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 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.

Canada 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 Canada 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.

Company formation in Canada

The Canadian Business Corporations Act and Company Law allows for a variety of companies that can be registered and incorporated by both local and foreign investors and companies. The most common are:

  • A limited liability corporation – the most popular and usual choice of foreign companies expanding into Canada by establishing a separate legal entity
  • A partnership – requiring a minimum of two members
  • A sole proprietorship – a legal entity created by sole investors
  • A public company – like a joint stock company
  • A branch – an extension of a parent company and not a separate legal entity

Registration procedures for a limited liability corporation, for example, include:

  • Decide on the type of subsidiary and register relevant documents with the Canadian Trade Register
  • Prepare incorporation documents, provide the Articles of Association, supply information on the parent company 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)

Once the subsidiary is cleared to operate, other responsibilities include:

  • Obtaining the employee’s Social Insurance Number (SIN) within three days of their starting work, and completing Form TD1 (Personal Tax Credits Return) within seven days of starting and before paying the employee
  • Obtaining a Business Number (BN) from the federal government or a Québec Enterprise Number for those incorporating in that province
  • Opening a payroll program account to obtain the payroll number needed to remit deductions and file returns. Register for the program account as soon as hiring begins
  • Calculating deductions and contributions for Canadian Pension Plan (CPP), Employment Insurance (EI) and income tax
  • Submitting payroll information returns, completing, and filing year-end summary of all employees’ pay and deductions and remitting deductions for CPP, EI and income tax. In most cases deductions are filed by the 15th of the month after employees are paid. Remuneration includes taxable benefits and allowances. Different rules may apply to Small and Medium Enterprises (SMEs)

Finding an Office in Canada

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

Canada’s well-educated workforce provides first-rate support for businesspeople, home-based and from abroad. Many major companies set up offices after benefiting from investor programs and start-up schemes.

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 on the west coast is one of the best start-up centers. The Global Start-up Ecosystem Report voted 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.
  • 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.
  • 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.
  • Waterloo, Ontario: Waterloo is a small city 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 also profit from establishments such as: Communitech and the Accelerator Centre.

Finding a Manufacturer in Canada

Manufacturing accounts for approximately CAD174bn (US$140bn) of GDP. Some of the main manufacturing industries in Canada in each province can be found here.

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

International proactive companies should reach out to local businesses, access online portals and network with business associations to develop manufacturing partnerships. These points also need to be considered:

  • Do they hold relevant quality certificates?
  • Can they deliver direct to customers?
  • How will language impact on communication? An important consideration in Canada.
  • Can they keep up with demand? Or do they outsource?
  • Can they source materials?
  • Are they financially sound?
  • How will local customs impact production?
  • 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.

Finding a Distributor in Canada

A successful expansion into Canada will prove wasted without a front-line distributor to move the products around the country and farther afield into the US and Mexico. 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 as well as to assist with local knowledge, language, cultural and business etiquette.

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. Joining specific industries on LinkedIn may get you to the decision makers or maybe your competition has already been down this road and information is available.

You could approach your Trade and Industry Department and inquire regarding Trade Missions operating in Canada who may be better placed to know which conventions, trade fairs are on offer or can organize face-to-face meetings.

Other useful websites include:

At Bradford Jacobs, we mean business!

Treat Bradford Jacobs as your business consultant when planning your move into Canada. Our in-country specialists will steer you towards the frontline manufacturers and distributors and help you locate your offices in prime locations for your specific business activities. We find the staff and we get them working, and your company will be up and running in no time. We are ready - contact us today!