What Is a VAT Number in Canada? Understanding Business Identification and Taxation

A VAT (Value Added Tax) number is commonly used in countries with a VAT system, where businesses are required to charge and remit VAT on goods and services. However, in Canada, the tax system is slightly different: Canada does not use VAT but instead relies on GST (Goods and Services Tax) and HST (Harmonized Sales Tax). Despite this distinction, some businesses may encounter the term “VAT number” when dealing with international transactions, particularly with clients or suppliers from countries where VAT applies.

In Canada, the equivalent of a VAT number is the Business Number (BN) issued by the Canada Revenue Agency (CRA), which businesses use for tax identification and to collect and remit GST/HST.

What Is a VAT Number, and How Does It Apply in Canada?

Although Canada doesn’t have VAT, a VAT number is essentially a tax identification number used for collecting value-added tax in other countries. When Canadian businesses operate internationally or engage with foreign suppliers, they may need to understand VAT numbers to ensure compliance and proper documentation.

In Canada, businesses have a Business Number (BN), which functions similarly by identifying them for GST/HST collection. For Canadian businesses, the CRA’s BN for tax purposes serves the same role as a VAT number in VAT-based countries.

How the Canadian Business Number (BN) Functions

The Business Number (BN) issued by the CRA is a nine-digit identifier that helps businesses register for various tax programs. For businesses that need to collect GST or HST, they must register for a GST/HST program account under their BN. Once registered, the BN is expanded to include additional identifiers related to tax types.

• Format Example: The BN, followed by “RT” and a four-digit program identifier, becomes the GST/HST number. For example: 123456789RT0001.

This GST/HST number is what international clients or suppliers may view as Canada’s equivalent of a VAT number.

Key Features of the Canadian Business Number (BN)

• Tax Identification: Identifies businesses for CRA and GST/HST purposes.
• Multiple Program Accounts: Allows businesses to manage multiple CRA program accounts under a single BN.
• Required for Compliance: The BN is mandatory for businesses needing to collect and remit GST/HST.

Why Canadian Businesses Might Need a VAT Number

Canadian businesses generally don’t need a VAT number domestically. However, they may encounter VAT requirements in certain situations:

• Importing to VAT Countries: If a Canadian business sells goods to or operates in countries with VAT, it may need to register for VAT in that country to comply with local tax laws.
• International Transactions: Some foreign clients may require Canadian businesses to provide a VAT or tax number. In this case, the Canadian Business Number (BN) with the GST/HST extension serves as an equivalent identifier.

How to Register for a Business Number (BN) in Canada

If a business in Canada needs to collect and remit GST/HST, it must register for a BN with the CRA:

1. Apply for a BN: Businesses can register online, by mail, or by phone with the CRA to obtain a BN.
2. GST/HST Account Setup: Once the BN is issued, businesses can register for the GST/HST program account, enabling them to charge GST/HST on taxable goods and services.
3. Receive GST/HST Number: The business will receive a unique identifier for GST/HST, effectively serving as their “VAT number” for Canadian and international purposes.

Differences Between VAT and GST/HST in Canada

Canada’s tax system includes GST (Goods and Services Tax) and, in some provinces, HST (Harmonized Sales Tax), instead of VAT:

• GST: A 5% tax on goods and services across Canada.
• HST: A combined tax rate used in some provinces, blending GST with the provincial sales tax.

This distinction is important for Canadian businesses interacting with VAT-based countries, as GST/HST functions differently from VAT but fulfills a similar role in terms of revenue for public services.

Where Canadian Businesses Might Use a VAT Equivalent

Canadian businesses may need a tax identifier in the following situations:

• Sales to VAT-Based Countries: Some countries require non-resident businesses to register for VAT if they make taxable sales within their jurisdiction.
• Cross-Border Services: International clients may ask for the Canadian tax ID or BN when they are accustomed to VAT systems.
• Import/Export Transactions: For imports and exports, Canadian businesses may use their BN with GST/HST to comply with tax documentation requirements.

Benefits of Registering for a Business Number (BN) with GST/HST

Registering for a BN and GST/HST account brings several benefits:

• Legal Compliance: Ensures businesses meet Canadian tax obligations.
• Credibility in International Trade: Having a GST/HST identifier (BN) reassures international clients and suppliers.
• Input Tax Credits: Registered businesses can claim input tax credits, reducing their overall GST/HST liability.

Example of a Canadian “VAT Number” Format

For businesses that need to clarify their tax identifier in transactions:

• Example: If your Canadian BN is 123456789, your GST/HST number would be 123456789RT0001.

This number can be provided in place of a VAT number in international transactions, functioning similarly for Canadian businesses dealing abroad.

Conclusion

In Canada, businesses do not use a VAT number but rather a Business Number (BN) issued by the CRA, which includes GST/HST registration for tax purposes. This BN acts as the Canadian equivalent of a VAT number in international transactions, allowing Canadian businesses to manage tax compliance both domestically and when dealing with VAT-based systems abroad. Understanding this distinction helps Canadian businesses communicate effectively with international partners and ensures smooth cross-border trade and compliance.

Frequently Asked Questions

1. Does Canada use VAT numbers?
   • No, Canada does not use VAT. Instead, it has a Business Number (BN) with GST/HST registration for tax identification.
2. What is the Canadian equivalent of a VAT number?
   • In Canada, the Business Number (BN) with GST/HST registration serves as an equivalent identifier for tax purposes.
3. How do I get a VAT number in Canada?
   • Canadian businesses do not get a VAT number. Instead, they register for a Business Number (BN) with a GST/HST account.
4. Do Canadian businesses need VAT numbers for international trade?
   • Canadian businesses use their BN with GST/HST registration for international transactions; some may need to register for VAT in specific foreign countries.
5. What’s the format of a Canadian GST/HST number?
   • A Canadian GST/HST number is formatted as 123456789RT0001, with “RT” indicating GST/HST registration.