Canada currently ranks sixth on Forbes’s Best Countries for Business list. Its economic, geographical, and political advantages make it an excellent place for companies to grow.
However, establishing a company in Canada can be incredibly complicated, time-consuming, and costly, so the process is not one to be undertaken lightly. You should also be aware that the rules for establishing a company differ in each of Canada’s provinces, intertwining with federal regulations as well. You’ll likely need to consult with experts to determine which laws apply as you work to register your business and begin hiring.
Let’s explore some of the benefits, challenges, and logistical requirements of Canada’s company registration.
Why do business in Canada?
Factors such as the economy, trade freedoms, and limited taxes make Canada an attractive location for international expansion. Below are a few of the specific reasons Canada is such an appealing place to do business:
- Robust economy: Canada’s economy is large and growing. The gross domestic product (GDP) is about US$1.736 trillion , having risen relatively steadily from US$40 billion over the past six decades. The current GDP per capita is equivalent to US$46,189. The economy is also extremely steady because of the country’s relatively low taxes, trade freedoms, and political stability, so businesses in Canada can be confident their operations will proceed smoothly.
- Economic diversity: Canada’s economy comprises numerous profitable industries. The country has extensive mineral and petroleum reserves and has traditionally boasted a strong manufacturing sector. It is also a global leader in agriculture, forestry, and fisheries. This diversity means Canada’s economy remains healthy even if one industry has a challenging year or two.
- Location: Canada’s geographic location gives Canadian businesses enviable access to other markets. Its proximity to the enormous U.S. markets is a distinct advantage. The U.S.-Canada border stretches for 5,525 miles, and about US$612 billion in trade crosses that border in a single year. The lucrative European Union (EU) and United Kingdom (UK) markets are just across the ocean as well.
- Trade agreements: Canada has entered into several beneficial trade agreements, such as the North American Free Trade Agreement (NAFTA), now known as the United States-Mexico-Canada Agreement (USMCA). It is also a member of the bilateral trade agreement known as the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and has a network of other agreements with diverse markets worldwide.
- Favorable income tax regulations: In many countries, international businesses must pay substantial corporate income taxes on their profits. However, Canada has provisions that allow any company without a permanent establishment in Canada to do business without paying corporate income taxes. Therefore, international companies in Canada can often take more risks, knowing that they will retain their revenues. However, companies that form legal subsidiaries or branches in Canada are subject to corporate income taxes.
- Low corporate tax rates: If your company chooses to establish a permanent entity in Canada, it can still reap the benefits of favorable tax provisions. As of 2021, the corporate tax rate in Canada stands at 38 percent of taxable income, which federal tax abatements can lower to 28 percent. However, after the general tax reduction, corporate income tax falls to 15 percent. This relatively low rate incentivizes business growth in Canada and makes operating in the country realistic financially.
- Skilled workers: Canada’s workers are highly skilled and educated. Canada has a robust university system and several institutes for vocational training — it is one of the world leaders in the percentage of its adult population with tertiary education — a tremendous 63 percent of 25- to 34-year-olds hold a tertiary qualification. However, attracting those workers can be tricky — the Business Development Bank of Canada reports 40 percent of Canadian entrepreneurs face challenges in obtaining the labor they need.
Challenges of registering your company in Canada
International company registration in Canada is highly complex and time-consuming. If your company plans to register in Canada, it will face several legal and logistical challenges:
- Varying jurisdictions: Each province has different rules for incorporation and registration, so you will need to be careful to abide by the regulations in your area. With extra-provincial registration, you will need to complete separate registrations for each required province, complying with the rules for each one. If you incorporate at the federal level, you will also need to comply with federal law.
- Planning physical properties: If you intend to establish a physical office or facility in Canada, you will need to register the building location with the appropriate authorities. If you plan to build your own premises, you must secure a construction permit and arrange for electrical and plumbing hookups to the grid. Construction permits and electricity can take months to obtain and require your business to complete several bureaucratic steps, so you’ll need to start early. Power is also surprisingly expensive in Canada since electricity prices have increased much faster than the inflation rate over the past decade.
- Language: If you incorporate in Quebec, you will likely have to meet French language requirements. You must submit all your company’s required forms in French, and your company must usually, though not always, translate its name into French or create a French name. You must then use that name on all official registration paperwork and displays.
- Transitioning limited liability companies: In most places in Canada, your company will not have the option to incorporate as a limited liability company (LLC). If your company is an LLC in your home country, you may have to incorporate in Canada as a corporation, or the law might require you to register your business under another statute. You may also need to provide a legal opinion attesting that your company is an LLC under the laws of its home jurisdiction.
For these reasons, many companies considering expanding their business to Canada find the option of working with an Employer of Record (EOR) extremely appealing. With an established presence in Canada, a reliable global EOR streamlines and expedites the establishment process, reducing registration requirements for your company and allowing you to start hiring and operating much sooner.
How to register a company in Canada
Let’s take a closer look at the requirements of business formation in Canada. Canada offers a few different registration options, so you can select the one that best meets your company’s needs:
- Partnership: A partnership involves two or more shareholders who shoulder the company’s liability. The partnership is not a legally separate entity from the shareholders, so partners are personally liable for the company’s debts and losses. A partnership may be general or limited, and in some instances, it can eventually evolve into a model similar to a limited liability partnership.
