Entering the Canada Market

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Entering the Canada 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 USA 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 11th 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 which are largely autonomous in terms of employment laws, which means regulations vary between federal, provincial and territorial authorities.

Foreign businesses can simplify their international expansion – and be operating in days rather than months – by utilizing Bradford Jacobs’ alternative solutions to setting up a subsidiary or branch. Our Professional Employer Organization (PEO) global recruitment and hiring platforms source the best-qualified staff, then Employer of Record (EOR) specialists target the compliance issues surrounding every aspect of employment law for your employees, who remain under your day-to-day operational control.

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 USA.

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)

https://www.business.hsbc.com/business-guides/canada/investment-and-trade

https://www.doingbusiness.org/en/data/exploreeconomies/canada

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 regulations.

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 – 34 million

• Regions – The Atlantic Provinces, Central Canada, the Prairie Provinces, the West Coast, the Northern Territories. Canada has 10 Provinces and three Territories

• Official languages – English and French

• Economy and world ranking – Tenth largest economy in the world with a GDP of CAD1.7 trillion

• Leading sectors – Services, manufacturing, natural resources

• Main exports – Energy products, industrial goods, machinery, automotive, agriculture, fishing and forestry products

• Main imports – Cars, vehicle parts, delivery trucks, gold

• Main trading partners – USA receive about 75% of Canada’s exports. Other major trading partners are China, UK, Japan and Mexico

• Government – A federal state, parliamentary democracy and constitutional monarchy

• Currency – Canadian dollar (CAD)

https://www.canada.ca/en/immigration-refugees-citizenship/corporate/publications-manuals/discover-canada/read-online/canadas-regions.html

https://www.investopedia.com/insights/worlds-top-economies/

Advantages and Challenges of the Canadian Market

Advantages include:

• Geographical location gives easier access to the lucrative USA consumer market than any other nation

• Member of the US-Mexico-Canada Agreement (USMCA, formerly NAFTA)

• Availability of highly skilled and educated workforce

• Favorable trade treaties for foreign companies

• Beneficial tax treaties and low corporate tax rates

• Growing number of multi-nationals moving into Canada

• Pacific and Atlantic ports give access to European, Asian and Pacific Rim nations

• Business expansion and entrepreneurship encouraged by Canadian Government

• Skilled workforce rated best educated among Organization for Economic Cooperation and Development (OECD) nations with the highest-rated educational system among G7 nations, France, Germany, Italy, Japan, the United Kingdom and USA

Challenges include:

• 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

• 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

• The World Bank assess it can take around 900 days to enforce contracts in their ‘ease of doing business’ rankings for Canada

• Canadian regulators review foreign companies looking to expand into certain sectors, including financial services, transportation, telecommunications, cultural industries and broadcasting

• 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

https://www.wolterskluwer.com/en/expert-insights/doing-business-in-canada

Why Companies like doing business in Canada

Canada’s stable economic and political systems underpin a thriving business environment that welcomes investment from foreign companies. Investors see an economy ranked in the world’s top 10, with impressive supplies of natural resources and ideally placed geographically for worldwide trade.

Canada’s extensive transport network supports trade with the world’s most prosperous markets, while its membership of the US-Mexico-Canada Agreement (USMC, formerly NAFTA) guarantees access to North American markets.

Low corporate taxes and set-up costs are another bonus, along with incentives for research and development and the elimination of import tariffs on manufacturing equipment.

Canada has the best-educated workforce among members of the Organization for Economic Cooperation and Development, with over half Canadian adults having a college or university education. They enjoy one of the world’s highest qualities of life in a culturally diverse society. Therefore companies needing to recruit in-country as part of their expansion can be assured of high-quality candidates.

