Entering the Market
The Canadian Market
Canada occupies the second-largest landmass in the world and is one of the leading trading nations globally, priding itself on being a ‘foreign trade zone’ from the Pacific coast on the west, the Atlantic in the east, as far north as the Arctic and to the US border in the south. Canada is in the world’s top 10 economies and a natural resources ‘superpower’ with the world’s third largest oil reserves, plus massive quantities of timber, iron ore, coal, and precious metals. This is backed by a well-educated, highly skilled workforce operating across all sectors of the economy. The nation ranks 10th in the world for attracting foreign direct investment, according to the Organization for Economic Cooperation and Development, and sixth in the world on Forbes’ Best Countries for Business table. Foreign companies expanding into Canada’s massive potential nevertheless face a complex web of employment laws. Canada has 10 provinces and three territories. These are largely autonomous in terms of employment laws, which means regulations vary between federal, provincial, and territorial authorities. There are speedier and more cost-effective alternatives to launching a subsidiary, with Bradford Jacobs opening the door to a hassle-free route into Canada.
Work alongside our Professional Employer Organization (PEO) recruitment specialists, then utilize our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Canada and how to navigate its challenging legislative issues at federal, provincial, and territorial levels. Here we have set out some basic summaries of what you need to make the transition into the Canadian market, whichever sector you operate in.
Starting a Business in Canada
Canada ranks 23rd out of 190 countries for ease of doing business, according to the World Bank’s 2020 Index comparing global business regulations. It is second (after New Zealand) for the ease with which a business can be started, taking a mere one-and-a-half days to set up a business compared with five-and-a-half in the US. However, companies planning foreign expansion must beware differences in federal, provincial, and territorial regulations affecting employment, payroll, and tax filing. For example:
- Under federal laws, companies formed in Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador must have at least 25% Canadian directors
- In addition to being formed under federal laws or the specific laws of a province, companies must be registered in each jurisdiction where it provides goods or services
- The company must file articles of association/incorporation as well as their corporate by-laws
The procedure for setting up a company includes:
- Deciding on the type of subsidiary, typically a limited liability company, and registering relevant documents with the Canadian Trade Register, with information from the home country’s trade register
- Once registered, the company must obtain a tax identification number and a Goods and Services Tax (GST) number, issued by the local offices of the Canada Revenue Agency (CRA)
- Register for payroll with the CRA
- Complete Form RC1 to obtain a Business Number (BN) and forward it to the relevant Tax Service Office (TSO) or Tax Centre (TC)
Expanding Business into Canada
The strength of Canada’s internationally focused economy makes it a prime target for foreign expansion. Incoming businesses can draw on a well-educated, highly qualified workforce operating in manufacturing, industrial, natural resources, hi-tech and service sectors. Main industries feature transportation equipment, chemicals, minerals, food products, timber, petroleum, and natural gas. Canada is also in the world’s top 10 fishing and seafood industries. Companies planning Canadian expansion via a subsidiary typically opt for a limited liability company, but this route brings compliance issues surrounding federal, provincial, and territorial laws on hiring and recruiting, payroll, taxation, compensation, and benefits plus every other layer of employment regulation. There is a simple alternative. By partnering a Professional Employer Organization (PEO) and Employer of Record (EOR) such as Bradford Jacobs, companies can plot a time-efficient and cost-effective path to locating and employing staff in Canada.
Canadian Business Facts
- Capital city – Ottawa, Canada’s fourth largest metropolitan area
- Population – 38 million people
- Regions – the Atlantic Provinces, Central Canada, the Prairie Provinces, the West Coast, the Northern Territories. Canada has 10 Provinces and three Territories
- Official Language – English and French
- Economy and world ranking – tenth largest economy in the world with a GDP of CAD1.73 trillion
- Leading sectors by GDP – real estate and rental and leasing, manufacturing, mining, energy, finance and insurance, construction, health care
- Main exports – crude petroleum and gas, forestry products, cars, gold, automotive parts and trucks, planes plus engines and parts
- Main imports – cars, vehicle parts, delivery trucks, petroleum and oil, computers, gold, telephones
- Main trading partners – US, China, UK, Japan, and Mexico
- Government – a federal state, a parliamentary democracy, and a constitutional monarchy
- Currency – Canadian dollar (CAD)
- Advantages and Challenges of the Canadian Market
- Advantages of expanding into the Canadian market include:
- Location: Geographic position gives easier access to the US market, while Atlantic and Pacific coastlines access global markets
- Trade: Member of the US-Mexico-Canada Agreement (USMCA, formerly NAFTA), with favorable trade treaties with other countries
- Workforce: Highly skilled and well-educated. Ranked best educated among members of the Organization for Economic Cooperation and Development
- Taxes: Beneficial treaties with other nations and comparatively low corporate tax rates with available incentives and benefits
- Economy: Government encourages business expansion and entrepreneurship
- Challenges of expanding into the Canadian market include:
- Compliance: Navigating federal, provincial, and territorial rules governing employment, taxation, and payroll, particularly as this applies to Québec, where all forms, filing and contracts must be completed in French and all local workers must be able to speak and write French
- Bureaucracy: Ensuring business operation complies with federal, provincial, and territorial incorporation regulations. In addition to being incorporated under federal laws of Canada or the specific laws of a province, companies must be registered in each jurisdiction where it provides goods or services
- Contracts: The World Bank assess it can take around 900 days to enforce contracts in their ‘ease of doing business’ rankings for Canada
- Scrutiny: Canadian regulators review foreign companies looking to expand into certain sectors, including financial services, transportation, telecommunications, cultural industries, and broadcasting
- Operations: Incoming companies must comply with customs laws and bilingual packaging and labeling requirements to meet the Canadian Consumer Packaging and Labeling Act, which requires both English and French product labels
Limited Corporation / Subsidiary or Branch in Canada?
