From low corporate tax to a commercial environment that is welcoming of start-ups, there are plenty of reasons for starting a business in Canada.
If you’re thinking of starting a business, there are few better places to do so than Canada and the numbers back this up. Forbes rated it the second best country in the G20 and 18th out of 189 countries for ease of doing business, according to The World Bank. When it comes to starting a business in Canada, The World Bank survey finds that Canada is the second best in the world, and also has high rankings for gaining credit and protecting minority investors.
What are the major industries in Canada?
The three biggest industries in Canada are natural resources, manufacturing and service industries. A large percentage of Canada’s exports are commodities, but there are also strong trade links with the US for the export of manufactured goods including cars, machinery, clothing and high technology equipment, including aerospace technology.
While commodities underpin Canada’s economy, services as well as new and digital industries are among the fastest growing. Cannabis production has seen revenue growth of 15.8% in the last year, and alongside traditional industries including corn farming and gold and silver ore mining, e-commerce, dating services and recruitment agencies all feature in the top ten fastest growing industries in terms of revenue growth. In this environment, innovation and novelty may be beneficial when doing business in Canada and it may be worth looking closely at trends and changes in demand to provide an indication of where there may be opportunities for growth.
What is the corporate tax rate in Canada?
One of the reasons many expats consider starting a business in Canada is because of the low corporate tax rate. The corporate tax rate is 15%, but Canadian-controlled private corporations may be eligible to claim the Small Business Deduction, bringing the net tax rate down to 10%. Canadian-controlled private corporations (CCPCs) enjoy a number of benefits when it comes to taxation, with a combination of both tax credits and deductions.
Credits are available for R&D, farming and fishing in some regions, the creation of child care spaces and hiring apprentices. Tax deductions can be made for common business expenses including travel expenses, accounting and legal fees.
The tax year end in Canada is 31st March and returns must be filed within six months. Business tax in Canada is relatively low and simple to file, which is part of the reason why it is ranked so highly as a place to start and grow a business.
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Challenges of doing business in Canada
On the surface, it appears that doing business in Canada is a breeze – low taxation, effective trade agreements with the US, Latin America and Europe, financial stability and supportive environment for R&D and innovation are all appealing. However, there are some areas to be aware of when starting a business in Canada.
Construction permits, property registration and getting electricity are all time consuming. Construction permits require 12 separate steps which take an average of 250 days; getting electricity takes fewer steps but still takes an average of 140 days and even property registration is a five-step, four day process. The highly educated workforce fosters innovation, but there is a shortage of unskilled workers which means that if unskilled labour is required, perhaps on a production line, staff may be costly due to labour scarcity.
While international trade is relatively smooth, there are different provincial regulations – from customs procedures and packaging requirements to federal and provincial tax accounting and bilingual labelling. The system varies from province to province – for example, in Ontario, provincial VAT has been harmonised with Federal VAT for an overall rate of 13% but in other provinces, the two are not harmonised and the rates may vary. If you’re new to Canada, having local staff who understand the various processes and requirements of each province can be invaluable; business in Canada for foreigners may soon become complicated without in-depth local knowledge.
Canada is known as an inclusive and welcoming society and this is reflected in the business culture. However, if you’re planning to do business in Quebec, business signage must be in French and if you’re working with Quebecois partners or suppliers, a working knowledge of French will help to build your relationships and prove to be an asset when doing business in Canada.
Registering a business in Canada
Starting a business in Canada is a very simply process that takes just a day and a half; the only requirements are filing for incorporation and registering for VAT. There are residency requirements for company directors in Canada, which means either you’ll need to be a landed immigrant with a Canadian address or enter into partnership with a Canadian citizen. Registration of a business in Canada is managed by the provinces, and the requirements vary from one to another, so check the specific requirements in the location you’ve chosen. You can opt for Federal incorporation if you intend to operate across Canada.
There are rules for foreign investment; Federal rules require 25% of Directors to be resident in Canada, but provincial requirements vary on this matter – some provinces such as Nova Scotia, Quebec and the Yukon do not require any resident Directors, but others have higher requirements than the Federal rules. If you have an existing business that you wish to operate in Canada, you can open a branch office or a subsidiary.
Canada has developed an environment which allows businesses to thrive, but it’s worth double checking the provincial as well as federal rules to see which will work best for your business model. When you’re developing your business plan, a currency specialist can help you manage your investment and the costs and revenue with great rates, expert guidance and a wealth of currency tools to support your business in Canada.