Starting a Web-Based Business in Canada? Keep These Tips in Mind

November 5, 2010

If you’ve got a Canadian web-based business, with a primary market in the U.S. — FreshBooks can relate. From our experience, here’s what you should keep in mind as you set up shop.

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, and that’s likely because we bill in USD.

However, Canadian customers take notice of this, as they are also billed in USD. This sometimes results in a phone call asking, “why are you charging me different amounts every month?” and “why do you charge me taxes in USD?” Fortunately, once we explain that internet commerce standard is USD, they are very understanding.

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 sometimes (literally) dings our US customers, is a bank charge called an “international transaction fee,” on top of FreshBooks’ price. (FreshBooks takes no cut from this fee since we’re located in Canada.)

The second hurdle is that sometimes a credit card won’t work properly for international payments, causing a failed transaction. In almost all cases, the customer needs to phone their credit card provider and give FreshBooks the go-ahead.

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 a US address. For FreshBooks, we set up a corporate entity in Delaware through the help of a company that specializes in this—CSC—allowing for a Chase US bank account to be set up.

Since then, we’ve learned in some cases you can actually avoid the whole issue of a US address. For instance, Harris Bank, and others like it, do not require a US address. You will, however, still need a US Tax ID and an Employer ID. You can obtain these quite easily by setting yourself up as a foreign corporation in the US. You’ll need to fill out an SS-4 form for Tax ID purposes, and call +1-215-516-6999 for Employer ID purposes.

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 corporate entity (in Delaware), it’s not been an issue. So if you are planning to do a lot of partnerships, you’ll want to explore becoming a US entity.

Moving Forward with Your Web-Based Business

I hope this helps you set up 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!

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.