
Expanding your business to Canada by establishing a subsidiary is a strategic move that provides access to one of the world’s most stable and business-friendly economies. With low corporate tax rates, strong international trade agreements, and a highly skilled workforce, Canada is an attractive destination for foreign investors looking to scale operations.
A subsidiary is an independent legal entity that operates under the ownership of a foreign parent company, allowing businesses to benefit from limited liability, tax advantages, and operational flexibility. Unlike a branch office, a subsidiary is taxed as a Canadian company, making it easier to establish credibility with local clients and suppliers.
This guide covers the step-by-step process, legal requirements, taxation, costs, and benefits of opening a subsidiary in Canada. Whether you’re an entrepreneur, investor, or multinational company, this comprehensive guide will assist you with the incorporation procedure smoothly.
What is a Subsidiary?
A subsidiary is an independent business owned by a parent firm based abroad. Unlike a branch office, a subsidiary operates independently, limiting the liabilities of the parent company while benefiting from local taxation and regulatory advantages.
Key Features of a Canadian Subsidiary:
- Legally distinct from the parent company
- Can own property, enter into contracts, and conduct business operations independently
- Liabilities are separate from the parent company
- Subject to Canadian corporate taxation and compliance
Why Open a Subsidiary in Canada?
Foreign companies choose Canada for its business-friendly policies and strategic market access.
Here are some benefits of opening a subsidiary in Canada:
- Access to North American Markets – Expand operations in Canada and the U.S.
- Limited Liability Protection – The parent company is shielded from debts and lawsuits.
- Favorable Corporate Tax Rates – Lower tax rates compared to numerous other developed countries.
- Access to Government Incentives – Grants, tax credits, and startup incentives for foreign investors.
- Skilled Workforce – Canada has an extremely educated workforce with strong talent in tech, finance, and manufacturing.
- Stable Business Environment – Ranked as one of the simplest nations to do business in globally.
Requirements to Set Up a Subsidiary in Canada
Before you begin the registration procedure, you need to understand the legal and operational requirements:
1. Legal Requirements
- The parent company must appoint at least one director (some provinces require a Canadian resident director).
- The subsidiary must register its business name and acquire a NUANS (Newly Upgraded Automated Name Search) report.
- Decide whether to incorporate federally or provincially.
2. Corporate Structure
- A subsidiary can be a corporation (most common) or a limited liability company (LLC).
- The parent company can own 100% of the shares.
3. Tax and Compliance
- Subsidiaries must file corporate tax returns in Canada.
- Register for Goods and Services Tax (GST) / Harmonized Sales Tax (HST).
- Maintain annual filings and comply with Canadian business laws.
How to Open a Subsidiary Office in Canada?
The process to open a subsidiary office in Canada is discussed below:
Step 1: Select a Business Name and Register It
- Make sure your company name is unique by performing a NUANS name search.
- Register the name at the federal or provincial level.
Step 2: Select Federal or Provincial Incorporation
- Federal incorporation: Permits the subsidiary to operate across Canada.
- Provincial incorporation: Limits operations to a specific province.
Step 3: Appoint Directors and Shareholders
- At least one director must be appointed (some provinces require a Canadian resident director).
- Shareholders can be the parent company or individual investors.
Step 4: File Incorporation Documents
- Submit Articles of Incorporation to the Canadian government.
- Obtain a Certificate of Incorporation.
Step 5: Obtain a Business Number (BN) and Tax ID
- Register with the Canada Revenue Agency (CRA) for a Business Number.
- Obtain a Tax ID for corporate tax compliance.
Step 6: Set up a Corporate Bank Account
- A Canadian corporate bank account is required for transactions.
- Most banks require a physical visit and incorporation documents.
Step 7: Register for Taxes (GST/HST)
If annual revenue exceeds $30,000 CAD, registration for GST/HST is mandatory.
Required Documents to Open a Subsidiary Office in Canada
To incorporate a subsidiary office in Canada, the following documents are required:
- Articles of Incorporation include company name, business activities, and share structure.
- NUANS Report (Name Search Report) confirms the availability of the business name.
- Shareholder and Director Information
- A physical Canadian address is required for incorporation. This can be a registered office or virtual office.
- Business Number (BN) Application.
- Provincial or Federal Incorporation Forms
- Parent Company Documents (if applicable)
Types of Subsidiaries in Canada
In Canada, subsidiaries can be categorized based on ownership and structure. The key types include:
1. Wholly-Owned Subsidiary
This subsidiary is 100% owned by a foreign parent company, giving the parent full control over operations and decision-making. The subsidiary operates as a separate legal entity, offering liability protection for the parent.
2. Partially-Owned Subsidiary
In this case, the parent company owns a majority share (over 50%) but not 100%. This gives the parent control while allowing other investors or partners to hold minority shares. It provides access to local capital and expertise while maintaining decision-making power.
3. Joint Venture (JV) Subsidiary
A JV subsidiary is established by two or more parent companies, often for a specific project or strategic purpose. Ownership and control are shared as per the agreement, allowing for collaboration in resources and market entry.
4. Holding Company Subsidiary
In this structure, a parent company sets up a subsidiary mainly to hold shares of other companies, managing investments rather than actively operating a business. This structure helps with tax planning and managing risks across different business ventures.
Subsidiary vs. Branch Office – Which One is Better?
Before setting up your business in Canada, it’s important to decide whether a subsidiary or a branch office is the right choice.
Feature | Subsidiary | Branch Office |
Legal Entity | Separate legal entity | Extension of the parent company |
Liability | The parent company is not liable for subsidiary debts | The parent company is fully accountable |
Taxation | Pays Canadian corporate tax | Pays tax based on the parent company’s structure |
Independence | Operates independently | Directly controlled by the parent company |
Regulatory Compliance | Must follow Canadian corporate laws | Follows foreign parent’s corporate structure |
Conclusion
Opening a subsidiary in Canada is an excellent strategy for foreign businesses looking to expand into the North American market. With the right legal setup, tax planning, and compliance, your business can thrive in Canada’s growing economy.
Setting up a subsidiary can be complex, but OnDemand International simplifies the procedure. We provide:
- Company incorporation services
- Tax registration and compliance support
- Ongoing business management solutions
Need help registering your subsidiary? Get in touch with us now!
FAQ’s
Yes, a foreign company can own 100% of a subsidiary.
Some provinces require one; others do not (e.g., BC).
1-4 weeks depending on incorporation type.