INTRODUCTION

 

Canada has the world’s tenth largest economy.  It is also one of the wealthiest and most culturally diverse cultural countries globally.  Canada has a substantial services industry, notably in financial services, a rich base of natural resources and is the United States’ largest trading.  Accordingly, Canada provides investors with outstanding business and investment opportunities.

 

Investing in Canada is a guide to important legal aspects to consider before you, as a foreign investor, establish, operate or purchase a business in Canada.  

 

 

GETTING ADVICE

 

Investing in Canada discusses complex issues in a concise manner so the provided information raises issues that you should consider.  It is only for information purposes and is not intended to be or is not legal advice. 

 

Before you act on any information contained in Investing in Canada, we recommend that you consult a lawyer at Weir & Associates, Solicitors & Notaries, to get the necessary legal advice before you take your next steps.

 

 

WEIR & ASSOCIATES

YOUR LEGAL RESOURCE

 

Weir & Associates, Solicitors & Notaries, has a well-earned reputation as a business-minded, transaction-oriented law firm.  Our team of qualified lawyers can practice in multiple jurisdictions and has expertise in many areas of law including corporate-commercial, litigation (commercial, construction, criminal), corporate secretarial, corporate finance, immigration, intellectual property (trademarks, copyrights and patents), media and entertainment law, leasing, matrimonial, pensions, trust, probate and estate, property, taxation, trade and virtual legal in-house.  We also have long standing relationships with multinational law practices worldwide to assist clients engaging in cross-border transactions or legal matters outside of Hong Kong.

 

We handle our clients’ work not only to ensure their matters are handled with care and success, but also with their long-term interests in mind. 

 

Please visit us at www.hongkonglaw.com/weirlaw for further information.

 

 

ABOUT CANADA

 

Canada is the largest country in the world with a population of 34.4 million (2008).  Canada has 10 provinces (Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan) and three territories (Northwest Territories, Nunavut, Yukon).  Its largest cities include Toronto, Vancouver, Montreal, Calgary and Ottawa.

 

English and French are Canada’s official languages.  English is widely used throughout Canada.  French is predominant in the province of Quebec.

 

Canada is very multicultural with immigrant populations of over 100,000 from the following countries: United Kingdom, China (PRC), India, Philippines, Italy, United States, Hong Kong, German, Poland, Vietnam, Portugal, Pakistan, Jamaica, Netherlands and Sri Lanka.

 

Canada has three levels of government allocated different responsibilities.  The federal government deals with matters including national defense, foreign affairs, immigration, banking, international trade and intellectual property.  Provincial governments handle regional issues including direct taxation within provinces, natural resources, education, health and rights related to private property and commerce.  Municipal governments are allocated local issues.

 

Canada’s legal system is based on the English common law save and except Quebec which originates from the French civil law.  Its judicial system is independent of all levels of government and all laws are subject to scrutiny of the courts applying Canadian constitutional standards. 

 

Further information is available at the Government of Canada website: www.gc.ca.

 

 

INVESTING IN BUSINESSES

 

As a foreign investor, subject to specific exemptions, you must file a notification with Investment Canada to establish a new business or acquire control (at least one-third of voting shares) of an existing business in Canada within thirty days after the transaction is complete.  Based on the notification, Investment Canada may determine that the investment is reviewable in which case, you must submit an application for review of the transaction.  In practice, almost all foreign investments are not reviewed by Investment Canada. 

 

Investments requiring full review and approval before completion include:

 

(a) acquisition of control of a Canadian business with gross assets of $5 million or more;

(b) indirect acquisition of control of a Canadian business (through acquisition of its parent company outside Canada) with gross assets of $50 million or more, or $5 million or more if the Canadian business comprises of over 50% of the foreign parent company’s assets being acquired; and

(c) establishment of a new or acquisition of an existing business in a culturally sensitive sector. 

