Starting a Web-based Business in Canada?

November 5, 2010

Starting a web-based business in Canada? And your primary market is in the U.S.? No problem. FreshBooks has been at it for years. However, there is whole whack of things we wished we knew when we first started. It would have saved us a lot stress, time and money.

The good: Customers

As far as we’ve ever been able to tell, customers are not affected by the fact that we are located in Toronto, Canada. We’ve never had a complaint, possibly because we bill in USD. However, Canadian customers take notice as they are also billed in USD. This sometimes results in a phone call saying “why are you charging me different amounts every month?” and “Why do you charge me taxes in USD?” Once we explain, all are very understanding as internet commerce standard is USD.

It really comes to down to one point: if you have a great product, borders will not get in the way.

There are however two hiccups. First, which sometime dings (literally) our US customers, is a bank charge called an “international” transaction fee on top of FreshBooks’ price. FreshBooks takes no cut from this fee at all and it is because we’re located in Canada. The other hurdle is that sometimes a credit card does not allow customers to use their credit card for international payments. This causes their transaction to fail. In almost all cases, the customer needs to phone their credit card provider and give FreshBooks the okay.

The good and bad: Banking

FreshBooks has a number of bank accounts. Our primary account is a Canadian merchant account in USD funds, which allows us to receive any VISA/MasterCard transaction. However, to accept American Express cards in US funds, we needed to get a US based bank account. This requires a few items; US Tax Identification Number, Employer Identification number and US address. For FreshBooks, we setup a corporate entity in Delaware through the help of a company that specializes in this, CSC, and therefore got a setup with a Chase US bank account.

Since then, we’ve heard you can avoid this. Harris bank and others ones like it, do not require a US address. Thanks to Red Couch Industries for the tip. However, you will need a US Tax ID. You can get this by setting yourself up as a foreign corporation in the US (we did not know this before) by filling out an SS-4 and by calling +1-215-516-6999 to get an Employer ID. Easy.

The rarely bad: Partnerships

In most cases, we’ve never had a problem in a partnership with a group based in the US. We typically use our Canadian entity. However, for some partnerships, the partners want a US entity to have a contract with. Since we have a US entity (see above), it’s not been an issue. So if you are planning to do a lot of partnerships, you’ll want explore becoming a US entity.

I hope this helps you setup business in Canada. For legal, taxes, and accounting, we highly recommend you get professional advice as it greatly depends on your business. And do not be afraid – it’s ok to stay here! Please share any other tips you have about running your business in Canada below, we’d love to hear them.

about the author

Co-Founder & VP of Operations, FreshBooks Levi is a professional engineer with a BEng from the University of Victoria. Before co-founding FreshBooks as the VP of Operations, Levi managed projects at Apex Systems Integrators Inc., where his clients included Canadian Tire, Nestlé and Parmalat. Levi’s long term goals include: never losing the contest to wear shorts to the office for as long as humanly possible, some day growing back his mullet he had in the eighties and getting on the jumbotron at the Raptors game at least once a year.