|July 28, 2010|
Previously published on July 7, 2010
International business travel is so common-place these days that many people think nothing of jumping on an airplane or driving across the border to attend a meeting, service a client or work temporarily outside the country without carefully considering the immigration and tax consequences of their cross-border business activities until unexpected questions are asked by an immigration official or tax authority.
Whether business travellers require an immigration document (such as a work permit) to engage in business activity in a foreign jurisdiction is just one of the many considerations that should be carefully analysed before an international business trip or secondment. The traveller’s eligibility to cross an international border, and any personal or corporate income tax consequences of the international business activity, should also be examined.
This article highlights some of the potential Canadian immigration and tax consequences of business travel to Canada that may be relevant to your business. The potential immigration and tax consequences of business travel outside of Canada should also be considered but are beyond the scope of this article.
In this era of increased gathering and tracking of personal information from international business travellers and increased information sharing between foreign governments and Canadian government departments, it is more important than ever for Canadian companies that retain the services of foreign contractors or employees, and foreign businesses that send representatives across the Canadian border to be mindful of the considerations discussed below.
Business Visitor or Worker?
One of the first questions to consider before bringing or sending a business traveller into Canada is whether that person will require a temporary status document to authorize his or her activities in Canada. If the business person qualifies for admission to Canada as a business visitor, a work permit is not required. It may be required, or desirable, however for a business visitor to be issued a visitor record, depending on the length of his or her stay in Canada, and whether or not multiple visits to Canada will be necessary.
The business visitor category, enshrined in both the North American Free Trade Agreement (“NAFTA”) and Canada’s Immigration and Refugee Protection Act, (“IRPA”) was designed to foster international business activity. It facilitates the temporary entry of foreign nationals to Canada for cross-border commercial purposes where there is no direct entry into the Canadian labour market. To qualify as a business visitor, a foreign national must continue to be paid from a source outside Canada and must maintain a principal place of employment outside the country. The determination of whether someone qualifies as a business visitor is fact specific and will ultimately be made by the immigration officer who examines the foreign national at the border. Some examples of business visitor activity include travel to Canada for quarterly board meetings, after-sales service work contemplated by an initial contract or purchase order, and training or installation of equipment for a Canadian affiliate of a foreign company.
International business travellers who do not qualify as business visitors will require a work permit to authorize the activities they will be doing in Canada. In some situations work permits can be issued at a Canadian port of entry as long as the foreign national has proper supporting documentation to establish his or her eligibility for a certain type of work permit. For example, senior managers or specialized knowledge workers who are being temporarily transferred to a related Canadian enterprise, and management consultants or other professionals from countries that have negotiated international trade agreements with Canada qualify for expedited work permit processing that does not require an opinion be in place confirming the positive impact their presence will have on the Canadian labour market.
Eligibility for labour market opinion-exempt work permits, however, is not always crystal clear. Consequently, unless it is patently obvious that an international business traveller you are bringing or sending to Canada will not require a work permit supported by a labour market opinion, it is advisable to consider the various steps required to obtain proper temporary immigration status for that person several weeks (or months) before their scheduled travel to Canada.
In practice, the distinctions between business visitors and temporary foreign workers are easily blurred. Consider a situation where two executives of a multi-national corporation based in the United States are required to spend several three- or four-month periods in Canada over two years directing and overseeing the development of a small but growing Canadian affiliate. At first blush these executives may appear to be business visitors. Even if they continue to be paid by the US parent company while they are in Canada, one immigration officer may determine they qualify as business visitors, and on a subsequent trip another officer may decide they are actually entering the labour market and as such require a work permit.
This type of secondment scenario has become a common business practice not only in North America, but around the world. In the current global business climate, however, business travellers on missions like this can be stopped dead in their tracks at international borders if they are not properly briefed and prepared to apply for the appropriate immigration document. For this reason, current best practices require that attention be paid to the risks and consequences that can flow from the cross-border movement of personnel.
