U.S. Company Selling Into Canada: GST/HST Registration, Regulation 105 Withholding, and the Canadian Permanent Establishment

The mirror of the Canadian seller in the United States is the American business selling north, and Canada's first claim is on the sale, not the profit. GST/HST — the registration question: Canada's goods and services tax (5 percent federally) and harmonized sales tax (13 percent in Ontario, 14 percent in Nova Scotia since April 1, 2025, and 15 percent in New Brunswick, Newfoundland and Labrador, and Prince Edward Island — each combining the 5 percent federal part with a provincial part) apply to supplies made in Canada; a non-resident supplier must register if it makes taxable supplies in Canada in the course of carrying on business in Canada and isn't a small supplier (C$30,000 of worldwide taxable supplies, including those of associates, in the last four calendar quarters or in a single quarter — the same test applies to non-residents) — "carrying on business in Canada" is a facts test (Canadian customers alone may not suffice; a Canadian presence, agents, inventory, or services performed in Canada point toward it — the CRA weighs the factors in its policy statement P-051R2, and the Income Tax Act's extended meaning in section 253 doesn't apply for GST/HST); and the simplified GST/HST regime (since July 1, 2021) requires non-resident vendors and non-resident platform operators of digital products and services that don't carry on business in Canada to register and collect once their taxable supplies to Canadian consumers exceed C$30,000 in any twelve-month period (non-registered non-resident vendors of goods shipped from fulfillment warehouses or other places in Canada, and the platforms facilitating those sales, must register under the normal regime on the same C$30,000 threshold) (the CRA's page); the simplified registrants collect but can't claim input tax credits; business customers registered for GST/HST provide their registration numbers and aren't charged under the simplified regime. Goods shipped from the United States: a U.S. seller shipping goods to Canadian customers — the Canada Border Services Agency collects the GST (and the provincial component in harmonized provinces) at the border on importation (goods originating under CUSMA enter duty-free, while non-originating goods pay Canada's most-favoured-nation tariff, plus any Canadian surtax on U.S. goods in force at the time; courier shipments under CUSMA are duty-free to C$150 and tax-free to C$40), paid by the importer of record (the customer, unless the seller ships "delivered duty paid" and acts as non-resident importer — a customer-experience decision); a U.S. seller with inventory in a Canadian fulfillment center (Amazon.ca's network) must register under the normal regime (the simplified regime isn't available for goods) and collects GST/HST on those sales. Provincial sales taxes: British Columbia, Saskatchewan, Manitoba, and Quebec have their own sales taxes (Quebec's QST is administered by Revenu Québec — the Quebec cross-border guide; BC's PST, Saskatchewan's PST, and Manitoba's RST) with their own registration rules for out-of-province and non-resident sellers of goods, software, and digital services (British Columbia once gross revenue from B.C. sales of goods, software, or telecommunication services exceeds C$10,000 in twelve months; Saskatchewan with no minimum; Manitoba's C$30,000 small-business exception generally unavailable to out-of-province sellers; Quebec's specified registration system above C$30,000 of taxable supplies to Quebec consumers in twelve months); a U.S. software company selling subscriptions across Canada may register for GST/HST and for the provincial taxes in several provinces. Regulation 105 — services performed in Canada: a Canadian payer paying a non-resident for services rendered in Canada withholds 15 percent of the fee (plus 9 percent for services in Quebec — the Quebec cross-border guide) and remits it to the CRA — whether or not the non-resident owes Canadian tax; a U.S. consultant spending two weeks at a Toronto client's office is paid less 15 percent; the non-resident recovers the withholding by filing a Canadian return (a T2 for a corporation, a T1 for an individual) showing the treaty exemption (no permanent establishment — Article VII), or prevents it by applying in advance for a waiver (Form R105 — the CRA's page — with the treaty-based position and the expected days, filed at least thirty days before the services begin or the first payment, and effective only for payments after it's issued); services performed entirely from the United States are not subject to Regulation 105 (no services rendered in Canada). The Canadian permanent establishment and income tax: a U.S. company carrying on business in Canada is subject to Canadian income tax only on profits attributable to a Canadian permanent establishment (the treaty — Articles V and VII, with Article V(9)'s services rule — 183 days in any twelve-month period — applying in Canada the same way); without one, no Canadian income tax — but a non-resident corporation carrying on business in Canada (a lower threshold — soliciting orders or offering anything for sale in Canada through an agent or servant, for example — section 253's extended meaning) must file a T2 return with Schedule 91 claiming the treaty exemption, even if it owes nothing, with a penalty for failure to file a treaty-based return (the greater of C$100 and C$25 a day for up to 100 days — at most C$2,500, under subsection 162(2.1)); with a permanent establishment (a Canadian office, employees, a dependent agent), the company files a T2 reporting the profits attributable to it, pays federal and provincial corporate tax, and the branch tax (25 percent, reduced to 5 percent under the treaty with the C$500,000 exemption — the Canadian company expanding to Florida guide, in reverse; the C$500,000 is cumulative and shared with associated companies in the same or similar business) on after-tax profits not reinvested; most U.S. companies with real Canadian operations form a Canadian subsidiary instead (a Canadian corporation, paying Canadian corporate tax, with dividends to the U.S. parent at 5 percent Canadian withholding — the NR301 guide's corporate rate). Canadian payroll: a U.S. company with employees in Canada registers as an employer with the CRA (a payroll program account), withholds federal and provincial income tax, the Canada Pension Plan (or QPP in Quebec) and employment insurance, and pays the provincial employer health taxes where they apply (Ontario's employer health tax above a C$1 million exemption for eligible employers, British Columbia's above C$1 million of B.C. remuneration, Manitoba's health and post-secondary education levy above C$2.5 million, Newfoundland and Labrador's above C$2 million, and Quebec's health services fund on all Quebec payroll), issues T4s — the Canadian employer with U.S. employees guide in reverse — and an employer of record in Canada is the common first step. The bookkeeping: Canadian customers by type (business with GST/HST numbers versus consumers); the GST/HST registration analysis (normal or simplified); provincial sales tax registrations; customs arrangements for shipped goods; Regulation 105 exposure by engagement (days in Canada) and R105 waivers; the treaty-based T2 or the permanent establishment T2; Canadian payroll if employees; the Canadian-dollar conversions. The errors: digital sales to Canadian consumers past C$30,000 with no simplified registration; GST/HST charged to Canadian business customers who should have provided registration numbers (or not charged where required); provincial sales taxes ignored (BC's PST on software is a common miss); a U.S. consultant working in Canada surprised by the 15 percent withholding (no waiver applied for); no treaty-based T2 filed by a non-resident corporation carrying on business in Canada; and a Canadian employee paid through U.S. payroll.

