CANADA
Transactions may be subject to review under both the Competition Act and the ICA. Although the Competition Bureau and the Investment Review Division will typically communicate with each other (and any other applicable branches of the federal, provincial or municipal governments), the review processes are independent and cannot be combined.
4 Tax and grants
4.1 Are there tax structures and/or favourable intermediary tax jurisdictions that are particularly useful for FDI into the country? The tax structure that will be useful for a particular investment into Canada will depend on many factors. Broadly speaking, FDI commonly takes place in the following forms: (i) by establishing a Canadian subsidiary; (ii) by carrying on the business in Canada as an unincorporated branch or as an entity with flow-through tax treatment; or (iii) by carrying on the business in Canada but restricting its presence such that it does not have a permanent establishment in Canada, if the investing entity is resident in a country with which Canada has a tax treaty. Where FDI into Canada involves acquiring the shares of a Canadian corporation, non-residents frequently consider establishing an acquisition corporation resident in Canada to access favourable tax benefits.
Canada has a large network of international tax treaties. Several jurisdictions are regularly used as intermediaries for FDI, including the Netherlands and Luxembourg.
4.2 What are the applicable corporate tax rates? In general, the federal income tax rate for corporations for the 2013 taxation year is 15%. Provincial corporate income tax rates for 2013 range from 10% to 16%.
4.3 Does the government have any FDI tax incentive schemes in place? The Canadian tax system provides for preferential domestic tax treatment and a number of fiscal incentive regimes designed to encourage investment in particular sectors of the Canadian economy, including manufacturing and processing, capital investment, small business, oil and gas exploration, and scientific research and experimental development. The Canadian federal government and, in particular, the government of each of the provinces provide generous tax incentives for the performance of scientific research and experimental development (SR&ED) in a particular province. The determination of whether certain activities constitute SR&ED is very technical and fact specific.
4.4 Other than through the tax system, does the government provide any other financial support to FDI investors? Not applicable.
5.3 How difficult is it for foreign investors to secure expatriate visas for shareholder representatives and workers? Foreign workers may be able to secure work permits as intra-corporate transferees if they have been employed for more than one year in a senior managerial or specialised knowledge position and are transferring to an equivalent position with a Canadian affiliate, subsidiary or branch office. Citizens of certain countries will also require a visa to permit entry to Canada (even if they qualify for a work permit as an intra-corporate transferee). Shareholder representatives may enter for business meetings related to the foreign investment, as long as they are not working for or on behalf of the Canadian entity. The same citizenship considerations apply as to whether they need a visa in order to enter Canada.
5.4 What foreign currency or exchange restrictions should foreign investors be aware of? Canada has no system of exchange controls and, therefore, once a Canadian business has been acquired, any after-tax profits from that business can generally be freely paid out to the non-Canadian parent. Canadian dollar income can also then be freely exchanged into another currency at the best available rate of exchange and sent out of the country, subject to any applicable requirement to satisfy Canadian withholding tax obligations.
5.5 Does the country prohibit domestic companies from doing business in any foreign jurisdictions? Canadian law imposes restrictions in respect of certain countries. These restrictions largely implement sanctions imposed by the United Nations Security Council. There may also be export restrictions in relation to various countries in respect of technology and military equipment.
6 Legal and regulatory framework
6.1 Are there any other FDI-specific laws that foreign investors must be aware of? As noted above, although the ICA is the principal law of general application governing foreign investment into Canada, other, sector-specific laws exist in certain industries which may limit or restrict the ability of foreign companies to acquire Canadian businesses. Canadian counsel should be contacted well in advance of any contemplated acquisition, and can provide advice as to whether any sector-specific requirements may apply.
5 Operating locally
5.1 What is the most common governing law of contracts and local business language? The governing law of most contracts is driven mainly by the province in which the company has its operations or head office or where the subject matter of the contract relates.
In Canada, the local business language is generally English. However, in the province of Quebec it could be French (although English is commonly used as well).
6.2 What challenges if any do investors find in getting certainly around local law and regulation? Most provinces in Canada have a well-developed legal system based on common law. The legal system in the province of Quebec, which is also well-developed, is based on civil law.
5.2 Explain any local content or local participation requirements relevant to foreign investors. As explained above, if a foreign investment is subject to review under the ICA, investors are typically required to provide undertakings as to the future conduct of the acquired business. Such undertakings typically include local content and local participation requirements (for example, local sourcing, preferential treatment to local businesses, maintaining a Canadian physical presence, maintaining Canadians on executive and leadership teams).
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IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014
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