Benefits and Challenges of Expanding to Canada

When your company is considering international growth opportunities, Canada offers an exciting new location because of its economic strengths and many other advantages. However, before you can commit to expanding your company to Canada, you’ll need to know the benefits and challenges of that decision. Let’s take a closer look at both so you can determine the best strategic decision for your company.

Reasons to expand to Canada

Why expand your company to Canada? Doing so opens up tremendous economic benefits, along with the advantages of a prime location and workforce. Here are some of the main benefits of doing business in Canada.

1. Strong and growing economy

Canada’s economy is robust and growing, providing a stable foundation that sets your company up well for success. The International Institute for Management Development (IMD) ranks Canada 14th globally for its overall economic competitiveness.

Canada currently ranks 10th globally in gross domestic product (GDP), with a GDP of about US$1.7 million. The Canadian economy’s growth rate has typically varied between 1 percent and 3 percent in the decade leading up to 2020. With unemployment rates generally low and minimum wages rising, Canadians tend to have substantial amounts of disposable income. For this reason, you’ll likely find consumers for your company’s products and services.

Moreover, Canada’s economy is highly stable. Some related advantages, including trade freedoms, low corporate taxes, and stable political circumstances, give Canada an extremely secure and dependable economy. When your business is looking for a steady footing for operations in a new country, Canada can provide the reliable setting you need.

2. Ideal business location

Canada’s geographic location is ideal for companies looking to grow internationally. Aside from its own bountiful markets, it offers access to large markets in both the U.S. and the European Union (EU).

Consider the tremendous U.S. market that lies just across Canada’s southern boundary, for instance, which offers ample opportunities for cross-border business transactions. In 2019, the goods and services trade across that border totaled about US$718.4 billion. Just across the Atlantic Ocean lie the bountiful British and EU markets as well. Accessing those countries and their business opportunities through Canada can help your company grow.

3. Lucrative and diverse markets

Canada’s large markets offer significant opportunities for your company to make deals and reach a wide range of potential customers.

One of the great strengths of the Canadian market is its diversity. Canada boasts a range of flourishing industries, many relating to Canada’s abundant natural resources. Canada has vast petroleum and natural mineral reserves, so oil, gas, and mining operations are robust. Canada ranks fourth in the world in oil production, putting out 5.29 million barrels of oil every day and accounting for a relatively large 6 percent of the world’s total production. Additionally, Canada is a global leader in fisheries, agriculture, and forestry.

This market diversity brings many benefits. If one industry has a challenging year or two, others can compensate, so the Canadian economy as a whole tends to remain strong. Additionally, it offers opportunities for global growth. International companies looking to find their niches will discover numerous possibilities among Canada’s thriving industries. Because Canada’s markets are so large and lucrative, they also provide opportunities for lead conversions, sales, and overall profitability.

4. Highly skilled and educated workforce

Highly skilled and educated workforce

The IMD ranks Canada 8th in the world in the competitiveness of its workforce. These rankings assess each country’s investment in its workers and evaluate each workforce’s readiness to contribute to the economy.

Canada consistently ranks near the top of the charts in the educational attainments of its citizenry. It has one of the highest global percentages of citizens with tertiary education — about 63 percent of its residents aged 25 to 34 have gone on to complete post-secondary degrees or certifications of some kind. Additionally, Canada’s workforce is highly skilled overall. Canada boasts a high number of quality vocational programs in addition to university degree programs, so its workforce tends to have the cutting-edge technical and vocational skills your company needs in its employees and contractors.

5. Expansive trade access

Canada participates in several international trade agreements. It is the only Group of Seven (G7) country to have trade agreements with all six other G7 countries. Canada also belongs to an extensive network of trade deals that span the globe, opening the door to markets in 51 different countries and 1.5 billion people internationally.

Foremost among those agreements is the Canada-United States-Mexico Agreement (CUSMA), which took the place of the North American Free Trade Agreement (NAFTA) among those three countries. Canada is also a signatory to the bilateral trade agreement known as the Canada-EU Comprehensive Economic and Trade Agreement (CETA), which offers Canadian companies premium access to the lucrative EU economies. It is a member of the 12-nation Trans-Pacific Partnership (TPP) as well.

This multitude of trade agreements has significant benefits when you decide to scale your business in Canada. Your company can likewise gain unique access to desirable markets worldwide.

6. Cost of operations

The expenses of doing business in Canada are relatively low compared with similar expenses in other countries. Tax rates in Canada are favorable for business, for instance, with taxes in Canada versus those in the U.S. being generally low. Canada offers corporate tax rates as low as 15 percent after federal tax abatements and the general tax reduction. As of 2021, the corporate tax rate in the United States is 21 percent and may rise to 28 percent shortly.

Additional favorable tax conditions arise because Canada has certain provisions that benefit companies without a permanent establishment in the country. Companies without a permanent establishment can do business without paying any corporate taxes at all.

Of course, the cost of your business operations includes more than the taxes you pay annually. Labor costs, facility and utility costs, transportation fees, and the expenses associated with regulatory compliance all factor into your budget. Fortunately, in Canada, your overall costs in these areas can usually remain low. Business operations in Canada cost about 14.6 percent less than equivalent operations in the U.S., for instance.

Top challenges of expanding to Canada

As with any effort to scale your company internationally, expanding to Canada comes with a few challenges to consider. Let’s take a closer look at the few disadvantages of doing business in Canada.