Another strong attraction is easy access to the United States, with an estimated 90% of the Canadian population living within 125 miles of Canada’s southern border with the USA, giving foreign companies moving into Canada the potential for further expansion.

https://www.business.hsbc.com/business-guides/canada


Setting up a Limited Company / Subsidiary or Branch in Canada

Steps to set up a subsidiary:

• Decide on the type of subsidiary, typically a limited liability company, and register relevant documents with the Canadian Trade Register

• Prepare incorporation documents including articles of association; supply information on the parent company from the home country’s trade register

• 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)

Steps to set up a branch:

• The foreign corporation must apply for registration as an extra-provincial or foreign corporation in each province where the business will operate

• The branch and parent company must have the same name and business activities

• The branch is an extension of the parent company, which is entirely responsible for the branch’s obligations

• The branch is registered for taxes solely on its Canadian profits

https://www.osler.com/en/resources/business-in-canada/browse-topics/canadian-subsidiary/forming-a-canadian-subsidiary

Legal Structures for Canadian Market Entry

Canada’s Company 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.

The appropriate legal structure for business expansion into Canada depends on:

• The nature and location of the business

• Directors’ residency

• Tax considerations

• The company must register in each province or territory it does business in addition to being incorporated in the jurisdiction where it is based

• Except in certain circumstances, foreign shareholders are not legally responsible for any liabilities of the subsidiary

• Legal requirements also involve registering for withholding and remitting income tax, paying corporate tax and sales tax

Canadian Business Tax

Federal rates: The basic rate of Part I tax is 38% of taxable income, 28% after federal tax abatement. After the general tax reduction, the net tax rate is 15%. For Canadian-controlled private corporations claiming the small business deduction, the net tax rate was 10% effective from January 1, 2020, but prior rates may apply depending on when returns are filed.

Most provinces and territories operate dual rates with the lower rate resulting from small business deductions. Some provinces or territories use the federal business income limit, which is CAD500,000. Others set their own limits.

The Canada Revenue Agency (CRA) administers federal and provincial taxes, except for Québec and Alberta. Where a business has a permanent base in any other province or territory, territorial taxes must be calculated on the federal tax return.

https://www.business.hsbc.com/business-guides/canada/taxes-and-wages

Opening a business Bank Account in Canada

All companies need a business bank account when operating in Canada, where banks consistently rank among the most secure in the world. It is important to keep personal finances separate from company transactions.

No Canadian residency is required to open a business account but some banks require applying in person; those who don’t usually require more documentation and apply restrictions.

There are various international banks in Canada. It may be possible to open an account in your home country and then transfer it to Canada, but the fees may be higher and require a higher minimum balance. An account can usually be finalized on the same day with the right documents.

A corporation / subsidiary requires the following documents:

• 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 best bank offering the right services for your business. The Canadian banking system is quite centralized; five banks control 90% of domestic banking, each with features and benefits to complement your company. However, some banks charge higher rates especially for international payments or transfers, so choose wisely.

Registering a Company in Canada

• Decide on the type of subsidiary

• Register the office address (this cannot be a Post Office box)

• Give details of directors

• Detail share capital and any provisions regarding shares

• Obtain articles of association and incorporate through federal, provincial and territorial authorities, ensuring the company is registered in each jurisdiction where it is located or where it will provide goods or services

• 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)

https://www.canada.ca/en/services/business/start/register-with-gov/register-corp.html

Finding an Office in Canada

Canada is part of the world’s largest free trade agreement along with the USA and Mexico (USMCA), which provides companies with over 444 million potential consumers and makes it hugely popular for international expansion.

Canada’s well-educated population provides excellent support for entrepreneurs, home-grown and foreign companies. Many major companies have set up offices. https://www.theofficeproviders.com/office-search/canada-2-serviced-office-space

These are some of the best and brightest cities for start-ups and entrepreneurs, where companies may profitably find an office:

• Vancouver, B.C: Vancouver is on the west coast and one of the best start-up centers in Canada. The Global Start-up Ecosystem Report rated Vancouver the 15th best city in the world to start a tech company, close to major business centers such as Seattle and Silicon Valley. Vancouver has provincial and federal tax breaks and a concentration of skilled labor and talent. Amazon and Microsoft are among major companies with Vancouver offices.

