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Canada-US Tax Treaty for LLC Owners

The Canada-US tax treaty (active since 1980) reduces US withholding but has a unique LLC treatment issue. Canadian residents owning Wyoming LLCs face special considerations.

Answer

The Canada-US tax treaty (active since 1980, updated 2007) reduces US withholding on cross-border income. Treaty rates: 5% on dividends to corporate parents (15% otherwise), 0% on interest, 0% on royalties. Canada has a unique issue with US LLCs: the CRA does not always recognize US LLC pass-through treatment, sometimes treating LLCs as corporations for Canadian tax purposes. This can create double- taxation issues for Canadian residents owning US LLCs. Consider a C-Corp structure if Canadian resident, or consult a Canadian CPA familiar with US LLC ownership.

By Zawwad, Founder & CEO, WyomingLLC by Topslice LLC.

Last updated May 20, 2026

Key treaty articles

  • Article 7 (Business Profits): business profits taxable only in country of residence unless US permanent establishment
  • Article 10 (Dividends): 5% to corporate parent (10%+ ownership), 15% otherwise
  • Article 11 (Interest): 0% on most interest
  • Article 12 (Royalties): 0% on most royalties
  • Article 4 (Residence): tie-breaker rules

The Canada-LLC issue

The CRA may treat a US LLC as a corporation for Canadian tax purposes (rather than pass-through), even though the IRS treats it as disregarded entity. This can result in double taxation: US taxes the LLC, then Canada also taxes the LLC distribution as a dividend. Canadian residents considering a US business should consider a C-Corp instead (consistently treated as corporation by both countries) or consult a Canadian CPA specializing in cross-border tax.

How to claim treaty benefits

  1. File Form W-8BEN-E with each US payer
  2. Line 5: Country of residence = Canada
  3. Part III: Cite Article 10, 11, or 12
  4. Line 8: LLC EIN as US TIN
  5. Line 9: Canadian SIN (optional)
  6. Renew every 3 years

Frequently asked questions

Is Canada-US treaty good for Wyoming LLC owners?
Yes for FDAP withholding reduction. But Canada's treatment of LLC pass-through creates separate issues; consult a Canadian CPA.
Should Canadians use C-Corp instead?
Often yes, because CRA treats US C-Corps consistently as corporations. US LLCs create unique Canadian tax issues.
What is the dividend withholding rate?
5% to Canadian corporate parents, 15% otherwise.
Does WyomingLLC advise Canadians?
We can form Wyoming LLCs for Canadians but strongly recommend consulting a Canadian CPA familiar with US LLC ownership before proceeding.

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