3 replies to this topic

[jayonline]

Hello fellow entrepreneurs and webmasters..

I am starting an online business in Canada, and since it not as easy to setup an online business in the US, I have a few questions for the people who've had first-hand experience with the following:

1) Is there an equivalent to an LLC in Canada? (I would like to limit both my liability and my tax file returns!). If not, whats the next best thing and how much does it averagely cost to setup?
2) I know that Google Store and Checkout only work with American or UK based companies at the moment. Do you know if I can start a Yahoo Online Store? If not, whats the next best online store/shopping cart solution that you have worked with in Canada?
3) Some of our products are manufactured in Canada, and some are manufactured overseas. What kind of taxes and fees apply to selling the first option, and importing/selling the second option?
4) How can I find out if my imported products are exempt from certain taxes?
5) What if I want to export to international customers, are there any exporting taxes I should know about?
6) What is considered Duty Free?
7) What is the procedure to export and ship products to our US clients?
8) What is the best/cheapest shipping companies to consider for our Canadian customers, and for our US or international customers?
9) Which bank provides the best online merchant account? What documents are required and how much does it cost to setup?

Many thanks for your answers in advance..

[cannuck1964]

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1) Is there an equivalent to an LLC in Canada? (I would like to limit both my liability and my tax file returns!). If not, whats the next best thing and how much does it averagely cost to setup?

Yes, there are both provincial and federal incorporations, both will limit your liability and tax base, but generally the tax base will not save you anything until you start making over $30K in profit. Speak to a lawyer and accountant if you want more information or the BDC.

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2) I know that Google Store and Checkout only work with American or UK based companies at the moment. Do you know if I can start a Yahoo Online Store? If not, whats the next best online store/shopping cart solution that you have worked with in Canada?

Well, come to the osCommerce forums you will get the answer that osCommerce is the perferred cart system to work with

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3) Some of our products are manufactured in Canada, and some are manufactured overseas. What kind of taxes and fees apply to selling the first option, and importing/selling the second option?

The importation fees associated with your products will vary, this is something you will need to contact Customs Canada on. As for the selling, GST, HST and or provincial sales tax will apply to sales made in Canada and your province, outside of Canada sales are tax exempt for most products that I can think of.

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4) How can I find out if my imported products are exempt from certain taxes?

Contact Customs Canada and the CRA

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5) What if I want to export to international customers, are there any exporting taxes I should know about?

See above

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6) What is considered Duty Free?

Usually referred to products IMPORTED, not exported.

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7) What is the procedure to export and ship products to our US clients?

Generally all shipping leaves the customer purchasing the item to pay importation duties etc. Shipping to the USA is simple using any of the various shipping companies, including UPS, Canada Post Fedex etc...

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8) What is the best/cheapest shipping companies to consider for our Canadian customers, and for our US or international customers?

Do research on this rates vary depending on quantity, size ship to location etc.

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9) Which bank provides the best online merchant account? What documents are required and how much does it cost to setup?

You will need to contact your bank on this, there are many payment methods available though other means not just the banks.

cheers and hope this helps you in your endevour.....

Edited by cannuck1964, 28 September 2009, 12:04.

[jayonline]

thanks for your prompt response cannuck!

I should've probably mentioned that we're going to be a small business start-up, so we're hoping to keep our start-up costs as low as possible.

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1) Is there an equivalent to an LLC in Canada? (I would like to limit both my liability and my tax file returns!). If not, whats the next best thing and how much does it averagely cost to setup?
Yes, there are both provincial and federal incorporations, both will limit your liability and tax base, but generally the tax base will not save you anything until you start making over $30K in profit. Speak to a lawyer and accountant if you want more information or the BDC.

It'll take us a few years until we're making $30k in profit a month. I think a reasonable profit to expect for the first year is between $1000 to $3000 per month. And thats just being extremely realistic and non inflammatory with the numbers. Also at this point I should mention that my business model is based on drop-shipping, so the financial risks are quite low. So my new question is, do you think we should incorporate at all? If yes, what is our best legal option that will not eat up our start-up costs?

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2) I know that Google Store and Checkout only work with American or UK based companies at the moment. Do you know if I can start a Yahoo Online Store? If not, whats the next best online store/shopping cart solution that you have worked with in Canada?
Well, come to the osCommerce forums you will get the answer that osCommerce is the perferred cart system to work with

sounds good! I'll give that a thorough research

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3) Some of our products are manufactured in Canada, and some are manufactured overseas. What kind of taxes and fees apply to selling the first option, and importing/selling the second option?
The importation fees associated with your products will vary, this is something you will need to contact Customs Canada on. As for the selling, GST, HST and or provincial sales tax will apply to sales made in Canada and your province, outside of Canada sales are tax exempt for most products that I can think of.

I see. So there are import taxes, but no export taxes. In regards to sales, I would like to make it easier for my customers by stamping the product with one price that includes all possible taxes. So for example when they go on our website, our product will be sold for $100 + Shipping/Handling. Is it legal to do that?

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4) How can I find out if my imported products are exempt from certain taxes?
Contact Customs Canada and the CRA

Will do.

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6) What is considered Duty Free?
Usually referred to products IMPORTED, not exported.

I'm confused. I thought Duty Free means no taxes. How are Imported products Duty Free?

