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TheCanadian taxation systemis made of direct and indirect taxes. The most important indirect tax is thevalue added tax (VAT), however, inCanada,it is known as theGoods and Services Tax(GST). In certain provinces, the GST is known as theHarmonized Sales Tax(HST) and in order to collect this tax, aCanadian company or individualis required toregister for VATwith the tax authorities.
In order to understand howVAT registrationworksin Canada, ourlocal consultantshave prepared a guide on this important tax. We can help foreign investors who want toset up companies and register for VAT in Canada.
Table of Contents
VAT (GST) registration regulation in Canada
There are several laws which provide for the levy of thevalue added tax in Canada. While the most important one is the First Nations Goods and Services Tax Act, there are also other laws that provide for the registration requirements applied toCanadian businesseswith respect to theGST. Also, there are several principles to be respected upon the collection of this tax. The first one refers to the types of products the tax is applied, to the destination of the products or services and the beneficiaries.Companies in Canadaare required toregister for VATin the provinces they are established in.
TheVAT in Canada bearsdifferent names depending on the region it is levied in, as it follows:
- the GST is the federal tax which is levied a national level in every province and territory;
- the Provincial Sales Tax (PST) is levied in every province, except in Alberta;
- the GST and the PST combined is called the Harmonized Sales Tax (HST) is levied in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island;
- there is also the Quebec Sales Tax (QST) which is levied alongside the GST;
- in Manitoba, the provincial sales tax is called Retail Sales Tax (RST) and is levied together with the GST.
Companiesare required to register for the VAT, however, when it comes to the collection of the tax, they must collect the taxes in the provinces they are incorporated in.
Ourcompany formation specialists in Canadacan guide foreign investors who want to set up companies through theVAT registration procedure.
The VAT (GST) in Canada
In order to understand howVAT registrationmust be completed byCanadian companies,sole proprietorshipsand individualsinvolved in the sale of goods and products, one must first understand how this tax applies considering the complex taxation system of this country.
Here is what one should know about theCanadian VAT:
- the GST is levied at a federal level and it applies to all taxable goods and services;
- the HST combines the federal and provincial VAT and it is applied at different rates;
- the HST is levied in Ontario, New Brunswick, Newfoundland and Labrador, Prince Edward Island and Nova Scotia;
- Quebec has its own VAT levied under the form of the Quebec sales tax or QST;
- British Columbia, Saskatchewan and Manitoba impose provincial sales taxes (PST).
VAT registrationmust be completed with the local tax office in the province/territory the business is registered in. The same principle applies to individuals selling goods and services in Canada. For example, those paying the QST must register with theQuebec Revenue Agency.
Ourcompany formation agents in Canadacan offer more information on how toregister for VAT. We have also created a scheme related toVAT registration in Canada.
Entities required to register for VAT in Canada
Companiessupplying goods and services exempt from theVATcannot applyfor GST or HST accounts in Canada. There are two mandatory conditions to fulfill in order to be allowed forVAT registration in Canada: for the company not to be a small supplier and for the taxable goods and services to be supplied in Canada.
Other than that, the following entities are required toregister for GST/HST in Canada:
- companies selling good and services subject to the VAT in Canada;
- charities and public institutions who make more than 50,000 CAD in a calendar year;
- non-resident companies interested in applying for GST registration in Canada;
- taxi operators andfinancial institutionshave specific GST registration requirements to comply with.
As mentioned above,VAT registrationis not required for small suppliers. In order to determine if a company is a small supplier or not, it must meet certain requirements. Individuals whose revenues derived from worldwide supplies of goods and services do not exceed 30,000 CAD per quarter are considered small suppliers. In the case of public institutions, the minimum amount is set at 50,000 CAD. In the case of charities, the revenues must not exceed 250,000 CAD in a quarter.
Our local agents can offer more information on theVAT registration requirementsapplied to special categories of taxpayers inCanada.
When is VAT (GST) registration required in Canada?
A person or business is required toregister for VAT in Canadaat the moment they start to make taxable supplies. It is worth noting that trusts and associations are also required toregister for VAT in Canadain case theysell goods or services.
VAT registrationis not mandatory until the entity or individual has made taxable supplies of goods and services of at least 30,000 CAD in a quarter or a calendar year. If this amount of money is not reached, the applicant canregister for GST/HST/QSTvoluntarily.