 

However, Investment Canada will not review indirect acquisitions made by foreign investors from countries that are a party to the World Trade Organization, new business investments expanding a foreign investor’s existing business into Canada or investments related to an existing business.

 

Where an application must be filed, Investment Canada determines whether the investment provides a net benefit to Canada and is not detrimental to Canada’s economy based on predetermined factors.  Historically, Investment Canada has never rejected an investment under review although it has recommended changes to some transactions for which applicants have accepted.

 

 

INVESTING IN REAL ESTATE

 

Foreign investors hold significant amounts of Canadian real estate.  You can acquire, hold and dispose real property in the same manner as a Canadian citizen or resident through various legal structures to be discussed below.  Most taxes and fees imposed on transfer or registration of a title to property apply equally to residents and non-residents except withholding taxes applying only  to non-residents. 

 

 

INTERNATIONAL TRADE

 

Canada is a party to the North American Free Trade Agreement (NAFTA) and other significant trade agreements.  As such, establishment or development of a business presence in Canada can be very valuable in gaining preferred access to large global markets such as the United States.

 

NAFTA created one of the world’s largest free trade regions among Canada, United States and Mexico.  Duties on almost all goods both originating in and sold throughout the three countries are being eliminated.  However, such goods must originate or be “wholly obtained or produced” in one of or a combination of the three countries.  NAFTA has also stabilized free trade region’s investment environment by requiring the three countries to treat investors from the two other countries in the same manner as domestic investors upon establishing new businesses, acquiring existing businesses, operating or selling businesses.  For example, countries under NAFTA cannot require minimum investments from foreign investors of the other two countries.

 

Canada is also a participant in free trade agreements with Chile, Costa Rica, Israel, Columbia and the European Free Association, involving Iceland, Norway, Switzerland and Liechtenstein.  Such agreements aim to reduce or eliminate tariffs among participants and to provide Canadian businesses with enhanced market access in such countries or industries.

 

 

FINANCING

 

As an investor operating in Canada, you could seek various forms of debt and equity financing.  In debt financing, companies can apply for operating and term loans from Canadian domestic or foreign banks.  Foreign banks operating in Canada can provide you with a financial connection to the bank in your home country.  Banks may require a foreign investor and its subsidiary companies or shareholders to provide security over their assets or forms of guarantees.  Government agencies such as the Business Development Bank of Canada and the Canada Small Business Financing Program (loan guarantee program delivered by Canadian financial institutions) also provide debt financing

 

As for equity financing options, venture capitalists can provide financing for companies in their early stages of development in exchange for minority equity positions and management influence.  Foreign investors can also consider private placements and public offerings, the latter subject to satisfying securities regulations. 

 

You can also finance purchases of capital assets through arrangements such as conditional sales or leases on an operating or capital basis.  Such arrangements can allow investors to pay for assets over time or minimize taxes.

 

 

BUSINESS STRUCTURES & REGISTRATION

 

Once a decision is made to establish or acquire a business in Canada, the investor must establish and register a suitable business structure.  Weir & Associates can advise you before you make these important long-term decisions.

 

Branch Operations

 

You must decide whether to conduct business in Canada as a branch, simply an extension of a foreign company’s operations into Canada, or as a separate entity in Canada.  As a branch, non-resident shareholders do not benefit from limited liability under its Canadian operations, with exceptions.  However, if the business is operated under a separate entity, it cannot consolidate operations for foreign tax purposes.  Consequently, any losses incurred in its Canadian operation can only offset income in its home jurisdiction if the company establishes a branch.  

 

Business Structure

 

If you decide to establish a separate entity in Canada, then you must establish a suitable business structure which can be a sole proprietorship, partnership (general or limited), corporation or trust.  A suitable choice requires considering the nature and location of business, liability exposure, financing requirements and tax implications.  An investor can also consider licensing, distribution, agency or franchising arrangements between the non-resident investor and Canadian company.  After deciding the structure, you need to obtain an approved name and register the business according to federal and provincial requirements. 

