

Ask YC: Do we need to file/pay US taxes (Canadian corporation)? - agmiklas

Short version: 
Do foreign corporations need to pay US taxes if they use a US-based credit card gateway?<p>Long version:
We're about to begin collecting payment at our Canadian-based startup (pagerduty.com), but have run into a bit of a snag.  All of the Canadian payment processors we've found that support recurring billing require us to handle the CC numbers during the initial signup process.  This creates a PCI compliance requirement that we're keen to avoid.<p>We'd like to use a US gateway that allows recurring billing without requiring PCI compliance (e.x. Braintree), but unfortunately they are all asking us to provide an Employer Identification Number issued by the IRS.  Apparently, it isn't difficult for foreign corporations to get an EIN, but we're unsure what sort of tax obligations filing for an EIN will create.<p>Has anyone else gone through this process?  Can foreign corporations collect payment using a US gateway without incurring US taxes?
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jacquesm
> Do foreign corporations need to pay US taxes if they use a US-based credit
> card gateway?

No.

> Has anyone else gone through this process?

Yes

You can request an EIN here:

<http://www.irs.gov/pub/irs-pdf/fss4.pdf?portlet=3>

or call:

Internal Revenue Service irs.gov Telephone Assistance for Businesses Toll-Free
1-800-829-4933

You might be able to get an exemption as well, which you can then give to your
'gateway' provider.

> Can foreign corporations collect payment using a US gateway without
> incurring US taxes?

Yes, absolutely. Your business is taxed in its home location. Even if you
would have a US corporation owned by a Canadian one (you may need this in case
of opening a US bank account for instance) you will have to file US taxes, but
you will not be paying any, you'll need to consult with a tax specialized
lawyer for the precise details on that though, how you set things up is
critical.

~~~
falsestprophet
You may have to pay taxes on income from US customers. It is best to consult
an attorney.

~~~
jacquesm
> You may have to pay taxes on income from US customers.

Nonsense. Your moniker serves you well ;)

As long as you do not incorporate in the US you do not pay taxes in the US,
when you do the rules change and depending on the precise ownership structure
and form of incorporation you then _may_ have to pay taxes. For instance, you
will have to pay sales tax to sales done to residents of the state where you
incorporate.

It all revolves around the concept of having a 'nexus' in some state in the
US. As long as that isn't the case you are not liable for taxes, since there
is nothing that could be taxed. As soon as you have an agent or presence in
the US that you control that changes.

> It is best to consult an attorney.

That is always good advice.

~~~
notauser
Beware! Tax law is full of dragons and thou art crunchy and taste good with
ketchup.

If you have an agent or reseller in the US you may be required to collect US
taxes from your/their customers, depending on the parties to the contractual
relationship and the flow of money.

(Unfortunately professional advice doesn't always give you someone to sue in
case of disaster, as advice can be wrong but not negligent. It's a good start
though, and insurance is available against some risks as well.)

~~~
jacquesm
> Beware! Tax law is full of dragons and thou art crunchy and taste good with
> ketchup.

Or even without :)

> If you have an agent or reseller in the US you may be required to collect US
> taxes from your/their customers, depending on the parties to the contractual
> relationship and the flow of money.

This is very true. It mostly applies to sales tax.

> (Unfortunately professional advice doesn't always give you someone to sue in
> case of disaster, as advice can be wrong but not negligent. It's a good
> start though, and insurance is available against some risks as well.)

This is also true, and something that plenty of people seem to be unaware of.
You and nobody but you are responsible for your taxes. If your accountant or
lawyer fuck up _YOU_ are liable for the deficit in taxes, not they.

And that's pretty logical, since you were responsible for your taxes anyway,
hiring someone to do some work for you doesn't change that in any way that
matters.

You may or may not have a case against them depending on the amount of
negligence involved, but usually they're pretty good about covering their
asses, and leaving yours exposed.

I've had a (fortunately small) issue like this with a bookkeeper doing our
payroll, he forgot a 400 euro deduction for some government fund. That
wouldn't have been a serious problem if it didn't take over two years before
the fault was detected. So, then you owe x employees _400 euros_ y months to
plug the hole. No fun.

------
mgk
We just went through this.

We decided to charge in USD. We have a lot of international users, and while
people generally know where their own currency stands vis a vi the Greenback,
we surmised that they wouldn't be nearly as familiar with where they stand
against the Loonie.

We initially went with the Canadian cc processor Moneris. They support
recurrings, although their API support sux. Watch out too for the application
approval process which was v slow and v painful.

We do not see the cc numbers. They are passed along to Moneris directly.

Moneris could only support Visa and MC transactions for USD, which was pretty
limiting (credit cards are not used nearly as much in countries like Germany
and Brazil) so we also went ahead and hooked up a pay by Paypal.

Shortly after we set everything up, Paypal started offering its cc processing
service to Canada. They have much better API support then Moneris (although
PP’s web UI sux), and since we had already set up the PP payment option, it
was a no brainer to move it all over to PP. So PP now processes our cc as
well.

Similar to Moneris, we do not see the cc numbers at all. They are passed along
to PP directly.

(We took a look at Amazon, but they were not offering their 'Easy Pay' service
in Canada.)

If you are a Canadian registered, there is no need to worry about US taxes.

~~~
alexsolo
Thanks for the info (I'm one of the co-founders of PagerDuty).

Which PayPal product are you using? Website Payments Pro? We'd like to chat
with someone who's gone through the process of setting this up already. We are
also trying to evaluate which provider to use. Can you please send me an email
(alex [at] pagerduty.com)?

~~~
mgk
Done!

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idlewords
It's probably a good idea to find a good accountant or tax lawyer who knows
this stuff and pay them to give you an authoritative answer.

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avibryant
FWIW: we've just started using Beanstream, which is a Canadian gateway that I
think has what you're looking for.

------
matthall28
No you don't need to. Check out PayPal Web Payments Pro Canada for a Canadian
processor

