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8.2.1. Corporate/Profit Taxes

In general, when a non-resident entity has a permanent establishment (PE) in the Canada, income attributed to the PE will be taxed in the same manner and at the same rates as the income of a resident entity, including also at the provincial/territorial level. In addition to the corporate tax proper, a branch profits (remittance) tax is levied at the rate of 25% on the net profits of the branch/PE after federal and provincial/territorial income taxes. To the extent said profits remain within the branch/PE, a deferral of the branch profits (remittance) tax is granted in the form of an “investment allowance” that can be claimed at year end. This investment allowance is then added to the base of the branch profits tax for the following year.  In general terms, the “investment allowance” is the cost base of assets, net of certain liabilities, still used in the business of the branch.

Most of Canada’s tax treaties provide for either partial or full relief from the branch profits (remittance) tax. Also, even where the treaty does not specifically provide for partial or full relief, Canadian law provides for the reduction of the applicable tax rate to the withholding tax rate provided for in the relevant treaty for dividends paid by a Canadian corporation to a parent company resident in that treaty jurisdiction.

Income not attributed to a PE is generally subject to withholding tax.