Doing business in Canada

Canada is the world’s ninth largest economy. With its abundant resources, market transparency and stable political environment, the country offers a plethora of opportunities for companies looking to invest overseas.

However, there are also challenges to negotiate, such as Canada’s complicated patchwork of federal and provincial tax laws. Companies looking to expand into the Canadian market must therefore develop a thorough understanding of its economic landscape and regulatory environment.

Canada is an expansive country located in North America. The federal government is based in the capital city of Ottawa, which is in the province of Ontario. The country consists of 10 provinces and three territories, each with distinct provincial and territorial governments. Toronto is Canada’s financial centre, while other major cities include Vancouver, Montreal and Calgary.

Canada is the second largest country in the world by total area, spanning six time zones. It is ranked as the ninth largest economy with a GDP of US$2.14 trillion in 2023. The country has a highly developed mixed economy and is one of the world’s largest trading nations, with estimates showing around 77% of Canadian exports going into the neighbouring US.

Canada is a member of the US-Mexico-Canada Agreement, which replaced the North American Free Trade Agreement (NAFTA), the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), the Organisation for Economic Co-operation and Development (OECD), the Asia Pacific Economic Cooperation (APEC) and the World Trade Organisation (WTO).

Fast Facts: Canada 

• In 2023, Canada had a GDP of US$2.14 trillion [World Bank]
• Currency – Canadian Dollar (Sign: $; Code: CAD)
• Language – English and French
• GDP per capita – US$53,372 in 2023 [Macrotrends.net]
• Population – 39.9 million [Worldometer, November 2024]
• Capital – Ottawa
• Key sectors: real estate, manufacturing, mining, oil and gas, construction, finance and insurance, healthcare and social assistance, and transport and warehousing
• Key cities: Toronto (the financial centre of Canada), Vancouver, Montreal

While TMF Group’s Global Business Complexity Index has shown that Canada is at the lower end of the complexity index when it comes to ease of doing business, there are still challenges to navigate, such as the country’s patchwork of federal and provincial tax regimes. Companies doing business in Canada must therefore build a thorough understanding of the local economic landscape and the various rules and regulations that govern business activities.

Business opportunities in Canada

There are a wealth of business opportunities on offer in Canada. The country is now one of the world’s top destinations for foreign direct investment, presenting numerous opportunities for international investors.

Canada’s tax rates are competitive and bureaucracy is minimal, making operational set-up straightforward. The removal of the requirement for a resident director has simplified operations, as businesses can now operate without a physical presence. Additionally, Canada’s trade agreements with several countries offer potential growth opportunities. The country’s well-educated workforce and growth in technology and green/clean energy also make it an attractive investment choice.

Canada’s thriving fintech sector is highly regarded internationally. A recent global report exploring leading and emerging fintech hubs around the world ranked Toronto 8^th, Vancouver 12^th, Montreal 14^th and Calgary 16^th.

For many US companies in Canada, the country can seem like another home market thanks to its largely similar culture, language and business environment. However, as similar as they may appear, there are distinct differences in accounting, tax and legal requirements that must be navigated carefully to maintain compliance.

Whilst Canada offers many advantages to foreign companies, there are also some complexities to consider. Obtaining construction permits, for example, is a long and cumbersome process that involves 12 steps and takes an average of 250 days to secure. With relatively high interest rates, economists predict that a mild recession may hit the country in the near future.

For a detailed look at expanding into the Canadian market, read our article outlining the main challenges of doing business in Canada. It’s crucial to understand business practices in the country and the nuances of its economic system.

Compliance and the regulatory environment in Canada

Companies doing business in Canada face a raft of unique compliance challenges, especially when it comes to navigating employment compliance regulations. The country’s regulatory framework is divided in two, with a division of powers between federal and provincial governments. Employers in Canada are therefore either federally or provincially regulated, depending on the nature of their business.

Organisations must understand the type of business permit needed to operate in Canada. For example, if a business opens an office or performs an activity that may disrupt residential neighbours, it will likely have to do so in a designated area and will require a municipal business licence. Businesses will need federal and provincial permits if their activities affect the environment, or if their work encompasses hazardous materials.

Canadian investors, clients, employees and, increasingly, regulators, are all now demanding better insights into organisations’ Environmental, Social and Governance (ESG) performance.

Canada is therefore stepping up its sustainability efforts through the Canadian Sustainability Standards Board (CSSB), which is set to introduce new disclosure standards for ESG reporting on climate-related risks. These standards, modelled on the International Sustainability Standards Board (ISSB), will aim to ensure that Canadian companies provide consistent, comparable, and reliable sustainability reporting, empowering investors and other stakeholders to make more informed decisions. Developments in Canada are now mirroring the global push towards ESG regulation.

Hiring and managing talent in Canada

The Canada Labour Code is the main law regulating employment in Canada. It covers industrial relations, such as the certification of unions, as well as workplace health and safety and employment standards, including annual vacations and working hours.

When hiring employees in Canada, most businesses can only hire foreign employees if they have first tried and failed to hire locally. Businesses must ensure there are no Canadian citizens or permanent residents of Canada that can provide the skills necessary to complete the job. After the labour market has been properly ‘tested’, the employer is then eligible to search for a foreign worker to come into Canada to fill that role.