 

Corporations

 

The most common business structure used is a corporation.  Corporations in Canada have abilities of a natural person to carry on business, own property, borrow, lend and initiate court proceedings.  Shareholders do not own the business or its assets and limit their liability to their investments.  Corporations can easily transfer assets, maintain perpetual existence and pay taxes.  Many small business corporations pay lower taxes on profits in Canada.

 

Investors must also consider whether to incorporate in one or more provinces or federally.  Federal incorporation allows the company to operate in all provinces without licenses in any province although registration may still be required.  Provincially incorporated companies must register and may need to obtain extra provincial licenses in provinces where it carries on business.  Residency requirement for the company’s directors should also be considered.  Federally incorporated companies must have at least 25 percent of its directors be resident in Canada.  Companies with less than four directors must have at least one resident director.  Residency requirement for provincially incorporated companies vary depending on province.

 

 

TAXATION

 

Canada has developed a progressive tax system that applies taxes to companies comparably with other industrialized countries.  Although taxes are levied on income, capital gains, goods and property, Weir & Associates can provide important tax planning to minimize taxes payable to you and your businesses in Canada.  Canada’s participation in numerous tax treaties with many countries minimizes the possibility of double taxation against individuals and businesses. 

 

Canadian residents, including corporations residing or incorporated in Canada, are taxed on their worldwide income.  A non-resident individual or company (including a branch operation) is taxed strictly on income earned from its Canadian businesses, employment or investments.  Tax rates for corporations can be as low as 13 percent.

 

 

MOBILITY & IMMIGRATION

 

An investor’s ability to live and work in Canada on a temporary or permanent basis is an important aspect of conducting business in Canada.  Weir & Associates can advise investors with suitable short-term and long-term immigration arrangements.  In Canada, only Canadian citizens or permanent residents of Canada can work without valid work permits.  Otherwise, an individual can be employed in Canada only if no qualified Canadian is available to fill the position.  Various options are available to investors working temporarily or permanently in Canada. 

 

 

Business Visits

 

Save and except for countries from which investors must obtain visas to enter Canada, they may work temporarily in Canada without a work permit (generally for 90 days or less) if they are permanent employees of corporations based outside Canada carrying on business in Canada through a parent or subsidiary company.  However, they are generally executives of their company as their work in Canada is generally restricted to meeting and consulting its employees, selling goods to parties other than the general public or purchasing Canadian goods or services.  Classes of professionals may also gain temporary admission to Canada under the General Agreement on Trade in Services or NAFTA.  As a short-term business visitor, you should carry an employment letter confirming your employment with the company and indicating the duration, purpose and temporary nature of your visit to Canada.

 

Otherwise, a foreigner must submit an application to work temporarily in Canada, which requires 8 to 10 weeks for approval.  Such an application must show proof that no qualified Canadian is available to assume such position or that approval would create or maintain significant employment benefits or opportunities for Canada’s citizens or permanent residents. 

 

Permanent Resident Status

 

Foreign investors intending to work or live in Canada indefinitely should apply to become permanent residents.  This is an important initial decision because the application process can take up to three years.  As well, foreigners employed on work permits in Canada may apply for permanent resident, but must apply outside Canada.  As such, they may not be able to reside in Canada while their application is in process.  Applicants may apply under categories including independent immigrants, entrepreneurship, investor, skilled workers, and family class.  Weir & Associates can assist in selecting the proper category under which a foreign investor should apply for permanent residence.

 

 

YOUR NEXT STEPS

 

Investing in Canada has raised many key issues that you, as a foreign investor, should consider you initiate next steps in your plan to invest in Canada.  You should conduct significant research and prepare a plan for your business.  As well, you should seek advice from legal professionals with experience in assisting clients with initiating and conducting business in Canada.  When you are ready to proceed with your next steps, Weir & Associates can provide you with the necessary legal expertise and business acumen that you require to get started.