Experienced international travellers who have been admitted to Canada in the past as business visitors may assume they can automatically enter Canada again under the same category by indicating the purpose of their trip is to attend “business meetings”. But, if that description does not accurately reflect the activity they will be doing in Canada, the traveller exposes themselves, and potentially the business they represent, to consequences for misrepresentation and for working illegally in Canada. Moreover, an immigration officer may also look at a business traveller’s pattern of prior visits to Canada and determine that s/he has moved beyond the realm of business visitor status and is actually entering the Canadian labour market and thus requires a work permit. In this type of scenario, the foreign national may only be admitted to Canada for a limited period of time, or turned around at the border until proper documentation to justify the issuance of a work permit can be obtained.
Immigration Admissibility Considerations
If your business frequently relies on services provided in Canada by foreign nationals, you should be familiar with some of the reasons that business travelers can be turned back at the border. In addition to the rules which govern eligibility for work permits and visitor records, a foreign national must also be admissible to Canada. Admissibility issues such as criminality and misrepresentation are becoming more prevalent than they were in the past for international business travellers. This is not because more crimes are being committed by this constituency, or because they are lying about their reasons for crossing the border with any more frequency; more information is simply now readily available at the fingertips of immigration officers.
Foreign nationals who have been charged with or convicted of a criminal offence anywhere in the world, at any time, may be inadmissible to Canada. While steps can often be taken to resolve criminal inadmissibility issues, it is important to canvass the subject of criminality with any foreign national you will be bringing or sending into Canada.
Criminal inadmissibility often arises for business travellers when their passport is swiped at the border and a long-ago forgotten indiscretion, such as an old impaired driving conviction, comes to light. This can even be true for business travellers who have crossed the Canadian border for years without incident because of improved reporting systems with other countries. Although minor convictions that are decades old are the easiest to deal with from an immigration standpoint, it can be both embarrassing and time consuming for business travellers to be held up at the border if and when a criminal record comes to light.
It is also important that any representative you seek to bring or send into Canada be well briefed on the procedure for crossing the border and applying for any necessary immigration document. A perhaps obvious obligation that must be underscored is the requirement to be honest and forthright with Canadian immigration officials about the purpose for which the foreign national is travelling to Canada. A surprising number of business travellers lie about their reason for crossing the border, by indicating they are coming to Canada to visit friends or take a vacation, when they will actually be consulting with clients or negotiating a contract. Whether this is done out of nervousness, or to save the time it can take to be referred to an immigration officer to apply for a work permit, there will be trouble when immigration officials discover evidence in a briefcase or on a laptop computer indicating that a foreign national purportedly coming to Canada for pleasure, is really crossing the border to work. This practice should be avoided at all costs because IRPA imposes significant consequences on individuals who misrepresent, directly or indirectly, their purpose for crossing the border or withhold material information. Specifically, a foreign national found guilty of misrepresentation is automatically barred from entering Canada for a period of two years and can also be fined or sent to prison. Similar sanctions can be imposed against a company who counsels a foreign national to misrepresent facts that are material to their admission to Canada.
Non-Compliance with Immigration Legislation
If you bring or send foreign nationals to Canada it is wise to ensure that their cross-border activity complies with Canadian immigration legislation. If you are in doubt about what is required of your company and the foreign national, you may wish to obtain the advice of counsel before the scheduled travel. Thereafter, it is advisable to obtain a copy of any immigration document issued to the foreign national so you will be aware of its terms and conditions and when it expires. If the foreign national’s presence in Canada is required for longer than originally planned, an application to renew his or her document must be made in a timely manner to ensure s/he has uninterrupted status in Canada.
Foreign nationals who are working with or for your business must be authorized to engage in the activities they are doing in Canada. Anyone who “works” in Canada without authorization, or in violation of the terms and conditions of their work permit or visitor record, is technically working illegally and could be fined or subject to removal action at any time. Conversely, IRPA also imposes consequences on Canadian businesses who employ, even inadvertently, foreign nationals without proper authorization. Currently, those consequences include fines of up to $50,000 or two years in prison. These consequences are soon expected to become more severe when proposed regulatory changes to Canada’s temporary foreign worker program are enacted. Under the proposed changes, expected to come into force before the end of 2010, a blacklist of employers not eligible to hire temporary foreign workers as a result of their non-compliance will be published on Citizenship and Immigration Canada’s website.
