certificate of Incorporation plus your corporation number.
Each province handles things a bit differently. And don’t forget: even with federal incorporation in hand, you’ll still need to file extra-provincial registrations wherever your business actually operates.
Post-Incorporation Setup Tasks
You’ll need a Business Number (BN) from the Canada Revenue Agency — federal corporations usually get one automatically. Set up your corporate minute book for organizing documents, bylaws, and meeting minutes. For banking, expect slow timelines, especially for foreign-owned entities — start early.
Tax Registration and Ongoing Tax Obligations
Canadian businesses deal with two layers of taxation: federal and provincial. That means two sets of deadlines to track and two sets of filings to keep straight.
Corporate Income Tax Registration
Your corporation files annual income tax returns with federal and provincial authorities. The federal rate is 15%; provincial rates range from 8% to 15%, putting combined rates between 23% and 30%. Returns are due six months after the fiscal year-end, but taxes owed must be paid within two to three months.
Sales Taxes and Indirect Taxes
The federal GST is 5%. Some provinces combine it into HST (13%-15%), others charge separate PST, and Quebec has its own QST. Registration is required once taxable revenues exceed CAD 30,000 over four consecutive quarters.
Payroll and Employer Tax Accounts
Register for a payroll deductions account with the CRA. You’ll withhold income tax, CPP contributions (5.95%), and EI premiums (1.63%) from employee paychecks, plus employer contributions. Remittance frequency depends on payroll size.
Hiring Employees Through a Canadian Entity
Once your entity is up and running, you can start building your Canadian team. Labor law in Canada combines federal standards with provincial variations that touch everything from contracts to termination.
Employment Contracts and Local Labor Laws
Canadian employment contracts must meet provincial employment standards legislation covering minimum wage, overtime, hours of work, and termination notice periods. Pay particular attention to termination provisions. Canada protects employees from wrongful dismissal, and workers may be entitled to substantial notice or pay in lieu.
Mandatory Benefits and Employer Contributions
Statutory benefits include vacation time (a minimum of two weeks after one year, increasing with tenure in most provinces), public holidays, and various other leave types, including parental, sick, and compassionate care leave. Employers also register for workers’ compensation through their provincial board, with premiums varying by industry.
Payroll Setup and Ongoing Administration
Running Canadian payroll means calculating statutory deductions, issuing compliant pay statements, and filing year-end reports (T4 slips plus a T4 Summary). Many businesses outsource to specialists given the complexity of deductions, remittances, and multi-province compliance.
Intellectual Property and Data Protection Considerations
Canadian law doesn’t automatically assign employee-created IP to employers, so build clear IP assignment and confidentiality clauses into employment agreements. For data protection, Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA) governs how organizations handle personal information, requiring policies on consent, security, and breach notification.
Ongoing Compliance and Corporate Maintenance
Incorporation is step one. Keeping a Canadian corporation in good standing requires ongoing attention to compliance details that trip up even seasoned operators.
Annual Filings and Corporate Records
Federal corporations file an annual return with Corporations Canada, updating the Director and registered office information. Since January 22, 2024, privately held federal corporations are required to report on individuals with significant control (ISC). Skip this, and you're looking at fines up to CAD 100,000 and possible dissolution.
Accounting and Financial Reporting
Canadian corporations must maintain adequate accounting records and prepare financial statements. Whether you need an audit depends on your corporate structure, shareholder agreements, and regulatory requirements. Private corporations can waive audits if every shareholder consents in writing each year. Foreign-owned subsidiaries often face additional reporting to parent companies under home-country standards.
Changes to Directors, Shareholders, or Structure
Changes to Directors, registered offices, or articles must be reported to the appropriate registry. Director changes for federal corporations need filing within 15 days. Share transfers and changes to the shareholder structure must be recorded in your minute book and may trigger ISC reporting updates within 15 days.
Common Challenges When Setting Up a Legal Entity in Canada
Companies setting up in Canada typically hit a few roadblocks: director residency requirements for federal corporations (25% must be Canadian residents), slow banking timelines for foreign-owned entities, and navigating provincial differences in employment law and tax rates. Quebec, for instance, mandates French in workplace communications. Annual filings, accounting, and legal fees also tend to exceed initial budgets.
Alternatives to Establishing a Legal Entity
For companies that need Canadian workers but aren't ready for full entity setup, an Employer of Record (EOR) offers a practical alternative.
An EOR employs workers on your behalf, managing payroll, tax compliance, and employment admin while you direct day-to-day work. This approach works well when you need to hire quickly, want to test the market before committing to an entity, or only need to hire a handful of employees in a foreign country.
How RemoFirst Can Help
RemoFirst helps companies hire in Canada without establishing a legal entity. As an Employer of Record, we handle compliant onboarding, payroll processing, statutory deductions, and benefits administration across all provinces.
With transparent pricing starting at USD 199 per employee per month, you can budget accurately without surprise fees.
Whether you’re hiring your first Canadian employee or building a distributed team, RemoFirst lets you focus on growth instead of legal paperwork. Book a demo to see how we can help you employ the best talent in Canada and 185+ countries.
