Do you own a startup/ small tech company in U.S.? You must have noticed a shortfall in affordable talent and the rising costs associated with hiring and retaining skilled workers/ engineers, particularly if you are located in top destinations like California or New York. The days when you could raise venture capital for just about any technology related project are all but over. Here is something you should take notice of – Canada!!
The Canadian government provides huge R&D credit (and it is paid in cash regardless of whether you owe any taxes in most cases) through what is called SR&ED. It is one of the world’s best tax credit programs in regards to R&D and new development. Companies outside of Canada are definitely taking notice. According to Research Info Source, in the top 100 of Canada’s Corporate Innovation Leaders for 2013, 30% are foreign-owned subsidiaries (only includes R&D spend and revenue in Canada). More and more companies from foreign countries, especially the U.S., grow their interest to perform R&D in Canada.
Come to think of it, Canada is a natural fit for US companies due to their similar cultures, highly skilled labor force in Canada, lower taxes, lower cost of living, ease of migrating, free healthcare, amazing quality of life and of course the snow storms! “Greater Toronto and many other Canadian cities present an unparalleled opportunity to US companies to set up and undertake R&D for a third of the cost they would normally pay in California”, says Vijay Kalra CPA, the CEO of SR&ED Funding Consultants Inc., which is a Toronto based tax consulting firm that specializes in this field. He goes on to add “If you are a US technology startup, or selling your product/services online, then Canada actually acts like a tax haven country because of many benefits that can be put together to minimize taxes internationally. In the startup stage, the savings can be so substantial that they can make a real difference in the sustainability of the project, whereas when the company is matured and selling their products/ services in a global marketplace, a whole host of tax benefits ensures minimization of taxes on international sales that would astound you.”
Just take a simple example, assume you have a California based company, you can only receive 15% (only tax credits, no cash) of the qualified expenditures as R&D Credit. However, the percentage you can receive in Ontario would be as high as 68%, which is all cash.
Furthermore, judging by a slew of bad press and an endless drum beat of negative survey results, the California brand is deeply tarnished when it comes to business. Most recently, California was named as one of the least friendly places for small businesses in the country in a 2015 Thumbtack.com survey, according to a pool of 18,000 small business owners nationwide. California received the lowest grade possible for small businesses’ experiences with labor and hiring, health and safety, regulations and ease of starting a company. Most companies are leaving California due to high taxes and oppressive regulations. A study of business tax climates by the Tax Foundation found that California’s businesses face the third-highest state and local business tax burdens in America. In contrast, Ontario boasts lower corporate tax rates than the U.S. for small businesses, as well as enticing personal income tax rates.
Adds Vijay Kalra, “if you consider the Canadian R&D credit and then add to it lower cost of wages, much lower corporate income tax on small business in comparison to California, 30% discount on Canadian dollar, one of the world’s most highly skilled workforces, Silicon Valley like infrastructure in Ontario and English speaking population, then this is really a no brainer!”