With its abundant resources, market transparency and stable political environment, Canada offers a plethora of opportunities to companies looking to invest overseas.
According to our Global Business Complexity Index 2024, Canada has moved up three places from 48th most complex business environment in last year's GBCI, to 45th this year. Despite this upward trend, Canada remains at the lower end of the complexity index.
Canada offers a favourable environment to foreign businesses, however, there are a few complexities. For instance, the provincial variances in regulation and compliance requirements can make the process of setting up business in the country difficult. The need to incorporate as a federal corporation and in any of the 13 provinces entails different requirements around director residency, UBO registries and filing, for example. There is a similar story around HR and payroll, in which businesses need to account for provincial variation in social tax rules.
Canada presents numerous opportunities for investors, however. The country's tax rates are reasonably competitive and bureaucracy is minimal, making operational set-up straightforward. The removal of the requirement for a resident director simplifies operations, as businesses can operate without a physical presence. Additionally, Canada's trade agreements with several countries offer potential growth opportunities. Canada's well-educated workforce and focus on growth in technology and green/clean energy make it an attractive investment choice.
Macroeconomic conditions might affect Canada's business environment over the coming years. With relatively high interest rates, economists predict a mild recession in the country. Despite this, our experts do not anticipate the business environment becoming significantly more complex during 2024.
Looking ahead, there are no significant federal or provincial elections expected in 2024. However, the upcoming US election will likely have a follow-on impact in Canada, especially since Canada is still very integrated with the US market. As a way to offset this, Canada is looking at opportunities for closer trade ties beyond North America.
TMF Canada expert
With a low corporate tax rate and trade agreements with the key markets of Europe, the United States and Latin America, Canada is well positioned as a base of operations and a target for international expansion. Its competitive R&D environment and financial stability contribute to strong culture of innovation.
1. Starting a business
Starting a business in Canada is a fast and user-friendly process that takes a day and a half. Filing for incorporation and registering for VAT is all that's required.
2. Dealing with construction permits, registering a property and getting electricity
Construction permits, on the other hand, are a long and cumbersome process, involving 12 steps and taking an average of 250 days to secure. In addition, the 2024 Canadian Construction Cost Trends report suggests a moderation in construction cost escalation compared to previous years, this means costs, including permits, are likely not increasing as rapidly as they were in 2022 and early 2023; despite the moderation, overall construction costs are still projected to rise in 2024.
Registering a property involves four steps and can take 10 to 15 days to finalise.
Getting electricity in Canada is also a challenge, involving five to seven steps and taking, on average, four to eight weeks, depending on the province. The cost of electricity is exorbitant in Canada, especially in Ontario. According to the Ontario Energy Board, electricity prices in Ontario increased by 23% from 2020 to 2022, surpassing the 16.4% average growth across Canada. To support Ontarians, the Government of Ontario has temporarily lowered electricity rates. The country has plans to privatise electricity distribution to increase competition and reduce electricity costs in Ontario.
3. Labour
Canada boasts a relatively low unemployment rate, signifying a strong labour market. Despite this, labour shortages persist in certain industries, such as healthcare, trades and construction, and manufacturing among others. Causes of labour shortages include an ageing population, skills gap, wage pressures and work-life balance. This could put upward pressure on wages and potentially limit business growth.
4. Technology
Canadian businesses are increasingly targeted by cyberattacks, with nearly one-fifth experiencing incidents in 2021, causing a cost of cybercrime exceeding $600m. Also, personal data breaches pose a major risk to Canadians, requiring robust data protection regulations and consumer awareness.
Canada is taking steps to future-proof its workforce through reskilling programmes that aim to enhance AI skills.
5. Paying taxes
Canada has a low federal and provincial corporate tax rate of around 28% net. The submissions process takes a few days to a week per year for simple corporations, while it might take several weeks or even months for complex ones. Federal VAT is 5% and some provinces have a provincial VAT while others do not. Some provinces harmonise or combine the provincial VAT with the Federal VAT while others do not. Ontario's harmonised VAT, for instance, is 13%.
6. Trading across borders
Some of the challenges associated with trading across borders in Canada include the following: complex customs and border procedures, which can involve delays and costs such as brokerage fees, inspection charges, etc; logistics and supply chain complexities due to large distances and the geography of the country; infrastructure near borders and diverse transportation modes; also, the regulatory environment with non-tariff barriers, changing regulations and trade agreements.
7. Enforcing contracts
Canada's common law system is well established, with impartial courts that uphold contracts and provide remedies for breaches. The effectiveness of business contracts hinges on clear and well-drafted terms, anticipation of potential issues and resources available for dispute resolution (if required). These practices facilitate the enforceability of contracts.
8. Resolving insolvency
Recent reports from the Office of the Superintendent of Bankruptcy indicate an increase in consumer insolvency filings compared to pre-pandemic levels. In April 2024, insolvencies in Canada edged up 1.8% from the previous month. This increase was mainly due to a 6.4% jump in bankruptcies, whereas proposals remained relatively flat with a 0.4% rise.
By analysing insolvency and bankruptcy statistics, stakeholders can gain valuable insights into the economic climate and develop informed strategies for navigating financial challenges in Canada.
9. Obtaining credit
Obtaining credit in Canada is generally easier for established corporations with a strong financial profile. New or smaller corporations face challenges due to limited credit history, stringent qualification criteria and lack of collateral. However, exploring alternative financing options and government programmes can help them overcome these hurdles.
10. Culture
Core Canadian values include fairness, equality, inclusiveness and social justice. This is demonstrated by the country's governance approach, which includes public healthcare, higher taxation to promote the redistribution of wealth, the legalisation of same-sex marriage, the abolition of capital punishment and the suppression of far-right politics.
English is the business language in Canada, but it is very useful to speak some French if you're doing business in Quebec. In Quebec, 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 is considered rude to be more than a few minutes late.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.