There are also special rules related toVAT registration in Canada. These apply to charities, taxi companies and non-resident book and magazine sellers andpublishers entering Canadafor a limited period of time.
Ourcompany registration advisors in Canadacan offer more information on the special requirements related toGST/HST/QST registration.
Voluntary VAT (GST) registration in Canada
Non-resident companiescanregister voluntarily forVAT in Canadaunder the GST regulations. These can register in one of the following situations:
- they order goods or services which are exported or delivered in Canada;
- they have entered agreements for the supply of goods and services in Canada;
- they have entered agreements related to the use of intangible or real estate property in Canada.
Our local advisors can also helpnon-resident investorsinterested instarting a business in Canada.
Documents required for VAT registration in Canada in 2022
In order toregister for GST/HST/QST in Canada, a company, entity or individual is required to file a few documents with the tax authorities. Among these, the application form (Form RC1 or RC1A depending on the situation), the company’s registration documents (where applicable), the GST/HST questionnaire in the case ofnon-resident companiesandnon-resident investors.
It is also good to know that non-residents could be required to provide security upon theregistration for VAT in Canada.
VAT registration requirementsare different across Canadian provinces and territories, this why it is good to request specialized services in this sense. For non-residents in need ofregistered agent services, our Canadian agents can be of help.
Advantages of GST registration in Canada
Even ifGST registrationis not mandatory up to a point,Canadian companies applying for VAT numbersvoluntarily can obtain various advantages. One of the most important benefits is the input tax credit which can be claimed in order to recover the GST/HST paid during the commercial activities. Also, these credits can be claimed within up to 4 years from the end of the period in which the tax credit could have been requested.
The rules forclaiming VATinput tax credits are the same as for claiming variousbusiness expenses in Canada. VAT claims can be requested for rental activities, various utilities, office supplies and even for specific employment-related expenses.
With respect to the reporting periods for GST payments, it is important to note that the Revenue agency will assign a company’s reporting period based on the total annual sale of taxable goods and services. The period can be monthly, quarterly or yearly.
The reporting period will be assigned for the previous financial year uponVAT registration in Canada. It is possible for companies to choose their reporting periods based on VAT-taxable incomes. Also, companies are required to meet the filing deadlines in accordance with the reporting periods in order to avoid penalties. Reporting is also required even if a business did not conduct any commercial activity or collected any VAT during the respective timeframe.
TheGST returnsthat must be sent to the Revenue Agency must contain information on the amount of money charged on the customers and the amount paid or owed to the suppliers. The difference between these charges represents the net tax paid by the company.
VAT (GST) rates and filing requirements in Canada
TheVATis imposed at different rates in Canada, while thefiling requirementsare also different. Here is what you need to know aboutVAT rates and filings in Canada:
- the GST is levied at a rate of 5% (a reduced rate of 0% is also available for certain goods);
- the HST is levied at rates between 13% and 15% (with a reduced rate of 0%);
- the QST is imposed at a rate of 9.975%;
- the PST is levied at rates ranging between 6% and 8%;
- GST/HST/QST/PST filings can be submitted monthly, quarterly or annually.
Legislation related to the VAT in Canada
There are severallawswhich provide for how theGST in applies in Canada. These are:
– the First Nations Goods and Services Tax Law;
– the Excise Tax Law;
– the GST/HST Rulings, where HST stands for Harmonized Sales Tax;
– the GST/HST Policy Statements.
According to the law, theVAT in Canadaapplies based on the following principles:
– the type of products or services;
– the destination of the services or products;
– who the beneficiary of the products or services is.
OurCanadian company registration agentscan offer more information on the legislation related to thevalue added tax.
New GST/ HST rules in 2022 for Canadians and foreigners
Starting with 1st of July 2021, entities that are registered as e-platforms operators (or which are considered to be so) will need to follow new regulations regardingGST/HST in Canada. This applies to bothCanadian residentsas well as to foreign residents. Thus, these entities will need to collect data on their clients as well as on their customer’s clients in order to verify if theGST/HSTis applicable and who is liable to the payment of this tax.
New regulations apply inCanadasince 1 January 2022 with regards to the proposed digital services tax, that is charged at a rate of 3%.
