Key Takeaways
1. The strong economic performance of Canada in recent years means that doing business in Canada usually makes good sense.
2. Benefits of doing business in Canada include the supportive business environment, a strong workforce and excellent international connections.
3. The challenges to doing business in Canada include significant regional variation, ‘red tape’ and a smaller market size.
4. It may be worth considering a Global PEO solution to ensure that your expansion into Canada proceeds as smoothly and efficiently as possible.
Doing business in Canada is a sometimes overlooked way of entering the vast North American market. Here we look at the key benefits, challenges and regulations that apply when moving into the Canadian market.
“A start-up mecca rivaling Silicon Valley” is how CNBC referred to Canada at the end of 2019. Indeed, Canada is consistently ranked among the top places in the world where it is the easiest for foreign investors to establish a presence and do business.
The business and general economic environment in Canada has remained strong in recent years, growing much faster than the other G7 countries since 2016. Positive output growth and a strong labor market are helping to drive both consumer and business confidence, and this positive sentiment and higher earnings are seeing household incomes and spending growing at a steady pace throughout the country. Business investment is also on an upward trend.
All this in addition to its world-class reputation and convenient location to the United States (U.S.) means that Canada is a solid option for expansion if you are looking to expand your business internationally either from the U.S. or are considering an expansion into the U.S. in the long-term.
In this guide, we are going to cover the benefits and challenges of doing business in Canada. We will also explore some of the key information you need to know before you pursue an international expansion into Canada and look at how a Canada PEO might be able to help you.
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Benefits of Doing Business in Canada
There are several benefits associated with doing business in Canada, and these have attracted major players like Google, Facebook, and Airbnb to the market. Here is a quick look at some of those which stand out:
- An Affluent and Developed Economy
- Canada has a relatively low unemployment rate, which sat at around five percent prior to the COVID-19 pandemic. While there was a sharp rise to around 14 percent in the immediate aftermath of enforced lockdowns, it has gradually fallen back down to a rate of around 8.10 percent at the time of writing.
- The low unemployment rate coupled with a competitive minimum wage means that Canada’s population is generally financially stable, and the economy, on the whole, is mature and developed. The Canadian economy has also benefited from an upsurge in goods exports in recent years due to an abundance of natural resources including natural gas, crude oil, coal, minerals, and timber stocks.
- The state of Canada’s economy means that organizations expanding there will have access to a developed and welcoming consumer base and access to a variety of valuable resources.
- A Beneficial Business Environment
- Canada is consistently ranked among the top places in the world where it is easiest to do business, especially when it comes to the initial stages of starting up a business. The main driver of this high ranking is Canada’s very low corporation tax rate of just 15 percent on company profits, which is much lower than other countries like the U.S. (21 percent) and the UK (19 percent).
- In addition, there is a wide range of government loans, grants, and other funding opportunities available to businesses in addition to strong support for start-ups through initiatives such as FedDev Ontario and the Industrial Research Assistance Program. There is also the Start-up Visa Program which is particularly useful for foreign business owners looking to branch out their operations and start doing business in Canada.
- Similarities to Other Large Economies
- Canada has many similarities, and shares many corporate customs, with countries like the U.S. and the United Kingdom (UK). This makes it a lot more straightforward for organizations to acclimatize if they are already familiar with how the western business world operates.
- For example, the handshake is the go-to business greeting in the U.S., Canada, the UK, and most European countries, whereas in Thailand and Japan a slight bow is customary.
- A Strong Workforce
- Canada’s workforce consistently ranks highly in terms of how educated it is, with previous studies ranking it as the second-best educated and the 10th overall most competitive by the World Economic Forum (WEF).
- Doing business in Canada therefore gives you access to a large pool of skilled talent from which to hire employees. Around 61 percent of 25–34-year-olds have undertaken some form of tertiary education, and the country’s productivity levels are very strong with 2018 per-hour GDP levels higher than both the U.S. and the UK.
- A further workforce benefit when doing business in Canada is the absence of many restrictive labor protections that exist in other countries. This makes on-demand staffing much easier.
- Strong International Connections
Canada is bound by three oceans that cover almost 4 million square miles and transcend six time zones. Over 500 ports throughout the country serve these oceans and provide crucial links in important supply chains and gateways that carry goods to the market. This is great news for organizations that produce a physical product or rely on import/export activity. Canada also has 18 airports that provide excellent air transit links.
It is also important to remember that Canada borders the U.S. and not only has strong commercial connections to it but also has strong cultural connections, too. This is beneficial for organizations that might be considering branching out into the States in the future.
Challenges of Doing Business in Canada
While there are several valuable benefits, it is important to weigh up the challenges of doing business in Canada as well:
- Regional Differences
- All organizations doing business in Canada must comply with federal laws that apply country-wide, an example being the federal goods and services tax (GST), which is currently set at a rate of five percent, and certain employment laws.
- However, Canada is made up of several regions and provinces, and, like in the United States, businesses must comply with provincial laws and taxes in addition to the federal ones. For example, businesses operating in Quebec must ensure that Quebec Sales Tax is paid on top of GST. Or, consider Ontario’s ‘right to disconnect’ law which protects and employee’s work/life balance.
- Regional and provincial differences, some of which can be extremely nuanced, can make it difficult for organizations to remain compliant with laws and regulations. That’s why, as we will explore later, it is often worth working with a Canada PEO to manage your Canadian expansion.