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7) What is the procedure to export and ship products to our US clients?
Generally all shipping leaves the customer purchasing the item to pay importation duties etc. Shipping to the USA is simple using any of the various shipping companies, including UPS, Canada Post Fedex etc...

I heard the exporting paperwork we have to fill for each product sold to a US customer is daunting, is that true? Also, how can I find out how much will my US customer have to pay for importing our products?

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8) What is the best/cheapest shipping companies to consider for our Canadian customers, and for our US or international customers?
Do research on this rates vary depending on quantity, size ship to location etc.

Will do. But how are some companies able to ship a product anywhere within Canada for a fixed standard fee of $9 for example?

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9) Which bank provides the best online merchant account? What documents are required and how much does it cost to setup?
You will need to contact your bank on this, there are many payment methods available though other means not just the banks.

We'd like to be able to receive credit card payments into our bank account. I heard you can only do that through a merchant account. True? What are some of the other payment methods that you refer to?

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cheers and hope this helps you in your endevour.....

Thank you very much. I hope this thread will help many online entrepreneurs understand the legalities and the process of starting an online business in Canada. Hopefully the more online businesses there are, the more the government will make it easier for us to start them!

Edited by jayonline, 29 September 2009, 08:08.

[MrPhil]

jayonline, on Sep 29 2009, 04:06 AM, said:

do you think we should incorporate at all? If yes, what is our best legal option that will not eat up our start-up costs?

Well, in the U.S. it's suicidal to operate as a sole proprietorship, with no business entity between you and frivolous lawsuits by greedy shysters. All your personal assets are exposed to being seized. Here, unless you're willing and able to hunt down and kill customers and their lawyers who file frivolously, you'd better be at least an LLC, if not a corporation. Canadians are supposedly a bit more rational and civilized, but I wouldn't be surprised if the American Disease has started to spread to there. Anyway, I would suggest engaging a lawyer/solicitor for a discussion about what you're doing and how exposed you'll be to lawsuits, and determine how much protection you need (beyond business insurance). You should have an attorney available anyway, so this would be a good opportunity to retain one and start up a relationship with them.

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So there are import taxes, but no export taxes. In regards to sales, I would like to make it easier for my customers by stamping the product with one price that includes all possible taxes. So for example when they go on our website, our product will be sold for $100 + Shipping/Handling. Is it legal to do that?

If you structure it so that you price it high enough (for everyone) that you can eat any and all taxes, my guess is that it would be legal (price it "all taxes, fees, and duties included"). You'll probably want to check with the government tax and customs authorities on this, so you don't get into trouble. I'm pretty sure that in most cases you can't explicitly charge for taxes that are not due to be collected, or that are higher than the rate is supposed to be for that particular customer, even if you do remit the overcharges to the tax authorities. If you're drop shipping across international boundaries, someone's got to pay customs fees and duties -- I have no idea if legally it has to be split out from other costs and shown to the customer. Anyway, you've got a very complicated situation there, and having merchandise cross borders means a lot of paperwork.

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I heard the exporting paperwork we have to fill for each product sold to a US customer is daunting, is that true? Also, how can I find out how much will my US customer have to pay for importing our products?

To export to Canada from the U.S. takes a customs declaration and possibly a fee to the paid by some party, depending on the nature of the merchandise and its value. I don't know if NAFTA makes it any easier at the retail level. You could probably start your queries at the local Post Office, even if you won't be mailing anything. Shippers like UPS or FedEx (I presume they operate in Canada) might have information.

While you're just starting out, you may want to consider confining your shipments to Canada (internal) and forgo international customers. Get the business settled down and functioning before taking on the additional complications of international shipping. You'll have enough on your plate without worrying about the paperwork and fees for crossing the border. Of course, if your drop shipper is in the U.S., you would be confining yourself to the U.S. market in the beginning, at least for those products.

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Will do. But how are some companies able to ship a product anywhere within Canada for a fixed standard fee of $9 for example?

Like the Post Office does. They either set the flat rate fee high enough to cover all possible customers at a profit, or set it high enough to make a profit on most shipments and eat the loss on a few customers. The upside is that customers don't have to figure out different rates -- it's one cost. For example, I pay $0.44 to mail a letter in the U.S. If it's just going down the street, it might cost the USPS $0.10 to deliver it. If I send a letter to Nome, Alaska, it might cost $3.50 to deliver it. Either way, my cost is the same. That may or may not be a smart business model -- savvy customers will look into using other, cheaper means for local deliveries , and using the cheap flat rate for long distances (so the carrier loses money).

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We'd like to be able to receive credit card payments into our bank account. I heard you can only do that through a merchant account. True? What are some of the other payment methods that you refer to?

If you want to directly process credit cards, you need to open a Merchant Account with a bank and set up an approved payment gateway. There are all sorts of security regulations you'll have to comply with (beyond just having SSL on certain pages) and your site and process will be audited. International credit card orders will probably be considerably more expensive to process, including currency exchange fees. As a small startup, you may find it more economical to use a third party service such as PayPal. As you get bigger, at some point a merchant account will have (between fixed monthly fees and per-transaction fees) a lower total cost than PayPal, and you can look into switching over. I wouldn't start out with a merchant account unless you realistically expect to become very big very quickly.

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Hopefully the more online businesses there are, the more the government will make it easier for us to start them!

The chicken and the egg? I wouldn't hold my breath about any government making it easier to do anything. :-( Good luck!