Doing Business in Canada
ComplianceOctober 18, 2019

Doing Business in Canada

Canada and the U.S. are deeply intertwined, sharing a long border, common interests, similar values and a deep level of economic integration.

Within almost every industry, Canada offers a receptive, transparent, and open market for U.S. goods and services. Canadians spend more than 60% of their disposable income on American products and services, making Canada the largest export market for U.S. firms. Trade between the two nations generates roughly $1.8 billion per day, with total bilateral trading reaching $714 billion in 2018. In addition to trade, the U.S. and Canada have deep investment ties, with the U.S. serving as Canada's largest foreign investor, and vice versa.

Canada has steered through the global financial crisis better than many international banks due to its strict regulatory bank environment. In fact, Canada has one of the soundest banking systems in the world. This advantage coupled with its well-educated workforce, plenty of natural resources, and beneficial free trade arrangements make Canada a top choice for business investments.

For small to mid-sized businesses seeking to tap global markets while also saving money on taxes, Canada is a natural candidate for expansion.

Read the Country GuideCheck out our country guide to learn more about this popular region’s business environment, entity types, taxes, incorporation requirements and more.

Advantages and benefits of doing business in Canada

Cultural similarities

There are numerous reasons why business owners are drawn to doing business in Canada, and one of the most obvious benefits is its familiarity. The U.S. and Canada share many of the same customs—for example, shaking hands is a standard greeting in both Canada and the U.S., whereas a bow is customary in Eastern countries like Japan. The U.S. also shares the same language (in the largely Anglophone regions) and a similar demographic. These parallels make growing your business in Canada much easier than in many other countries.

Lower corporate tax rates

Adding to this is a myriad of corporate benefits, not the least of which include lower corporate tax rates. In an effort to encourage economic growth and attract international business, Canada gradually reduced its tax rate over the last nine years from 18% to the current rate of 15%, which is one of the most competitive corporate tax rates in the world (compare to the U.S. tax rate of 21%).

Canadian trade pacts

Business owners expanding to Canada will also benefit from its broad trade network, which provides an advantage to Canadian organizations with preferred access to global and diverse markets. Canadian trade pacts include the North American Free Trade Agreement (NAFTA), the European Union's Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Intellectual property protections

Another Canadian business advantage is their commitment to innovation and, in support of that, the country’s efforts to improve their intellectual property (IP) regime by reducing administrative burdens and streamlining procedures for Canadian businesses. In 2018, Canada acceded to the Hague Agreement. This year, the country has agreed to join several other international IP treaties: the Madrid Protocol, the Singapore Treaty, the Nice Agreement, and WIPO’s Patent Law Treaty.

Expert tip: While Canada and the U.S. share similar legal systems, it is still vitally important for expanding businesses to protect their IP. There is no international patent, copyright or trademark that protects IP everywhere. All IP rights must be registered and enforced under local laws, which means existing U.S. trademark and patent protections are not enough to protect IP in foreign markets. It's also important to act with speed when seeking IP protection. Businesses that rely on the U.S. government to intercede in IP disputes may find that their rights have lapsed or eroded due to legal doctrines such as estoppel, statute of limitations, laches and so forth.

Performing lien searches and filings

Businesses expanding to Canada can benefit from a high level of confidence in lien searches and filings, as Canada is one of the few nations that would appear to meet the requirements of UCC Article 9.

However, despite the close equivalence of U.S. and Canadian systems, there are some potential pitfalls to avoid. For instance, Canada does not allow copies of filings to be submitted; it only allows electronic filings. Plus, collateral descriptions are often briefer and less precise than what is typically seen in the U.S. For more information, please see Performing Lien and Court Searches outside the U.S.

Disadvantages and risks of doing business in Canada

Navigating provincial rules

While there are many benefits to expanding in Canada, savvy business owners should also consider the potential challenges. One such consideration is how to navigate the rules of Canada’s ten provinces. Provinces are much like U.S. states and have their own governments. As such, expanding companies must consider not only federal laws, regulations and taxes but also those laws and taxes passed and enforced by provinces.

Labor laws also vary by province, impacting the nature of employee contracts. The most substantial distinction involves French-speaking Quebec, which has a civil law system rather than the common law system. When operating in Quebec, all forms and filings must be completed in French and all local workers should be conversant in the language. Additionally, Quebec Sales Tax must be paid by Quebec-based firms in addition to Canada's standard Goods and Services Tax (GST).

