Nandini,

There are several options you can employ in order to do business in the US using a foreign company:

1. Obtaining EIN (Federal tax ID) for your Canadian corporation. This option allows you to report your income produced in the US to the IRS, before it is reported to the Canadian tax authorities. You can read more about it in our answer to the question: Can a Canadian company get a US EIN.

2. Register your corporation as a Foreign Entity in a chosen state (the choice of state depends on where and how you do business in the US and is a subject of separate discussion). The process is called Foreign Qualification. The same process is applied when registering a company formed in one US state in another US state, not just for companies from abroad. This option is good if your business has presence in the state where the Foreign Entity is registered.

3. Form a new US company (corporation or LLC). Working under a domestic company makes it easier to serve your US clients, and could also advantageous as far as taxes go. Technically your US company will hire the services of your Canadian company to serve its US customers, and hence will produce no or little taxable profit in the US. This strategy, among other things, will make it easier to tackle international taxation issues.

I hope that gives you some ideas on how to move forward. Please let us know if you have more questions and we will help.