Authorisation to work or invest in Canada can be granted to foreign nationals under the following categories:

• Federal skilled workers – for people with skilled professional work experience
• Canadian experience class – for people with Canadian professional work experience
• Federal Skilled Trades Program – for people with experience in skilled manual work
• Provincial nominees – for people who want to go to a specific province
• Start-up visa – for people with a business idea and someone to fund it
• Self-employed people in agriculture, sports, or the arts
• Live-in caregivers

Payroll in Canada varies by province. In general, employers have a responsibility to pay their employees regularly. In British Columbia, wages must be paid at least semi-monthly and within eight days after the end of the pay period, whereas in Quebec wages have to be paid at intervals of not more than 16 days.

As of April 2024, the federal minimum wage in Canada is CA$17.30 per hour, which applies to federally regulated employees such as postal workers and bank workers. For provincially regulated employees, the minimum wage varies from CA$15.00 in Alberta to CA$19.00 in Nunavut (as of October 2024).

The financial and tax environment in Canada

The Canadian tax system is governed by both federal and provincial laws, each with their own set of regulations and compliance requirements, for both sales tax and corporate income tax. This can become complicated, and foreign businesses must register and understand the appropriate sales tax processes when operating in Canada or risk facing financial losses, late payment penalties and interest charges.

Canada levies a Goods and Services Tax (GST) at the federal level on most goods and services at a standard rate of 5%. On top of this, Canada’s provinces and territories also levy their own sales taxes at varying rates, and in a variety of ways. This typically ranges from 6-10%, so the combined Harmonised Sales Tax (HST) rate can be up to 15% depending on the province.

Most businesses must file regular sales tax returns to the Canada Revenue Agency (CRA), reporting the total sales, sales tax collected and eligible input tax credits. The frequency of reporting depends on the organisation’s annual sales and remittance history. Simplified reporting options are available for smaller businesses.

The federal corporate income tax rate is 15%, but again, provincial rates vary from 8% to 16%, with the largest jurisdictions (Ontario, Quebec and British Columbia) between 11.5% and 12%. Combined corporate income tax rates are therefore most commonly between 26.5% and 27%.

Canada has adopted Common Reporting Standards (CRS), which was developed by the OECD with support from Canada and other G20 nations to reduce tax evasion and improve tax compliance around the world. The country also adheres to International Financial Reporting Standards (IFRS) for most publicly accountable enterprises.

Starting a business in Canada

When registering a business in Canada, the incorporation process is fairly simple. However, as with any process, companies must fully understand and abide by the latest rules and regulations to stay compliant.

There are several types of business representation that foreign investors can use when starting a business in Canada, including a corporation, which is a separate legal entity from its shareholders and can be incorporated on the basis of either federal or provincial law. The liability of the shareholders is limited to the amount of their capital contribution.

Another option is an unlimited liability company (ULC), which can be formed under the provincial laws of Alberta, British Columbia and Nova Scotia. Shareholders of a ULC are personally liable for the liabilities of the company.

There are also partnerships, which can be formed by two or more individuals or corporations. Each province in Canada has specific partnership legislation. All provinces except Quebec recognise general and limited partnerships, while Quebec tends to use undeclared partnerships.

After a business is incorporated, a business number will be issued by the CRA, which is then used for GST or HST (depending on the province), payroll deductions, corporate income tax and import and export duties.

Find out more about starting a business by reading our step-by-step guide to incorporating in Canada.

FAQs

What are the benefits of doing business in Canada?

Canada offers companies access to a stable market, strategic trade advantages, a skilled workforce and numerous opportunities for growth. Its tax rates are competitive and bureaucracy is minimal, which makes operations relatively straightforward.

The country is now one of the world’s top destinations for foreign direct investment, with a focus on growth in the technology and fintech sectors. Recent developments in the green/clean energy market also make Canada an increasingly attractive investment choice.

What are the risks of doing business in Canada? 

While Canada offers a host of advantages to foreign companies, there are also some complexities to consider. These include navigating the country’s medley of federal and provincial tax regimes which requires in-depth local knowledge and expertise.

Obtaining a construction permit can also be a challenge and is subject to a long and cumbersome process, involving 12 steps an average of 250 days to secure. In addition, with relatively high interest rates, economists predict a that mild recession may hit the country in the coming years.

Is it easy to obtain credit in Canada? 

Obtaining credit in Canada is generally significantly easier for established corporations with a strong financial profile.

New or smaller corporations may face challenges due to limited credit history, stringent qualification criteria and a lack of collateral. However, exploring alternative financing options and government programmes can help overcome such hurdles.

What is the work culture like in Canada?  

Core Canadian values that shape the workplace include fairness, equality, inclusiveness and social justice. These are demonstrated by the country’s governance approach, which includes public healthcare, efforts to promote the redistribution of wealth, the legalisation of same-sex marriage and the suppression of far-right politics.

English is the primary business language in Canada, but it’s useful to speak some French if you’re doing business in Quebec, where business signage must be in French only. A handshake is the usual greeting, however, in Quebec colleagues or business associates may greet one another with a kiss on the cheek. Canadians value punctuality and it’s considered rude to be more than a few minutes late.

What is Canada’s stance on ESG reporting? 

Canadian investors, clients, employees and regulators are demanding better insights into organisations’ ESG performance.

The country is significantly stepping up its sustainability efforts through the Canadian Sustainability Standards Board (CSSB), which will introduce new disclosure standards for ESG reporting on climate-related risks. These standards, modelled on the International Sustainability Standards Board (ISSB), will aim to ensure that Canadian organisations provide consistent, comparable and reliable sustainability reporting, empowering investors and other stakeholders to make more informed decisions.

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