1. Navigating regulations

One of the primary challenges associated with international growth is the necessity of complying with unfamiliar laws. Noncompliance can result in severe financial penalties and harm your company’s reputation. For these reasons, you may need to do extensive research on Canadian law to determine how to achieve full compliance.

Navigating regulations becomes even more complicated when you consider that each province has its own rules in addition to federal law. If you plan to ship products throughout Canada, you will need to comply with the packaging, labeling, certification, and customs regulations in each province to which they travel.

Regulations also restrict international exports in some markets. For example, sugar and softwood lumber are subject to certain quota agreements, as are many types of weapons. If your company deals in products like these and wishes to export goods into Canada, know that access can be limited.

2. Contending with unfamiliar tax laws

Part of navigating new regulations is ensuring your company’s compliance with all relevant Canadian tax laws. Tax regulations in Canada are complex and can be confusing to the uninitiated — they are so complicated that the tax submissions process can take your company hundreds of hours per year. For this reason, your company may need to partner with experienced professionals who know the ins and outs of tax law and can help streamline the process, saving you valuable time.

Value-added tax (VAT) often represents an area requiring concentrated effort. VAT rates, such as those for the goods and services tax (GST) and harmonized sales tax (HST), vary significantly throughout Canada. The Canada Revenue Agency (CRA) sets a federal rate, and some provinces harmonize their rates with it while others do not. Quebec-based companies will need to pay Quebec sales tax in addition to the HST. You’ll need to look into the particulars in the province where your company does business to ensure correct payments.

3. Labor expenses

Although business operations in Canada are generally relatively cost-effective, one expense you will need to account for is the relatively high cost of labor. Canada supports its workforce by implementing relatively high minimum wage laws. As of 2021, the minimum wages in British Columbia, at CA$15.20 per hour, and Nunavut, at CA$16 per hour, are some of the country’s highest. The federal government also plans to introduce legislation that would set the federal minimum at CA$15 per hour and allow it to rise with inflation.

Labor expenses in Canada extend beyond employees’ wages and salaries. Many employers provide supplemental health insurance in addition to the free provincial health insurance Canadians receive. Employees in Canada are also entitled to a full complement of benefits, including paid vacation time and paid state holidays. These expenses can add up significantly for a company building new teams in Canada.

4. Handling social and political issues that affect business

When you’re ready to start scaling your business in Canada, your company will need to have practical strategies for addressing the social and political issues that could otherwise affect your operations.

Generally speaking, Canada’s social and political environment is highly stable. So what are some of the social and political issues in Canada affecting business? Recently, the economic lockdowns associated with Covid-19 have limited international commerce, driven some business profits down, and necessitated layoffs, increasing unemployment. The government in power can also have a direct effect on economic growth and bureaucratic impediments to business.

Additionally, political uncertainty in Canada’s neighbor to the south can affect business. Variations between different U.S. administrations could lead to economic ramifications through less favorable trade policies.

5. Establishing a new physical location

Your business may choose not to register formally or establish a physical presence in Canada, working through an established entity instead. If you decide to set up physical premises, know that the process can be intensely time-consuming.

Permitting requirements often introduce extensive delays when you elect to construct new offices. Permit applications require numerous bureaucratic steps, and the permits can take months to come through.

Expanding to Canada with an Employer of Record

Expanding to Canada with an Employer of Record

When your business is ready to include Canada in its strategies for growth, you can often streamline your path forward by partnering with an Employer of Record (EOR) like Globalization Partners.

What is an EOR? This professional solution is a global employment platform that can hire and pay employees on your behalf. Companies often partner with Globalization Partners to simplify and expedite their new operations because of the numerous advantages:

  • Time savings: Saving time is one of the primary benefits of partnering with Globalization Partners. If your company elects to form a subsidiary in Canada, the process can take weeks, even months. You’ll see significant delays in getting your business operational and can miss out on hiring qualified employees who don’t want to wait to sign a contract. When you use our global employment platform, your company can become operational in Canada much more quickly and start building teams right away.
  • Financial savings: In addition to being time-consuming, forming a subsidiary in Canada is expensive. Your company would need to pay registration fees and arrange to build or rent facilities. With an entity already in place, you can sidestep these setup costs and save money to invest in other areas of your business.
  • Peace of mind: Your company gains the peace of mind of knowing its hiring and payroll tax practices are compliant. Globalization Partners employs teams of experienced professionals who are well versed in the nuances of Canadian law, so they can ensure compliance with even the most minor details of Canadian labor and tax regulations. They save you research time and reduce your risk of financial penalties.

In general, working with Globalization Partners’ Employer of Record makes sense in a variety of scenarios. If your company prefers to avoid the bureaucratic challenges of establishing a subsidiary and wants to streamline your recruiting and hiring processes, save time and money, start hiring Canadian workers right away, and ensure compliance with Canada’s complex web of provincial and federal regulations, working with our full-stack global employment platform is highly advantageous.

Streamline your business growth with Globalization Partners

When you’re ready to expand to Canada, let Globalization Partners help. Our AI-driven and fully automated solution gives your company comprehensive software services for hiring and managing employees, while our premier customer service combines with that software to help you meet the challenges of building Canadian teams.

Download our Global Hiring Handbook today to learn more about scaling your business globally, or contact us to request more information

Streamline your business growth with Globalization Partners

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