Canada is often a country of choice for business owners who want to expand into a foreign market. Its geographical location makes it considerably easier than many countries to have commercial relations with the powerhouse market that is the US. Added to this are other factors like the availability of a skilled workforce, an abundance of natural resources like gas, oil, and timber, and favorable trade treaties. In recent years, several large multinational companies have opened new offices in Canada. If you are considering doing the same, plainly it is important that your decision is a well-thought out and well-informed one. To assist in that regard, in this article we present five key benefits of doing business in Canada as a foreign company.
What Are The Advantages of Doing Business in Canada?
There are some solid advantages of doing business in Canada as a foreign entity, namely the conducive trade agreements in place with other countries (especially the US), the lower corporate tax rates, and the availability of skilled workers. Moreover, Canada is a stable economy that functions in a manner very similar to US markets.
5 Reasons Why You Should Be Doing Business in Canada as a Foreign Company
As mentioned already, there are several benefits of taking your business to Canada. In this section, we elaborate on the top five reasons that make this northern neighbor of the US the perfect place for your company to invest in for expansion.
1. Favorable Income Tax Treaties
Most companies that have headquarters in a different country need to pay hefty income taxes on the profits that they earn. In Canada, however, there is a provision that allows for some room for relaxation for companies based out of the US. This treaty allows a company that does not have any permanent establishment (PE) in Canada to do business without bearing the cost of income taxes on its operational profits.
A PE refers to a legal entity of a company in a foreign nation. It is a fixed place or location from which the business is carried out, either partially or in full capacity. To take advantage of this benevolent tax agreement between Canada and the US, you will have to ensure that you are compliant with its guidelines. This means that you can avoid PE risk by partnering with an independent third party contractor to sell your services and products to your customers. Such a contractor must also work for other companies concurrently. While forming such a partnership, it is prudent to take a decision after getting expert advice from a reliable consultancy.
In addition to not having any PE, you will also be required to maintain compliance by paying the necessary costs as per the treaty. At the end of the financial year, you will be able to avail your business of the benefits of the tax treaty by filing a Canadian income tax return and detailing your business operations in the country.
2. Lower Corporate Taxes
One of the primary reasons why businesses seek to expand into a global market is because of high corporate tax rates in their home country. Companies often feel that high corporate tax rates are detrimental to their success. This is especially true in an economy like the US where the national corporate tax rate in 2019 is at 21%. While the local rates may differ from the federal amount, the branch rates range from 21% to 31%.
In contrast, at a corporate tax rate of 15%, Canada has one of the lowest global rates (it was 18% in 2010). The Canadian government revisits this rate frequently with the purpose of making the trade conditions friendly for companies. This, in turn, is directed at achieving better economic growth in the long run.
3. A Stable Economy
Ranked in 6th position on Forbes Best Countries for Business list, Canada is a comparatively stable economy when compared to the US (rank 17 as per the same list). In fact, the continuous economic growth seen by the country from 2005 to 2014 is a testament to this very fact. Some of the reasons for this stability are the freedom to do trade, the above-mentioned low tax rates, and the controlled bureaucracy.
For example, in 2008 when the financial downturn rocked the economies of a number of countries globally, Canada was able to recover quickly from the crisis due to the timely interventions of the Bank of Canada regarding its lending practices.
As it stands, international think tanks and institutional observers continue to predict sustainable growth for the Canadian economy and that is a solid reason why companies should be considering doing business in Canada. The latest trends especially seem good for the financial services sector, renewable energy, and the digital media market.
4. Availability of Skilled Workers
Due to its good universities and institutes for vocational training, Canada has a high availability of skilled people in the workforce. According to Organisation for Economic Co-operation and Development (OECD), the number of 25-34 year olds in Canada with tertiary education is 62%; the second highest globally. Additionally, due to its friendly immigration practices, the number of employable foreign-born individuals above the age of 18 with a tertiary degree is the highest in the world at 65%.
Thus if you are planning to expand your business to Canada and need to hire talent from within the country, you can rest assured that you will get the quality that you are looking for.
5. Social Similarity to the US
When taking your business ventures to a foreign nation, it is essential to understand the social norms in order to flourish. Without the right caching from local consultants, this can become a hindrance in countries with vastly different cultures. However, Canada is very similar to the US in terms of social behaviors and cues. Most people greet each other the same way and have almost identical demographics. Even language is not a barrier, save maybe for Quebec (but many speak English there too).
If your business does end up operating in Quebec, where French is spoken widely, it is a good idea to have business cards and other printed communication materials available in both English and French to avoid confusion while dealing with customers and suppliers.
Ready to Start Doing Business in Canada?
If you have decided to expand into international markets and Canada is your country of choice, you stand to benefit from a friendly business environment as well as plenty of high growth opportunities.
If you are starting out in Canada and are not sure of long term plans, consider using a Professional Employer Organization (PEO), which helps companies undergo international market expansion by taking care of processes like recruiting, onboarding, payroll, and management of employees on the company’s behalf, allowing them to focus on the bigger picture and not the administrative details.