- Corporation: Under this model, your company could incorporate at either the provincial level or the federal level. The company would exist as a separate legal entity from any of the shareholders, so the shareholders would not be personally liable for any company debts or losses. The company would need to employ a minimum number of Canadian workers. In several provinces, at least 25 percent of the directors must be Canadian.
- Extra-provincial corporation: An extra-provincial corporation incorporates only at the provincial level but allows the company to operate in other provinces. With an extra-provincial corporation, no minimum requirements would apply to the number of Canadian workers in your company, so you could maintain complete ownership and directorship. Each province has its own requirements for incorporation, so you would need to check with your local authorities to learn the proper steps.
As you register your company, you’ll must complete a series of required steps, and in many cases, perform them multiple times. If you incorporate under Canada’s federal laws, you will need to register in every province where you intend to do business.
Here are the steps you should take to register:
- Register your company name
- File articles of incorporation
- Locate and register a physical office
- Open a corporate bank account
- Register for value-added tax (VAT)
At the end of the registration process, you’ll receive a business number and tax account you can use for formal transactions with the Canadian tax authorities. You’ll also receive any permits and licenses you need to operate your business legally in Canada.
Registering a company in Canada is a lengthy process. Weeks, even several months, might go by between initiating the process and receiving your official registration in Canada. For this reason, many companies choose to work with an EOR instead because they can start hiring employees right away and won’t miss out on talented candidates eager to secure jobs.
Challenges of hiring employees in Canada
Hiring employees in Canada is a complex process, and a single misstep could cause unnecessary challenges for your company. If you choose to establish a subsidiary through which to hire employees, you can expect to tackle these logistical and legal obstacles:
1. Navigating common hiring pitfalls
When hiring, you may need to adjust your usual practices to meet your company’s needs and comply with Canadian regulations.
Canada, like many other countries, prohibits discriminatory hiring practices. Your company cannot include statements in a job posting that directly or indirectly discriminate against candidates in certain protected groups. Below are a few common examples of protected characteristics:
- Sexual orientation
- Marital status
- Family status
One complication to this general rule is that each Canadian province has different protected classes that you will need to be mindful of while hiring. Check with your province to ensure your practices comply with local laws.
As you hire in Canada, you should also be willing to invest in a long-term partnership with your new employees. Canada does not have at-will employment, so once your employees have passed their probationary periods, you will need to provide notice periods and severance pay if you terminate their contracts. Keep this requirement in mind during hiring, and vet your candidates thoroughly so you can be sure your new employees are people you will be happy to have on your team for years to come.
2. Writing contracts
If written contracts are uncommon in your home country, you may need to adjust to the necessity of writing strong contracts for all your new Canadian employees. The law does not require written contracts, but putting one in place is a best practice. Even if your home country uses employment contracts, you may still find that rules and procedures in Canada differ from the requirements you are accustomed to.
For instance, remember that Canada is a bilingual country, with English and French as official languages. In most provinces, the law allows your company to decide which language to use in drafting your employment contracts, so you might choose English for English-speaking employees and French for French-speaking employees. Most contracts in provinces other than Quebec are in English. However, in Quebec, where French is the official language, the employment contract must be in French unless the contract is tailor-made and negotiable for the employee. In Quebec, many contracts written in English must include a clause stating the two parties have agreed to use English.
Employment contracts in Canada should always give monetary amounts in Canadian dollars instead of your home country’s currency. This practice provides clarity for your Canadian employees and demonstrates your willingness to engage with Canadian culture and institutions.
3. Determining expenses and payroll
Determining expenses and payroll once you have registered your company in Canada can present a complex challenge, even for experienced companies. Some of the complexity arises from the fact that each province has its own social security system and its own required employer and employee contributions to those systems through payroll taxes.
Provincial tax rates, which apply in addition to the federal tax rate, vary significantly between provinces. The highest federal tax rate is 33 percent, and provincial tax rates range from 4 percent to 21 percent.
Your company’s employee-related expenses extend far beyond payroll. You will also need to budget for expenses like employee benefits, paid vacation time, and paid holidays. Canadians receive healthcare through their provinces’ social security programs — still, many companies choose to offer group benefits plans to supplement the free provincial coverage.
Canadian employees should receive paid time off for New Year’s Day, Canada Day, Labour Day, and Christmas Day, as well as for any provincial holidays. In several provinces, they must receive an additional two weeks’ vacation after completing a full year of employment with a single employer. However, in most professional roles, employees receive three or four weeks’ vacation instead of the basic two. In addition, female Canadian employees should receive 17 weeks of paid maternity leave once they have worked at your company for more than six months.
You must also budget for overtime pay, which applies after 40 hours of work a week in some provinces and up to 44 hours of work in others.
Simplify global growth with Globalization Partners
When you’re considering how to expand your company to Canada, work with Globalization Partners. As a global EOR with an established presence in Canada, we eliminate the need to undertake the complex process of Canadian company registration. Our AI-powered platform means we can simplify hiring, onboarding, and managing payroll for your new employees, freeing your time and energy to concentrate on more critical matters. Our solution enables you to overcome the barriers to building a global remote team.