International companies targeting Canada for expansion will generally choose a limited liability corporation subsidiary. They have independent legal status from the parent company, which is generally free from responsibility for any debts or liabilities of the subsidiary. Subsidiaries can have a totally different name from the parent company, pursue different business activities and form their own contracts. Branches, in comparison, are an extension of the parent company and are not generally a popular choice for expanding into Canada.
Main characteristics of a subsidiary:
- Independent legal entity from the foreign parent company
- Only the directors of the subsidiary may be subject to liability
- Any liabilities of the subsidiary are not the responsibility of the owning parent company
- The subsidiary is managed by a board of directors, elected by the shareholders
- Subsidiaries can manage their own tax affairs and take advantage of any incentives in the jurisdiction it operates
- Subsidiary corporations are taxed on their Canadian-sourced and worldwide income
- Under the Canada Business Corporations Act subsidiaries can be incorporated either with federal or provincial jurisdictions
- Federal incorporation requires Canadian residents must make up at least 25% of the subsidiaries directors. Some provinces apply the same regulation
Main characteristics of a branch:
- A branch is an extension of the parent company, has the same name and must follow identical business activities
- The parent company is responsible for any debts or liabilities of the branch
- A branch operates on extra-provincial licenses in the jurisdictions where it operates or can be registered with the Companies Registrar both federally and at provincial level
Expert guidance is vital when weighing the options between a subsidiary and branch in Canada. There is an alternative route – one that is quicker, stress free, cost effective and will have you up-and-running in days rather than weeks or even months. Bradford Jacobs will locate top talent for your company. Once you select your new employee our Employer of Record (EOR) specialists will handle every aspect of employment law, including payroll and tax.
Legal Structure for Canadian Market Entry
Canada’s Business Corporations Act governs the activities of foreign businesses setting up subsidiaries or branch offices in the country. There are also provincial and territorial regulations regarding expansion; for example, some provinces stipulate that 25% of directors must be Canadian, a regulation that also applies to subsidiaries registered with the federal authorities.
The legal structure for a limited liability corporation:
- The legal structure for a subsidiary allows it to operate independently from the parent company, under its own name and able to follow its own commercial and business activities.
- The subsidiary can have an unlimited number of shareholders who have no liability beyond their share contributions.
- The shareholders elect directors, who can then appoint managers to manage day-to-day operations.
- Corporations formed under federal law must have 25% of their directors as Canadian residents. This also applies to corporations formed only at the provincial level in Ontario, Alberta, Manitoba, Saskatchewan, Newfoundland, and Labrador.
In addition to being formed under federal laws of Canada, the subsidiary must be registered in each jurisdiction where it provides goods or services.
The legal structure for a branch:
- A branch is not a separate legal entity from the owning foreign parent company and carries on the same business under the same name as the parent company as its permanent representative in Canada.
- The branch must provide Articles of Association of the parent company, which may be required to make its financial records available to the Canadian Companies Register.
- The branch must appoint an individual to represent it in dealing with the tax authorities.
Opening a Business Bank Account in Canada
All companies need a business/corporate bank account when working in Canada. Here you will find some of the most consistent banks which rank among the most secure in the world. It is vital to keep your personal finances separate from your company transactions. It is not mandatory for those with Canadian residency to open a corporate account, but some banks do require you to do so in person; those who do not, usually require more documentation and have greater account restrictions.
There are a variety of international banks in Canada, and you may be able to open an account with them in your home country and then transfer this to Canada. However, the fees may be higher, and you may need a higher minimum balance. An account can usually be finalized on the same day with the right documents. A corporation or subsidiary requires the following documents and others which will depend on the type of bank you choose:
- Two items of ID from corporation’s signatories
- Articles of Association or Incorporation
- Certificate of Status
- Corporate profile report
- Certificate of Existence
- Certificate of Compliance
- Corporate annual government filing details
- Notice of Assessment for income tax
- Business Number (BN)
- Business License
Research is needed to choose the right bank offering the right services for your business. The Canadian banking system is quite centralized; five banks control 90% of Canada’s domestic banking each with its own features and benefits to complement your company. However, some banks charge higher rates especially for sending money overseas and international payments, so choose wisely.