Canadian Tax Considerations
Immigration issues are not the only thing you need to worry about when bringing or sending a business traveller or transferee into Canada. There are various personal and corporate taxation obligations that can be triggered if your business engages a non-resident individual or corporation to provide services in Canada. The purpose of the following section is to make you aware of some of the withholding and remittance requirements the Income Tax Act (Canada) prescribes in relation to non-residents.
Withholdings for Non-Resident Service Providers
All businesses that retain non-residents (individuals or corporations) to provide services in Canada must withhold and remit income tax from the payments made for those services. Full reporting of all payments made to non-resident service providers must also be reported, regardless of the amount paid or the taxes withheld. This obligation applies whether the payments are made by a Canadian source or not. In other words, even foreign companies who retain non-resident service providers to do work in Canada must withhold and remit tax to the Canada Revenue Agency (the “CRA”). Under Canadian income tax regulations payments of fees, commissions or any other amounts for services rendered in Canada, except those paid to employees, are subject to a 15% withholding that must be deducted and remitted by the payor on the 15th day of the month after the payment was made. There is also a requirement to file an annual return with respect to these withholdings. The CRA interprets this withholding requirement broadly; payments do not necessarily have to be paid exclusively in respect of services for the withholding requirement to be triggered. Therefore, when in doubt, it is advisable to withhold.
Withholding tax from payments made to non-resident service providers is mandatory unless the non-resident obtains a waiver, or a reduction in the withholding tax. If the non-resident tax withheld turns out to be tax-exempt income, or more tax is withheld than necessary, the non-resident can apply for a refund. Failure to deduct or remit non-resident tax by the company paying for the services may result in an assessment of the outstanding amount, plus interest and penalties.
Source Deductions for Non-Resident Employees
The Income Tax Act also requires Canadian and foreign businesses to withhold and remit income tax, Canada Pension Plan contributions and Employment Insurance premiums for payments made to non-resident employees who provide services in Canada, unless these obligations have been formally waived. All amounts paid to non-resident employees must be reported to the CRA on the T4 Information Return which is required to be filed annually. Both resident and non-resident employers who fail to deduct and remit these amounts are liable for these amounts plus any interest and penalties.
Employer liability for source deductions from amounts paid to foreign workers can be murky in some situations such as the case of a short-term transferee who is working in Canada, but remains on the payroll of a foreign company. Even if this non-resident worker’s income is tax-exempt as a result of a tax treaty between Canada and their home country, there may still be an obligation on the foreign company to register with the CRA to obtain a Business Number and to withhold source deductions from the remuneration paid for the work done in Canada.
Canadian Income Tax Obligations for Non-Residents
Residency for tax purposes is defined differently than it is for immigration purposes. Under the Income Tax Act a person becomes a resident of Canada when they establish certain residential ties, or have been in Canada for 183 days or more in a given calendar year. Unless and until a foreign national becomes a resident taxpayer of Canada, they are taxed as a non-resident. Generally, non-residents are required to report any income received from sources in Canada. Non-residents are subject to Canadian income tax on most Canadian-source income unless all or part of it is exempt under a tax treaty.
A foreign national who has been in Canada for more than 183 days in a year is deemed to be a resident of Canada and therefore liable to pay Canadian income tax on his or her worldwide income during the period s/he resided in Canada. This is known as the “sojourn rule” and could have unintended tax consequences for business travellers who are required to spend a significant amount of time in Canada in a given calendar year.
Any time a foreign national is required in Canada for a work-related purpose, both the immigration and the tax implications of that person’s activity in Canada must be examined to avoid the risk of any unintended consequences that can be triggered by international business travel.