Selling in Canada without opening a subsidiary: what you need to know
In short: A European company does not need to open a subsidiary to win its first Canadian customers. It can invoice from Europe, deliver its products or services, and formalise its presence only when volume justifies it. Some obligations still apply fairly quickly: Québec registration, GST/HST and QST, and sometimes income tax. Here is the order in which to tackle them.
Step 1: sell from Europe
At first, your European entity can sell directly to Canadian customers:
Invoicing from your existing company, preferably in Canadian dollars. Canadian buyers are used to 30-day payment terms.
Delivery: for goods, a customs broker handles clearance. Thanks to CETA, the trade agreement between Canada and the European Union, most goods of European origin enter Canada duty-free.
Prospecting: an external team can prospect and book meetings for you, without hiring staff or renting an office.
This phase is about validating the market: do your prices, offer and arguments hold up with Canadian buyers?
Step 2: the formalities that come quickly
Registration in Québec
A company incorporated outside Québec must register with the Registraire des entreprises du Québec within 60 days of starting activities in Québec. It is considered active in Québec notably if it has a domicile, an establishment, a post office box or real property there. If it has no address in Québec, it must appoint an attorney (mandatary) to represent it locally. Registration provides a Québec enterprise number (NEQ).
GST/HST and QST
A non-resident company that is carrying on business in Canada must register for GST/HST unless it is a "small supplier". Note that the $30,000 threshold is based on your worldwide taxable sales, not just Canadian sales. Most European SMEs exceed it.
To determine whether you are carrying on business in Canada, the Canada Revenue Agency looks at factors such as where your agents or employees are located, where goods are delivered and where your inventory is. A company that is not required to register can also register voluntarily: your Canadian customers then recover the taxes they pay more easily, and you invoice like a local supplier. Without a permanent establishment in Canada, a security deposit may be required.
In Québec, the QST is added to the GST and is administered by Revenu Québec.
Income tax
Tax treaties between Canada and most European countries provide that a company is taxed in Canada on its profits only if it has a permanent establishment there: an office, a branch, or an agent who habitually concludes contracts on your behalf. A company carrying on business in Canada may still have to file a return, even if the treaty means it pays no tax. Your accountant should confirm this from the start.
Step 3: hire and open a subsidiary
Hiring an employee in Canada means Canadian payroll, source deductions and, often, a permanent establishment. That is the right time to consider a Canadian subsidiary, which:
reassures large accounts and makes tenders easier;
simplifies invoicing, payroll and taxes;
ring-fences risk away from your European company.
Many companies wait until they have a few recurring customers and a solid pipeline before taking this step.
The right order, in summary
Validate the market from Europe, with an external prospecting team.
Handle taxes and registration as soon as the first sales materialise.
Open a subsidiary when volume, hiring or customer requirements justify it.
Frequently asked questions
Will a Canadian customer buy from a European company?
Yes, especially for specialised products or services. What matters is trust: a contact reachable in the same time zone, prices in Canadian dollars and clear after-sales service.
Does an external prospecting team create a permanent establishment?
A team that prospects and books meetings, without signing contracts on your behalf, generally does not create a permanent establishment. Things change if an agent habitually concludes contracts for you. Have your structure reviewed by a tax advisor.
Do I need a Canadian bank account?
It is not required at first, but a Canadian-dollar account simplifies customer payments and reduces exchange fees.
This article is general information and is not legal or tax advice. Rules change: consult an accountant or lawyer familiar with Canadian law for your situation.
SPAK helps European companies grow their sales in Québec and across Canada, without opening an office: market validation, B2B prospecting and first customers. Discover our approach or book a free consultation.
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