CANADA
Canada Paul Collins, Mike Devereux and Michael Laskey, Stikeman Elliott
1 Overview of FDI in the jurisdiction
1.1 Which countries are the principal sources of FDI into your jurisdiction? The US, followed by the EU, are the principal sources of FDI into Canada. However, Canada does not give preference to FDI from any particular countries or regions.
1.2 What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI? They key sectors which attract FDI into Canada are: (i) manufacturing; (ii) management; (iii) mining and oil and gas extraction; and (iv) finance and insurance. However, Canada does not give preference to FDI in particular industries.
1.3 Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction? The Canadian government is generally supportive of FDI, subject to applying greater scrutiny on FDI by state-owned enterprises. The federal government is principally responsible for promoting FDI into Canada, but consults with provincial and municipal governments and regulators as necessary, as well as other branches of the federal government.
2 Investment vehicle
2.1 What are the most common legal entities and pass-through vehicles used for FDI in your jurisdiction, and how long do they take to become operational? The most common legal entities used for FDI in Canada are corporations and partnerships.
In Canada, a corporation can be incorporated as a federal corporation under the laws of Canada, or as a provincial corporation under the laws of one of the provinces of Canada. Generally speaking the legislation is comparable, however there are some practical differences.
The corporate statutes of Nova Scotia, British Columbia and Alberta do permit the possibility of incorporating an unlimited liability company, or ULC. As the name implies, shareholders generally have unlimited liability, and may become liable for the ULC’s debts and obligations. A ULC may be treated as a so-called disregarded or check-the-box flow-through entity for US tax purposes.
It should be noted that, although not a distinct form of business organisation, joint ventures are also commonly used for FDI in Canada.
2.2 What are the key requirements for establishment and operation of these vehicles which are relevant to FDI? For corporations, incorporation in most Canadian jurisdictions is a straightforward process and does not require any substantive government approvals. A simple filing and the payment of the requisite fee is all that is required.
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Certain jurisdictions in Canada do have residency requirements for a corporation’s board of directors. Under the federal statute, at least 25% of the directors of a corporation must be resident Canadians, and to transact business at a board meeting at least 25% of the directors present must be resident Canadians. The corporate statutes of the provinces of British Columbia, Prince Edward Island, New Brunswick, Nova Scotia and Quebec do not contain residency requirements.
Partnerships are generally formed upon the entering into of a partnership agreement and there are required filings for the formation of limited partnerships, which, similar to incorporation, are straightforward.
3 Investment approval
3.1 For foreign investment approval (including national security review) explain the following: a) The regulator/s’ name, factors it must consider when making its deci- sions, and how much discretion it has; Subject to certain exemptions, every acquisition of control by a non- Canadian of a Canadian business (even where such business is already controlled by a non-Canadian) requires either notification or review under the Investment Canada Act (ICA). Notification is a simple, technical filing which may be made any time up to 30 days after closing, while review is a longer and more in-depth process which typically requires the investor to make undertakings regarding the conduct of the acquired business.
Whether a transaction is subject to review or notification depends on a variety of criteria, including the size and nature of the acquired business. However, subject to certain exceptions, a direct acquisition of a non-cultural Canadian businesses by a non-Canadian investor (provided that either the seller or the purchase vehicle is ultimately controlled by nationals of a World Trade Organisation member state) is subject to review if the book value of the acquired assets exceeds C$344 million ($323.5 million), indexed annually to inflation. In the near future, the book value of assets test will change to an enterprise value test for investors that are not state-owned enterprises.
If a transaction is subject to review, it may not be completed until the minister of industry determines that it will be of net benefit to Canada. In practice, reviews are conducted by the Investment Review Division of Investment Canada, which makes a recommendation to the minister. Although the minister has very broad discretion to determine whether a transaction will be of net benefit to Canada, the Investment Canada Act (ICA) lists six factors which must be taken into account, where relevant, including the effect of the investment on Canada’s economy, the degree and significance of participation by Canadians in the business, the compatibility of the investment with national policies and other, related criteria.
In addition to the above, prescribed factors, the review will also be affected by: (i) whether the Canadian business is engaged in prescribed cultural activities (which may also lead to a review by the minister of Canadian heritage); (ii) whether the transaction raises national security concerns; and (iii) whether the investor is controlled or influenced by a foreign state.
b) Any investment caps and other legislative restrictions; No formal investment caps or other, similar restrictions exist under the ICA.
WWW.IFLR.COM IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014 25
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