Foreign Investment in Canada

These are the highlights if you want to know more about Foreigg Investment in Canada. This entry was drafted by HazloLaw Business Lawyers.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case

HazloLaw Business Lawyers is an excellent option in Canada.

Investment Canada ACT

The Investment Canada Act provides that if a non‑Canadian person or entity proposes to establish a business in Canada which is either:

1. a) unrelated to any other business being carried on in Canada by that non‑Canadian, or

1. b) is a related business but is one which falls within a business activity related to Canada’s cultural heritage or national identity that has been prescribed by the Government of Canada,

then a notice of establishment of business must be filed with Industry Canada.

The stated purpose of the Act is to encourage investment in Canada which contributes to economic growth and employment opportunities and to provide for the review of significant investments in Canada by non-Canadians in order to ensure that such investments benefit Canada.

Notification of the establishment of the business to Industry Canada involves disclosure of information about the non‑Canadian investor and the business.

If the new business involves an activity relating to Canada’s heritage or national identity, the establishment of the business can be made reviewable by the Government of Canada after notice of the new business has been filed. In such case an event, the non‑Canadian will be required to file an application for review with Industry Canada and to demonstrate that the business will be of net benefit to Canada before being allowed to commence business activities.

If a non‑Canadian person or entity wishes to acquire an existing Canadian business by way of a direct or indirect acquisition, the Investment Canada Act requires that either a notice or an application for review be filed depending on the manner of acquisition and whether the value of the business being acquired exceeds the prescribed review threshold. For instance, the review threshold for an investor that is not a “WTO investor” as defined by the Act is $5,000,000 in asset value for direct acquisitions of Canadian businesses and $50,000,000 in asset value for indirect acquisitions.

All acquisitions involving assets in excess of the thresholds set out above are reviewable transactions.  Advice should be obtained prior to entering into any acquisition transaction so that the specific threshold applicable to that business can be determined.

In the case of reviewable transactions, the non-Canadian person or entity is required to file an application for review with Industry Canada and to demonstrate that the acquisition of the Canadian business by that non‑Canadian will be of net benefit to Canada.

The Investment Canada Act sets out factors to be considered when determining whether net benefit to Canada has been demonstrated.  Considerations include the effect of the investment on the level of economic activity in Canada; the degree and significance of participation by Canadians in the business; the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; the effect of the investment on competition within any industry or industries in Canada; the compatibility of the investment with national industrial, economic and cultural policy objectives as enunciated by the federal or provincial governments; and the contribution of the investment to Canada’s ability to compete in world markets.  This list is by no means exhaustive, and the circumstances of each investment will result in varying weights being attributed to each factor.

The Investment Canada Act also imposes time limits to ensure the prompt review of applications for review and the issuance of decisions.  Non‑compliance with the Investment Canada Act can lead to the imposition of civil and criminal penalties.

Competition ACT

All businesses operating in Canada are subject to the provisions of the Competition Act, which is Canada’s anti‑trust legislation.  The Act envisages the categorization of various anti‑competitive practices into criminal law prohibitions and civil law matters.  Included in the criminal law regime are fraudulent and deceitful practices such as bid‑rigging, conspiracy relating to professional sport, pyramid selling, and making false or misleading representations. Included in the civil law regime are matters that although not criminal, could potentially impact on competition in the marketplace are therefore undesirable as a matter of public policy. These include provisions relating to price maintenance, refusal to deal, consignment selling, exclusive dealing, tied selling, abuse of dominance (monopoly laws), refusal to supply by a foreign supplier, and enforcement of foreign judgments, laws and directives.

It is to be noted that the last of these matters is of particular relevance to a branch operation in Canada.  The Competition Tribunal has the power to forbid the implementation by a Canadian company of a foreign court order or foreign law purporting to direct the conduct of a Canadian company or Canadian subsidiary of a foreign company, if such implementation will have an adverse effect on competition, trade or industry in Canada.  Any directive issued by a parent to a branch or subsidiary can be similarly impugned if its effect on Canadian competition, trade or industry is likely to be adverse.