Who must pay the VAT in Canada?
Thevalue added taxis applied on most goods and services bought by the population, however it is collected bycompanies in Canadaand forwarded to the tax authorities. In order to be able to collect theVAT, a company must have aGST numberand account attached to it.
Foreign companiesselling goods and services in Canadamust alsoregister for VATas long as the taxable supplies exceed 30,000 CAD in any quarter of the year.
In order to simplify thecollection of the GST, it should be noted that the Canada follows the OCED standards which is popular in all European countries.
For assistance inVAT registration in Canada, pleasecontact our company formation agents.
FAQs
Do I need to register for VAT in Canada? ›
You generally cannot register for a GST/HST account if you provide only exempt supplies. You have to register for a GST/HST account if both situations apply: You make taxable sales, leases, or other supplies in Canada (unless your only taxable supplies are of real property sold other than in the course of a business)
How do I register for VAT in Canada? ›VAT registration must be completed with the local tax office in the province/territory the business is registered in. The same principle applies to individuals selling goods and services in Canada. For example, those paying the QST must register with the Quebec Revenue Agency.
Can I register for VAT for a future date? ›You can ask HMRC to apply for your VAT registration number from a future date. However, this only applies if you are registering voluntarily. Generally, one month in advance is plenty of time and you will not need to charge your customers VAT until this date.
What is the VAT number for Canada? ›Canada's federal version of the VAT is officially called the Goods and Services Tax (GST). As of the time of writing, the GST is 5% and this is a tax that's levied on most goods and services made in Canada.
Is HST the same as VAT? ›“The Harmonized Sales Tax is a Value Added Tax where the tax base has been harmonized between the federal and provincial government. So that means that if there's a good or service, with some exceptions, that's taxed under the GST, it is also going to be taxed under the HST.”
Do you get VAT back in Canada? ›...
VAT Chance: How to Cut Your Vacation Costs with Tax Refunds.
| Country | Value Added Tax | Minimum Purchase Requirement |
|---|---|---|
| Canada | 7% | $200 CAN or US$160 * |
| Czech Republic | 22% | 2500 Czech Kroners or US$107 |
| Denmark | 25% | 301 Danish Kroners or US$52 |
| France | 19.6% | 175€ or US$227 |
How much is VAT in Canada? The VAT rate in Canada is the Canadian Federal GST of 5%. It applies to most goods and services with a few exemptions. These include most health, medical and dental services, legal aid services, long-term residential rentals, music lessons and some child care services.
How do I register for VAT? ›Compulsory Registration
The business must Register for VAT on eFiling or complete a VAT 101 – Application for Registration form and submit it to the local SARS branch within 21 days from date of exceeding R1 million.
You must get help to apply for a VAT number. An application must be submitted to the local tax authorities using the right registration forms. This application should include documentation about your business, evidence of the authority of the legal representative, and detailed information about your planned activities.
Is VAT ID the same as VAT number? ›What is a VAT identification number? Sometimes also known as a VAT registration number, this is the unique number that identifies a taxable person (business) or non-taxable legal entity that is registered for VAT.
Do I need a VAT number? ›
You must register if: your total VAT taxable turnover for the last 12 months was over £85,000 (the VAT threshold) you expect your turnover to go over £85,000 in the next 30 days.
How much is VAT in Ontario? ›The current rates are: 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon. 13% (HST) in Ontario. 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
How does VAT work in Canada? ›How much is VAT in Canada? The VAT rate in Canada is the Canadian Federal GST of 5%. It applies to most goods and services with a few exemptions. These include most health, medical and dental services, legal aid services, long-term residential rentals, music lessons and some child care services.
Do I have to collect VAT? ›Every company selling goods and services to European customers needs to collect value-added tax (VAT), even if their business is not established in Europe.
Who is subject to VAT tax? ›Sales tax: Only the final consumer pays. VAT: All purchasers pay VAT; however, the economic burden of VAT is on the final consumer as they do not have the right to deduct input VAT.
Is VAT different from sales tax? ›The main difference between a VAT and a sales tax is that a sales tax is only paid once: at the initial point of sale. This means only the retail customer pays the sales tax. The VAT is instead collected multiple times during the production of a finished product.