Case Study - Navigating the Tax Structure of Entering the Canadian Market

Type of Client
Designer and Supplier of Turnkey Retail Interiors

Geography
US and Canada

Challenge
Based in Madison, Wisconsin, USA this client provides turnkey store displays, fixtures and solutions to high end luxury retailers.  In most cases, the design and build out of the interior of the client's retail store was over $5 million per location.  A major US customer asked EMW’s client to begin projects in Canada, but the client would be responsible for all logistics up to installation, including sending staff to supervise the installation.  The client had completed one project previously in Canada, but it was not as profitable or efficient as planned due to the lack of the client expertise and knowledge of the Canadian tax and customs systems.
  
Upon recommendation from the client’s logistics partner, EMW was asked to assist the client in advising and setting the systems to be compliant with Canada’s Non Resident Importer (NRI) Program related to the collection, reporting and remittance of Goods and Services Tax (GST)/Harmonized Sales Tax (HST) and the associated Canadian Revenue Agency (CRA) regulations.  The NRI is a system where participating non-Canadian companies can import and deliver anywhere in Canada without the expense of having a physical presence.  Like all international programs, numerous rules and regulations must be complied in many disciplines including customs, tax, duties, transportation, commercial agreements, etc.  GST/HST are collected similar to a Value Added Tax (VAT) on the sale of each good and service.  This scheme is not familiar or used in the USA and can cause much confusion to unknowing US trained accounting professionals.
 
Solution
To meet the demands of the client’s customer, the client registered and was able to benefit from the NRI.  While the freight forwarder handled the transport of the project materials, EMW assisted the client in GST/HST reporting and complying with the CRA rules and regulations. Ken Wasylik, who has been a Certified Public Accountant for 30+ years, lead the project for EMW. 

Result
EMW discovered that the client manufactured their finished product at their Madison, Wisconsin, USA facility and thereby would qualify under the North American Free Trade Agreement (NAFTA).  The client was paying duties of 5-10%, which EMW counseled could be avoided and converted to direct profitability if the client complied and completed the necessary NAFTA documentation.  EMW brought in a NAFTA expert, the client officially registered, and the client achieved savings of $50-75,000.

Follow-up Note
Today the client has expanded its penetration further into Canada using the NRI program and regularly reports GST/HST using internal personnel.