The Commissioner of Competition is responsible for the administration and enforcement of the Competition Act.  The Competition Tribunal, in effect a civil court, is responsible for adjudicating civil law competition matters and issuing appropriate remedial orders.  The legislation permits the Tribunal to issue consent orders agreed to by the Commissioner and the parties against whom the order is to be directed.

Foreign purchasers of a Canadian company may be subject to examination by the Commissioner of Competition in respect of the competitive effects of the transaction. While all merger and acquisition transactions in Canada are technically subject to examination by the Commissioner of Competition, compared to other jurisdictions, competition review is relatively infrequent. The overarching consideration in these analyses is whether or not the transaction is likely to lessen competition substantially in the market, although the relevant market will vary in type and in scope from one transaction to the next. In most circumstances, particularly in small transactions, no such review will take place. However, the Competition Act includes certain thresholds that if met, make a transaction notifiable, and require the parties thereto to proactively disclose certain information to the Competition Commissioner, such as a description of the proposed transaction, a copy of each legal document that is to be used to implement the proposed transaction, and information about the parties involved.

Where the Competition Tribunal determines that a merger or proposed merger is likely to prevent or lessen competition in the relevant market it can make an order to dissolve a completed merger, to dispose of certain assets or shares, or prevent a proposed merger in whole or in part. Often, to avoid any uncertainty regarding whether their proposed merger will be considered to have an adverse effect on competition, parties to large merger or acquisition transactions will seek an advance ruling certificate from the Competition Commissioner before entering into the transaction, which states that the Commissioner is satisfied that the particular transaction will not adversely affect competition and that the transaction will not be challenged if it is substantially completed within one year of the certificate’s issuance.

Trade Legislation

Imports to Canada are subject to the provisions of a variety of statutes including the Customs Act, Customs Tariff, Special Import Measures Act, Export and Import Permits Act and the Excise Tax Act.

The Customs Act sets out the administration of the Customs Tariff, which lists the tariff items and duty rates applicable to goods imported into Canada.

The Export and Import Permits Act requires import permits for a range of commodities listed in the Import Control List, which includes many agricultural and textile products as well as many chemicals, firearms and other weapons.  There is also an Export Control List which requires permits for exports of a few prescribed items from Canada.  These include many advanced technological goods and weapons which may be of strategic value.

Canada’s anti‑dumping and countervailing duty laws are contained in the Special Import Measures Act.  The Act provides Canadian industries with recourse to anti‑dumping and countervailing duties in the event they are being materially injured from goods that are dumped into Canada or benefit from goods that are subsidized by foreign governments.

When goods are imported into Canada, excise tax may be payable by the importer at the time the goods are imported. Excise taxes are charged on fuel-inefficient vehicles, automobile air conditioners and certain petroleum products, and the amount of excise tax payable by importers is set out in the Excise Tax Act.

The previously in-force Canada-U.S. Free Trade Agreement (the “FTA”) which was signed in 1988 had an enormous impact on Canada’s trade laws vis-à-vis the United States.  Several industry sectors, including energy, agriculture, transportation and automotive products, have seen a continuing liberalization of rules pertaining to cross-border trade since it was first signed.  This trend has continued under the North American Free Trade Agreement (the “NAFTA”), which came into force on January 1, 1994.

The key feature of the NAFTA is the elimination of duties and certain other restrictions on substantially all trade in goods among Canada, the U.S. and Mexico.  The NAFTA did not affect the phase-out of tariffs which had been agreed upon under the FTA.  The phase-out of FTA tariffs was completed on January 1, 1998.  As a result of the NAFTA, on January 1, 2003 tariffs on trade between Canada, Mexico, and the United States for all eligible goods were eliminated.