Key takeaways

• GST/HST comes first: a non-resident carrying on business in Canada registers unless a small supplier; the simplified regime requires non-resident digital sellers that don't carry on business in Canada to register once sales to Canadian consumers exceed C$30,000 in twelve months (goods sellers using Canadian warehouses register under the normal regime).
• Goods shipped from the United States pay GST/HST at the border through the importer of record; inventory in Canadian fulfillment centers brings the seller into collection.
• British Columbia, Saskatchewan, Manitoba, and Quebec have their own sales taxes with their own non-resident registration thresholds.
• Regulation 105 withholds 15 percent (plus 9 percent in Quebec) on fees for services performed in Canada — recover it on a Canadian return or prevent it with an advance R105 waiver.
• No Canadian permanent establishment, no Canadian income tax — but a non-resident corporation carrying on business in Canada files a treaty-based T2 to avoid the failure-to-file penalty.
• Real Canadian operations usually go into a Canadian subsidiary; Canadian employees need Canadian payroll, including provincial employer health taxes.

The U.S. company's Canadian sales file

Customers by type (registered business or consumer). GST/HST: normal or simplified registration; collection; returns. Provincial sales tax registrations (BC, Saskatchewan, Manitoba, Quebec). Customs for shipped goods (importer of record; duty and GST at the border). Regulation 105: days in Canada by engagement; R105 waivers; Canadian returns to recover withholding. Treaty-based T2 or permanent establishment T2; branch tax or subsidiary decision. Canadian payroll if employees. The simplified GST/HST threshold is the one most U.S. software companies cross without noticing.

Worked example

A Miami software company sells project management subscriptions: US$600,000 a year to Canadian customers — 70 percent to registered Canadian businesses (they provide their GST/HST numbers; no GST/HST charged under the simplified regime) and 30 percent to individual freelancers (consumers). The consumer sales passed C$30,000 in its second year — having confirmed under the CRA's P-051R2 factors that its consultants' site visits don't amount to carrying on business in Canada (which would require normal registration instead), it registers under the simplified GST/HST regime and collects 5 to 15 percent by the customer's province, files quarterly; it also registers for British Columbia's PST (software, including software as a service, is taxable there at 7 percent, and its B.C. revenue exceeds C$10,000), Quebec's QST under Quebec's specified system, and — with subscribers there — Saskatchewan's PST and Manitoba's RST. Its implementation consultants spend about 60 days a year at Canadian clients' sites: Regulation 105 withholding of 15 percent (24 percent in Quebec) on those engagements' fees until the company's R105 waiver application — showing no Canadian permanent establishment and fewer than 183 days — was approved; it files a treaty-based T2 each year (no Canadian tax due) to recover the earlier withholding and avoid the non-filing penalty. When it hires a Toronto sales manager who will negotiate and sign Canadian contracts, it forms an Ontario subsidiary to employ her (Canadian payroll — CPP, EI, Ontario income tax, the employer health tax — and a dependent agent kept out of the U.S. parent), and the subsidiary resells the subscriptions under a transfer-pricing agreement.

Official sources

The CRA states: “Non-residents who carry on business in Canada must register for the GST/HST under the normal GST/HST regime if they make taxable supplies in Canada and are not small suppliers.” — Canada Revenue Agency, Doing Business in Canada - GST/HST Information for Non-Residents, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4027/doing-business-canada-gst-hst-information-non-residents.html

The CRA states: “Paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations (Regulation 105) are the authority to withhold tax on fees, commissions, and other amounts paid to non-residents of Canada, other than employees, for services rendered in Canada. The rate of withholding is 15% of the gross amount paid.” — Canada Revenue Agency, Tax treatment of non-residents who perform services in Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/rendering-services-canada/tax-treatment-non-residents-who-perform-services-canada.html

Practitioner note

A U.S. company selling north meets Canada's sales taxes before its income tax — the simplified GST/HST regime at C$30,000 of consumer sales, the provincial sales taxes in four provinces, and Regulation 105's 15 percent withholding on any service performed on Canadian soil. Our desks sort Canadian customers into registered businesses and consumers, register under the simplified regime and the provincial systems when the thresholds are crossed, apply for R105 waivers before the consultants travel, file the treaty-based T2 a non-resident corporation owes even when it owes no tax, and put the first Canadian salesperson with signing authority into a Canadian subsidiary — because a dependent agent is a permanent establishment.

See also: For related guidance, see GST/HST for a U.S. business selling into Canada and Regulation 105 withholding on services performed in Canada; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle U.S. companies selling into Canada — GST/HST registration analysis under the normal and simplified regimes, provincial sales tax registrations, customs and importer-of-record planning, Regulation 105 withholding and R105 waivers, treaty-based T2 filings, Canadian subsidiary formation, and Canadian payroll compliance. See pricing or book a call.