- Lots of Regulation
- A common complaint among those doing business in Canada is that each province and territory can have different rules and restrictions relating to inter-provincial trade (that is, trade within Canada itself). This means that for those doing business in Canada, it can sometimes feel as though it’s not one new country that they need to adapt to, but 13 different ones.
- While this issue has recently been addressed in the Canada Free Trade Agreement—which reduces barriers to trade, labor mobility, and financing—there is still much room for improvement.
- Smaller Market Size
- It is often said that Canada has a “scale-up” problem. This is why the country is a huge exporting nation; there’s limited scope for growth within Canada itself. You will find that most successful businesses born within Canada have some sort of product or service that they offer outside of the Canadian market.
- While this limited market size shouldn’t present too much of a problem for you as a business that’s looking to expand into Canada from a different jurisdiction, it is still worth being aware of.
Important Information for Doing Business in Canada
Having weighed up the pros and cons of expanding into and doing business in Canada and decided that it is the right course of action for your business, there are key bits of information that you should know about.
While it simply is not possible to cover all bases in this post, here are some of the most important pieces of information that you will need to know about.
- Hiring Employees in Canada
- While setting up and doing business in Canada is relatively straightforward, Canada’s labor legislation makes hiring employees a complicated affair.
- The differing federal and provincial legislation can make it confusing to determine exactly which requirements to meet. While many companies believe they can circumvent these laws and hire employees as contractors, the Canadian government has imposed tight restrictions on the definition of an “independent contractor” and reclassification of the individual of an employee can happen if you are not careful.
- The keyword here is provincial: Canada labor law varies across the country, with provinces and territories dictating their own requirements that relate to everything from notice periods and working hours. Canada anti-discrimination laws similarly have provincial variations.
- For consideration of how employee benefits can differ by province in Canada check out The Complete Guide to Employee Benefits in Canada.
Canada Working Hours
On working hours, each jurisdiction sets its own restrictions. Most provinces limit the number of hours that can be worked in a week. However, exceptions do exist based on specific industries and roles.
While working hours can vary significantly across Canada, most jurisdictions have their own overtime threshold equivalent to 1.5x an employee’s standard rate of pay. In Ontario, this begins at 44 hours while in Quebec it begins at 40. Employers cannot refuse overtime rates, nor can they force employees to work excessive hours or punish them for refusing to work overtime.
Payroll and Taxes in Canada
Canada’s social security system incorporates federal law on welfare issues like unemployment insurance and old age security. These are then supplemented with provincial policies, programs, and laws.
Each Canadian province is responsible for its own social security system and has its own contribution rates. All Canadian employees are expected to make contributions to the social security system, with deductions typically taken at the payroll level each month.
Canada’s tax system is progressive. The top federal tax rate in 2021 is 33 percent but provincial tax rates can apply on top of this. In Ontario, for example, an additional 13.16 percent can be applied while in Quebec this rises to 25.75 percent.
Employee Holidays
- Canada celebrates holidays on both a federal (national) and provincial level. There are four federal public holidays that are celebrated worldwide while the remainder are provincial:
New Year’s Day (National)
Islander Day (PEI)
Louis Riel Day (MB)
Heritage Day (NS)
Family Day (BC, AB, SK, ON, NB)
Good Friday (National except for QC)
Easter Monday (QC)
Victoria Day (National except for NB, NS, NL)
Aboriginal Day (NWT)
St. Jean Baptiste Day (QC)
Canada Day (National)
Civic Holiday (AB, BC, SK, ON, NB, NU)
Labour Day (National)
Thanksgiving (National except for NB, NS, NL)
Remembrance Day (National except for MB, ON, QC, NS)
Christmas Day (National)
Boxing Day (ON)
Holiday and 13th or 14th-month pay may also apply depending on the province.
Foreign Investment Restrictions
It is a relatively simple process to start a business in Canada. However, there are some restrictions where a business wants to acquire or control a majority stake in a Canadian business.
The Investment Canada Act compels foreign investors to notify the Canadian government if they begin a new business activity in Canada or when they take control of an existing Canadian business. Some acquisitions are subject to review, however, such as direct acquisitions where the total asset value of the business being acquired exceeds CA$5 million.
The restrictions surrounding foreign investment are very lengthy and complex, so it is worth consulting experts if you are looking at a Canadian expansion by way of an acquisition.
Work with a Canada PEO
Establishing a subsidiary in Canada to grow your business and build operations is a time-consuming process that is both complex and potentially expensive. The country’s provincial makeup in addition to strong labor and thorough tax laws that mandate exceptional attention to detail when doing business in Canada, and any mistakes you make—no matter how innocent—could be very expensive.
If you are sure that doing business in Canada is the right move for your organization, however, there are other options open to you. You could work with a global professional employer organization (PEO) like Horizons who makes it simple and painless to expand into Canada.
Horizons can help you grow your business in Canada by helping you find the right local talent, hire them, handle all HR matters and payroll, and ensure that you are fully compliant with both federal and provincial laws. This can all be achieved without you having to set up a Canadian subsidiary company because we act as an employer of record, meaning that you can get boots on the ground in Canada much faster and at a lower cost.
If you would like to find out more about how Horizons can help you with doing business in Canada, please contact us.