Also, the Canadian, American and Mexican regimes pertaining to dumping, subsidies and related trade disputes are subject to a dispute resolution mechanism under the NAFTA. Where a private party notifies its government that it would like to seek binational panel review of an anti-dumping or countervailing duty order, the government concerned is required to initiate proceedings on its behalf.

At the time of writing, the parties have, at the behest of the American administration which contends that the treaty is “unfair”, commenced the renegotiation of NAFTA.

Canada has recently signed two other significant international trade agreements, including the Trans-Pacific Partnership (the “TPP”) and the Comprehensive Economic and trade Agreement (the “CETA”).

The TPP is a comprehensive trade agreement between Canada and various other countries in Asia, Oceania, and the Americas. The TPP addresses issues such as trade barriers, environmental protection, intellectual property and labour standards. The TPP has yet to be ratified and after the United States’ withdrawal on January 23, 2017, its future remains uncertain.

The CETA is a free-trade agreement between Canada and the European Union which was signed on October 30, 2016 and approved by the European Parliament on February 15, 2017. The Agreement has not yet come into force, but when it does it is expected to, among other things, eliminate 98% of the tariffs between Canada and the European Union and provide for stricter enforcement of intellectual property rights. Both parties are expected to apply CETA provisionally starting September 21, 2017.

Canadian Immigration Requirements For Business People

General Requirements

Canadian immigration law imposes certain requirements on foreign individuals wishing to work in Canada. These requirements are of particular interest to corporations who wish to transfer personnel to their Canadian branch or subsidiary or those who cannot fill roles locally and want to recruit from outside Canada.

Foreign nationals who are to be temporarily employed in Canada must apply through a Canadian government visa office abroad for a Work Permit, or, alternatively, if they do not need Temporary Resident Visas to enter Canada,  at the Canadian border or port of entry.  In order to obtain the permit, the Canadian employer must usually apply to Service Canada for a Labour Market Impact Assessment (LMIA). For the application to be approved, officials at the office must make a determination that the individual’s admission to Canada will not adversely affect the employment opportunities of Canadian residents and that there is a shortage of suitable Canadian citizens or permanent residents available to fill the position.

Special provisions permit non-Canadians to work in Canada without first obtaining a LMIA from Service Canada, in some exceptional circumstances. Most commonly, the LMIA requirements may be waived in the case of intra-corporate transfers where an employee of a corporation located outside Canada seeks to enter Canada to work in the corporation’s Canadian branch or subsidiary at a senior managerial level or a “specialized knowledge” level for a temporary period. In such cases, the company must prove that the employee has worked for the related company abroad for one year in the last three, that the companies have a qualifying relationship and that the employee’s role is senior managerial in nature or requires specialized knowledge not readily available locally.

Where an individual’s employment will involve a permanent transfer to Canada, he or she should make application for permanent residence in Canada, usually after arriving in Canada on a work permit. Applicants are assessed under a point system which allocates units of assessment based on various selection factors. The selection factors include education, age, knowledge of English or French, work experience in Canada and abroad, job offers, siblings in Canada, etc. These factors combine to create a “CRA” score which Immigration, Refugees and Citizenship Canada (“IRCC”) uses to issue “invitations” to apply for permanent residence. The applicant must also meet the criteria for one of the: the Federal Skilled Worker, Canadian Experience or Provincial Nominee classes.

These are special rules for individuals who apply for permanent residence as “self-employed” persons. This category applies to individuals who demonstrate the ability and intent to establish a business that would make a positive contribution to specified economic activities (cultural activities, athletics or farm management) in Canada.   Each province also operates a “Provincial Nominee” program which grants access to permanent residence based on criteria that differ slightly from the federal programs.

Persons admitted to Canada under any of the categories may include in their application members of their immediate families. Immediate family members include the spouse and dependent children – generally those under the age of 22.

