For U.S.-based companies, Canada is an ideal location to consider when looking to expand globally. With a long, shared border, common interests, similar values and an intricate effort for economic collaboration, the U.S. and Canada complement each other well when it comes to conducting cross-border business.
Across most industries, Canada provides a receptive, transparent, and open market for U.S.-based goods and services. However, doing there can be a more complicated endeavor than some companies may be prepared for.
This guide to global expansion will help outline what your business can expect as they pursue business opportunities in Canada.
- Reasons to Do Business in Canada
- Challenges of Expanding to Canada
- FAQs About Canada Expansion
For the most part, Canadians appear to be incredibly fond of doing business with the U.S., as their population spends more than 60% of their disposable income on American goods and services. This level of collaboration makes Canada the largest export market for U.S. firms. In 2019, the total trading of goods and services generated $612 billion between the two countries. In addition to trade, the relationship between these countries fosters mutual investment ties, incentivizing further growth and development.
We all know the popular phrase in real estate: Location, Location, Location. The shared border between the U.S. and Canada streamlines trade between the two nations, making it faster and easier, especially when it comes to the transportation of commodities. Instead of costly international shipping requirements, most transportation of goods can be accomplished on the ground with trucks. Additionally, the fact that 90% of the Canadian population lives within 100 miles of the border adds to the convenience.
When it comes to hiring employees in Canada, the convenient location simplifies travel for employees if there’s ever a need to meet in-person.. It also allows them to operate within similar time zones, making it even easier to ensure that operations are running smoothly.
2. Low Corporate Taxes
Tax considerations are a high priority when expanding globally. Canada fosters a welcoming business environment by keeping their net federal corporate tax rates to 15%, with provinces and territory tax rates ranging from 8%-16%. This is relatively low when compared to the U.S. corporate tax rate of 21% and the United Kingdom’s tax rate of 19%.
This has been a consistent effort by the Canadian government to encourage economic growth through the attraction of international business. This is competitive with many other countries to ensure Canada is offering the best incentives for companies doing business in there.
3. Trade Considerations
Companies doing business in Canada will also benefit from a diverse trade market. Canada has relationships with many countries and provides an advantage to Canadian organizations with preferred access to global markets. Additionally, in September of 2018, the U.S., Mexico and Canada reached a renewed trade agreement to replace NAFTA. The United States–Mexico–Canada Agreement (USMCA), is now enforced by each country’s government to ensure fair trade. Canada is also involved in the European Union’s Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
4. Cultural Similarities
Expanding into a new country can be an intimidating process for businesses, and navigating cultural differences and language barriers presents its own unique challenge. Many U.S. companies are drawn to the idea of doing business in Canada because of cultural similarities. Both countries have similar customs, like shaking hands as a formal greeting, for example.
Additionally, most Canadians speak English, either as a first or second language. Considering the importance of effective communication in a business environment, the lack of a language barrier alleviates a massive burden from English-speaking companies looking to do business there. Another benefit for U.S. businesses expanding into Canada is the fact that these companies will have access to a similar target market as their home nation, which means they won’t need to alter their entire business plan to be successful there. All these areas of familiarity help to ensure a smoother expansion process.
5. Access to Talent
The pandemic has paved the way for the normalization of remote working environments. Now, companies are willing and able to hire top-tier talent anywhere in the world. With over 2.8 million STEM graduates and incredible workforce diversity, Canada continues to provide qualified employees for growing companies across the globe.
When considering expanding into Canada, it’s important to remember that proper workforce management requires companies to stay on top of employment laws in multiple jurisdictions, in addition to handling unions and works councils, and mitigating legal risks during mergers and acquisitions. While there is plenty of talent to leverage in Canada, businesses will need to stay compliant as they build their international teams.
1. Provincial Rules
While there are many advantages to growing in Canada, business leaders also need to be aware of potential challenges. Canada has ten provinces within three federal territories, which function similar to the U.S.. This means that each province has their own unique governmental rules and requirements for businesses. The corporate tax rate in the province of Alberta, for example, is 8%, while the tax rate in the province of British Columbia is 12%. These taxes are in addition to federal corporate tax requirements.
Workforce requirements also vary by province, which can affect the structure of your international employment contracts. The most notable consideration is the French-speaking province of Quebec, which implements a civil law system as opposed to a common law structure. As a result of this, all forms and filings must be completed in French. This also means that local workers are expected to be able to speak French. Quebec also has additional sales tax requirements on top of Canada’s standard Goods and Services Tax (GST).
2. Canadian Industry Restrictions
Although Canada encourages fair trade, they have many restrictions and requirements for exports into Canadian markets. As a result, due diligence is incredibly important. Companies will need to evaluate available sales channels, provincial regulations, target market opportunities, and more. For example, the Canadian Consumer Packaging and Labeling Act requires businesses to include both English and French on all product labels.
Canada also has regulations in place regarding acquisitions of domestic companies by foreign firms. This applies to the financial services industry, uranium production companies, transportation, telecommunications, cultural industries, and broadcasting. Canadian regulators must approve any acquisitions by foreign firms within these designated sectors.
3. Ongoing Compliance
We’ve mentioned a few of the complexities related to complying with federal and provincial laws, but doing business in Canada covers a broad range of compliance requirements for companies, from payroll to hiring to taxes. Failure to comply with these regulations can result in significant fines and penalties, including:
- Failure to file the Record of Employment (ROE): Fined up to $2,000, imprisoned for up to six months, or both.
- Failure to fulfil civil obligations: These tax penalties range from $1,000-$100,000 per violation.
- Failure to provide or maintain adequate records: On a summary conviction, and in addition to any penalty otherwise payable, a taxpayer may be imprisoned and/or fined for not less than $1,000.
What are the different types of employment?
- Permanent Employment – Under the permanent employment designation, the Canadian Labor Code specifies four major permanent employment categories: full-time, part-time, casual, and managerial/professional. Even though all of these are covered by the Labor Code, there is no statutory distinction between them.
- Fixed-Term Contracts – Per the Labor Force Survey of Canada, contract jobs are positions that are defined by the employer before hiring and must end on a certain date or once a specific task or project is completed.
- Temporary Employment – The Labor Code of Canada does not distinguish between permanent and temporary employees. Under the law, all employees are protected.
What are the retirement requirements for employees?
The two kinds of retirement benefit systems for employees in Canada are contribution-based and government sponsored. The former is a Canada Pension Plan, while the latter is an Old Age Security Plan. Social insurance, often known as social welfare, is a government-mandated insurance program that provides financial help to the elderly, the disabled and the injured, and the unemployed.
What are Canada’s tax rates?
- Corporate Tax Rate: The standard federal tax rate is 15%, with provincial and territorial rates ranging from 8% to 16%.
- Value Added Tax (VAT): The standard rate in Canada is 5% and applies to most goods and services.
What are the data privacy requirements?
When it comes to doing business in Canada, the legal measures are modified per jurisdiction. Personal data must be collected with consent and only used for the purposes for which it was collected. In most jurisdictions, where notice has been given through clear employer policies, email and internet use may be monitored.