Cultural differences

While the U.S. is indeed similar to Canada in many ways, companies should remain sensitive to the key differences. Canadians and Americans should not be thought of as interchangeable, and it is an etiquette faux pas to act as if that were the case.

Quebec, in particular, has significant cultural differences where people are often more formal and reserved. Business cards should also include both English and French translations, along with applicable academic titles and degrees.

Understanding business licensing requirements

Licensing requirements in the U.S. and Canada are similar and include substantial regulation for industries such as architecture or engineering. Professional licensing in Canada requires a significant amount of training and rigorous examinations. Additionally, permits and licenses are issued at varying levels of government, and expanding businesses must ensure that all relevant requirements are met.

This process extends to applying for basic business licenses. Just as in U.S. cities, counties and states, any new Canadian business entity must apply for a business license in the proper jurisdiction. Keep in mind that the permitting process is lengthier in some Canadian industries. For example, in the construction sector, it often takes up to nine months to secure a permit—a process that takes even longer in Quebec, where special construction permits are a requirement.

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Contract enforcement challenges

Another potential lengthy process can be found in Canada’s contract enforcement. While Canada has a robust and transparent legal system, it can be challenging to enforce contracts in a timely manner. It takes, on average, 910 days to resolve a delinquent contract in Canada, according to the World Bank's Doing Business 2019 report.

Canadian industry restrictions

Exporters do not have unfettered access to Canadian markets. In fact, some sectors are restricted or inaccessible to imports, making due diligence especially important. This includes evaluating available sales channels, varying provincial laws, regulations, and market opportunities. Those looking to start a business in Canada must also ensure compliance with customs laws and bilingual packaging and labeling requirements to remain compliant with the Canadian Consumer Packaging and Labeling Act, which requires both English and French product labels.

Additionally, Canada has special rules in place that govern the acquisition of domestic companies by foreign firms. These rules apply to six industries: financial services, uranium production, transportation, telecommunications, cultural industries, and broadcasting. All acquisitions by foreign firms within these sectors must be reviewed for approval by Canadian regulators.

Furthermore, procurement procedures in Canada, whether at the federal, provincial or municipal level, are open to U.S. bidders.

However, these procedures are a bit different than in the U.S. as foreign bidders must be registered within Canada and fulfill all mandatory requirements in order to win contracts. In some cases, bidders are required to acquire a security clearance prior to submitting a bid. Defense projects may also have their own specific requirements for offsets (knows as Industrial Technical Benefits).

Proper document authentication

Like all nations, Canada requires origination verification for all public documents before they can be legally used. To complete this process, expanding companies must acquire authentications from offices representing the country where the document was issued and the country (or embassy/consulate) where it will be used.

Expert tip: Canada is not a member of The Hague Convention, which means Apostille mechanisms do not apply and expanding businesses must request Authentication. Businesses that use the Apostille method will not have their documents authenticated within Canada and will need to create a new document to be submitted to the appropriate consul or embassy. For more on global documents and compliance, please see Global Deal Workflow: Managing Document Translation, Retrieval, and Verification.

Read the Country GuideCheck out our country guide to learn more about this popular region’s business environment, entity types, taxes, incorporation requirements and more.

Frequently asked questions for doing business in Canada

What is the appeal of doing business in Canada from the U.S.?

In addition to a close proximity and similar culture, Canada is the world’s second-largest country by land area and has the 10th-largest economy. A well-educated workforce, wealth of natural resources, and free trade arrangements with many of the world’s major economies make this a top choice for business investments.

What risks should I consider when expanding to Canada?

Canada typically ranks as a very business-friendly nation, so the risk of expanding here is quite low and the rewards can be great. The regulations, rules, and administrative burdens are very similar to the U.S.

What are the entity types available in Canada, and how do I select the right one?

The main entity types are Sole Proprietorship, Limited Partnership, Corporation, and Cooperative. Selecting the right one depends on business needs, size, tax goals, etc. CT can help guide you through this process.

What is the local tax rate?

Sole Proprietorship is 30-50% depending on the province; for a Limited Partnership, each partner is taxed personally based on their share; and Corporations are taxed 15% federally after the general tax reduction.

What licensing requirements are needed to do business in Canada from the U.S.?

Any entity conducting business in a Canadian province needs a license similar to what you would find in many U.S. cities, counties, or states. Professional activities like engineering or architecture are more regulated and require additional testing and training to be licensed.

Learn more

Prepare for expansion in this region with all of the key information about tax rates, incorporation details, entity types, business environment, and more. Download the country guide for a comprehensive and easy-to-read breakdown.

The CT Corporation staff is comprised of experts, offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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