Spouses of Foreign Workers

The spouses of some foreign workers are entitled to work in Canada on “open” work permits. In order for a spouse to be able to work, the principal spouse must be working in a managerial, technical or highly-skilled occupation and have a work permit issued for six (6) months or more. These occupations are listed in a schedule published by the government of Canada.

Work Permit exemptions under Global Skills Strategy

In June 2017 IRCC announced provisions allowing highly skilled workers and researchers to enter Canada to work, exempt from the need for a work permit. Qualifying workers may only work in Canada for 15 days every 6 months or for a 30 day period every 12 months. Researchers may come to Canada for 120 days every 12 months.

North American Free Trade Agreement

The North American Free Trade Agreement (“NAFTA”) establishes a special regime for temporary entry of business persons workers who are citizens of either the U.S. or Mexico.

Temporary business visitors are classified under the NAFTA into four categories:

1. business visitors;
2. traders and investors;
3. professionals;
4. intra-company transferees.

The NAFTA grants temporary entry with relaxed rules or LMIA exemptions to qualifying U.S. or Mexican nationals.

(i) Business visitors

Business visitors are persons who intend to enter Canada for a temporary period of time equaling six (6) months or less for the purpose of performing certain occupational and business functions and who do not need work permits. Business visitors must not be involved in any hands-on or productive work in Canada other than those who qualify to provide after-sales services for industrial equipment/software sold to a Canadian company by a foreign entity.

(ii) Traders and Investors

The “Traders and Investors” classification covers business persons seeking to:

1. carry on substantial trade in goods and services principally between the territory of the Party of which the business person is a citizen and the territory of the Party into which entry is sought; or
2. establish, develop, administer or provide advice or key technical services to the operation of an investment to which the business person or the business person’s enterprise has committed, or is in the process of committing, a substantial amount of capital, in a capacity that is supervisory, executive or involves essential skills. Work permits are required but they are LMIA exempt.

(iii) Professionals

Professionals identified in Appendix 1603.D.1 of the NAFTA may obtain work permits exempt from LMIA. The professionals included in this classification extend beyond occupations traditionally recognized as professions to include such occupations as hotel managers, technical publication writers, and management consultants. In some instances, minimum academic or work experience is specified, and the professional activity that may be carried out in Canada is sometimes limited. For example, a U.S. or Mexican physician may only be involved in teaching or research in Canada, and not the active practice of clinical medicine.

A work permit valid initially for one to three will be issued by Canadian immigration officials either at a Canadian consulate or at the port of entry into Canada. The U.S. or Mexican citizen must have documentary evidence of his or her education and professional qualifications as well as documentation verifying the work they will be doing in Canada for a Canadian employer or customer/client.

(iv) Intra-company Transferees

As discussed, Canadian immigration policies currently permit the entry of senior managerial staff or specialized knowledge workers on an intra-company transfer work permit basis, LMIA exempt. Work permits can be obtained either at the border (including airports) or at a Canadian embassy or consulate ahead of time. Employees must be currently employed by and have worked for the related company abroad for one year in the proceeding three. The company in Canada and the company abroad must also have a “qualifying” relationship.

Other free trade agreements

Canada has also entered into agreements, similar in some aspects to the NAFTA, with Chile (“CCFTA”), Peru (Canada-Peru FTA) and Colombia (Canada-Colombia FTA) and has limited immigration reciprocal arrangements under the General Agreement on Trade in Services (“GATS”) as well. Canada has recently entered into an agreement with the European Union (The Canada-European Union Comprehensive Economic and Trade Agreement) (“CETA”). The agreement addresses the liberalization of cross-market “services” and does so in a number of ways including relaxed entry provisions for business visitors and sector-specific provisions for telecom and e-commerce services providers. The Temporary Entry and Stay chapter focuses on reducing barriers (such as LMIA). The chapter discusses, as in the NAFTA, the provisions for business visitors, intra-corporate transferees, investors, contract services suppliers and independent professionals (including a long list of professionals and some technicians). Specific procedures and manuals have not yet been produced to allow use of these provisions.