• Edmonton, Alberta: Edmonton features industries from biotechnology and digital media to oil and gas. Initiatives operating in the city include Start-up Edmonton and TEC Edmonton, who accelerate the growth of emerging technology-based companies

https://www.tecedmonton.com/ https://www.startupedmonton.com/

• Calgary, Alberta: Calgary has Canada’s fourth-largest population and is a well-established center for entrepreneurship and businesses related to the energy sector. Initiatives such as Start-up Calgary and Innovate Calgary offer a wide selection of co-working spaces

https://www.startupcalgary.ca/ https://innovatecalgary.com/ https://calgarycoworking.ca/

• Toronto, Ontario: Canada’s largest city is Canada’s tech, commercial, industrial and financial hub to between 2,500 and 4,100 active tech start-ups.

https://marsdd.com/

• Waterloo, Ontario: Waterloo is a small city located 60 miles west of Toronto. Despite its small population, Waterloo is home to 1,100 new ventures, giving it the highest start-up density in the world apart from Silicon Valley. Start-ups in Waterloo further benefit from institutions such as: Communitech and the Accelerator Centre.

https://www.inc.com/zoe-henry/waterloo-startup-hot-spot.html

For easy start-up cities check out https://canadianvisa.org/blog/immigration/provinces-start-a-business-in-canada

https://www.clustercollaboration.eu/sites/default/files/international_cooperation/cluster-atlas.pdf

Finding a Canadian Manufacturer

Canadian manufacturing accounts for approximately CAD174bn of GDP. Some of the main manufacturing industries in Canada in each province can be found at: https://canadianvisa.org/life-in-canada/key-industries/manufacturing

Developing ideas for products is meaningless if they cannot be produced. Successful manufacturing requires an understanding of the design, materials and budget. These points need to be considered:

• Do they hold relevant quality certificates?

• Can they deliver direct to customers?

• How will language impact on communication?

• Discuss possible penalties for poor quality or late deliveries

• Payment options

• Market research to avoid manufacturing a product in a saturated market

• Licensing to a company that can handle manufacturing, marketing and distribution

• Can the manufacturer build and test a prototype?

• Protecting your intellectual property

Research and check their reputation in the industry and explore links to Canadian manufacturers. Reach out to local business groups and check out local business directories.

Nordea Trade: Directories list available - https://www.nordeatrade.com/en/explore-new-market/canada/suppliers

Global Database: Canadian Business Directory - https://www.globaldatabase.com/canada-companies-database

Scott’s Data: Canadian Manufacturing Co. Database - https://www.scottsdata.ca/manufacturers-directory/

Manufacturers Suppliers: https://www.manufacturersupplier.com/international/canada.htm

B2B Directories: https://www.contactcanada.com/classic.html

World Trade: Connecting Businesses Globally - https://www.eworldtrade.com/canada/

Finding a Canadian Distributor

A successful expansion into Canada will prove wasted without a front line distributor to move the products around the country and farther afield. Finding the perfect match among distributors is critical to accomplishing your objectives. Treat distributors as long-term partners and work with them to formulate goals and business plans.

A crucial factor in promoting manufactured products as well as related professional services in Canada is to develop and maintain a sales-oriented corporate website.

Global Trade: Trade Services Directory - https://www.globaltrade.net/Canada/Distributor/detailed-service-provider.html

Online business Canada - https://canadiansinternet.com/finding-suppliers-canadian-business/

Nordea: Business directories - https://www.nordeatrade.com/en/explore-new-market/canada/suppliers

Retail Council: Retail Supplier Directory - https://www.retailcouncil.org/resources/tools/retail-supplier-directory/

Scott’s Directories - https://www.scottsdirectories.com/canadian-directories/national-business-directory/

Chamber of Commerce - http://amchampacific.com/

Enter new Markets with Bradford Jacobs

Bradford Jacobs open the door for companies like yours seeking to explore new markets in Canada and worldwide by recruiting the staff for your expansion plans. Our Professional Employer Organization (PEO) specialist teams have in-depth global knowledge of how to recruit in new territories. Our Employer of Record (EOR) services guarantee your company complies with laws relating to employment, registration, taxation and payroll at both the federal and state level.

Bradford Jacobs provide ongoing consultation on human resources based on our understanding of individual cultures and customs of every country being targeted for global expansion. Work with Bradford Jacobs to expand into Canada and put the brightest, best-qualified and most talented staff in place