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Physical proximity, a shared language and similar cultures make Canada appealing for U.S. companies that want to expand global trade.

Global Trade: How to Open a Foreign Office in CanadaARTICLE

By Debra Donston-Miller

Canada is the United States’ second-largest international trading partner, after China. In 2016, U.S. goods and services trade with Canada totaled an estimated $627.8 billion, with exports of $320.1 billion and imports of $307.6 billion.1

Physical proximity, a shared language and similar cultures make Canada appealing for U.S. companies that want to expand global trade. However, when determining what needs to be done to establish international trade in Canada – and how best to work with Canadian business partners – companies may need to think in terms of 10 distinct provinces and not necessarily one country.

Pathway to International Business Expansion in Canada

With a population of 35 million, Canada has the world’s 11th-largest economy. Spanning six time zones and bordering three oceans, Canada is governed by a federal structure with three levels of government: The federal government is responsible for conducting international affairs, customs tariffs, banking, intellectual property, transportation and national defense; provincial governments are primarily responsible for the delivery of social services such as healthcare and education; and local councils are responsible for the delivery of emergency services and public transport systems.2

Any non-Canadian individual or company that seeks to establish a new business in Canada or acquire control of a Canadian company must file a Notification of Investment or an Application for Review, per the Investment Canada Act.3 The Federal Minister of Industry has 45 days from the filing of a complete Application for Review to determine whether the proposed investment will be of “net benefit” to Canada. The net benefit review period can be extended – for example, if the investment is subject to a National Security Review.4 Companies must also determine whether there are regulations specific to the particular province in which they will be doing business.5

Most companies that conduct international trade in Canada do so through a Canadian subsidiary or a branch operation.6 There are several things companies should consider when deciding between the two options.

Opening a Subsidiary in Canada to Expand Global Business

The use of a Canadian subsidiary can be more convenient for administrative purposes. For example, having a Canadian subsidiary can make the process of executing documents much simpler. The use of a Canadian subsidiary generally limits the liability of a foreign parent to its capital investment in that subsidiary.7

Companies that choose to create a corporation in Canada must decide whether to do so under federal or provincial legislation. Corporations established under provincial legislation may carry on business anywhere in Canada, but are required to comply with provincial requirements such as extra-provincial registrations.8

If companies decide to open a Canadian Subsidiary Corporation, they must consider the cost of incorporating a new Canadian entity and the ongoing expenses of maintaining it. Costs include preparing and filing corporate returns, financial statements and income tax returns in Canada. Most incorporating jurisdictions federally and provincially have minimum Canadian residency requirements, so companies that open a Canadian Subsidiary must ensure that individuals resident in Canada can serve as directors. (An exception to this regulation is British Columbia.) In addition, certain corporate records generally must be maintained in Canada.9

Opening a Branch Office in Canada to Expand Global Business

If it is likely that the Canadian operation will incur significant losses in its early years of operation, it might be better to conduct business in Canada through a branch. In this model, companies may be able to deduct losses for foreign tax purposes. A Canadian branch structure might also better align Canadian corporate tax paid with foreign tax credits available in the home jurisdiction. With that said, the foreign parent corporation exposes itself directly to all of the liabilities of the Canadian operation.10

Companies that want to establish a branch office will need to register in all of the Canadian provinces in which they will conduct business and abide by each province’s specific rules and regulations. The corporate name cannot be registered if it is the same as or similar to one that is already in use in that province. In addition, in Quebec, the foreign corporation must register a French name.11

Cultural Awareness and International Trade

In addition to understanding the legal and regulatory requirements of opening an office in Canada, it’s important for companies to carefully consider the country’s cultural and business etiquette expectations. With that said, a country comprising 10 provinces and three territories12 as distinctive as those in Canada has no single business culture. Customs, business structures and expectations will vary among the country’s regions, but there are some general guidelines that anyone establishing business presence in Canada should keep in mind.

For example, there are two official languages of Canada: French and English. In Quebec, there are very stringent French-language requirements for all commercial businesses. It’s important to consider this for business meetings and in all correspondence. For example, it is common to exchange business cards in Canada, so cards should be written in in both French and English.13

No matter which language is used, business communication in Canada is generally direct. As such, emails and phone calls should be succinct.

Business etiquette also dictates the use of formal titles, such as Mr. and Ms., on introductions, but it is typical for Canadians to quickly switch to a first-name basis.14 In business meetings, a handshake with eye contact is the appropriate greeting. Punctuality is important. Meetings are typically well organized, with set schedules. Similarly, it’s important to be fully prepared with relevant information and documentation to substantiate business claims and promises. Canadians are not typically convinced by only emotion and passion.15

In the workplace, everyone’s opinions are respected, regardless of rank or status. Canadian managers tend to want to be seen as part of the team and less as authority figures.16

The business dress code in Canada is conservative, with the expectation that colleagues are well dressed. That includes being dressed appropriately for the weather, which varies widely across Canada.17

The Takeaway

U.S. companies may have a great deal to gain from expanding global trade into Canada. Understanding and meeting expectations on all business and cultural fronts will help to ensure a profitable and positive relationship for both U.S. businesses and their Canadian colleagues.

The Author

Debra Donston-Miller

Debra Donston-Miller is a veteran journalist, specializing in IT, business, career and education content. Formerly editor of eWEEK magazine and content director of eWEEK Labs, Donston-Miller currently develops content and content strategy for multiple organizations.

Sources

1. “Canada,” Office of the United States Trade Representative; https://ustr.gov/countries-regions/americas/canada
2. “Overseas Business Risk: Canada,” Gov.UK; https://www.gov.uk/government/publications/overseas-business-risk-canada/overseas-business-risk-canada
3. “Investment Canada Act,” Government of Canada; https://www.ic.gc.ca/eic/site/ica-lic.nsf/eng/home
4. Doing Business in Canada: An Introduction to the Legal Aspects of Investing and Establishing a Business in Canada, Borden Ladner Gervais; http://blg.com/en/News-And-Publications/Documents/Doing_Business_in_Canada.pdf
5. “Registering Your Business,” Canada Business Network; https://canadabusiness.ca/government/registering-your-business/
6. “Branch vs. Subsidiary, Which Is Right for You,” Miller Thomson, http://www.millerthomson.com/en/blog/carrying-on-business-in-canada-for-non/branch-vs-subsidiary-which-is-right-for-you/
7. Doing Business in Canada: An Introduction to the Legal Aspects of Investing and Establishing a Business in Canada, Borden Ladner Gervais; http://blg.com/en/News-And-Publications/Documents/Doing_Business_in_Canada.pdf
8. Ibid
9. “Branch vs. Subsidiary, Which Is Right for You,” Miller Thomson; http://www.millerthomson.com/en/blog/carrying-on-business-in-canada-for-non/branch-vs-subsidiary-which-is-right-for-you/
10. Doing Business in Canada: An Introduction to the Legal Aspects of Investing and Establishing a Business in Canada, Borden Ladner Gervais; http://blg.com/en/News-And-Publications/Documents/Doing_Business_in_Canada.pdf
11. “Branch vs. Subsidiary, Which Is Right for You,” Miller Thomson; http://www.millerthomson.com/en/blog/carrying-on-business-in-canada-for-non/branch-vs-subsidiary-which-is-right-for-you/
12. “Provinces and Territories of Canada,” Wikipedia; https://en.wikipedia.org/wiki/Provinces_and_territories_of_Canada
13. “Doing Business in Canada,” Expat Arrivals; http://www.expatarrivals.com/canada/doing-business-in-canada
14. Ibid
15. Ibid
16. Ibid
17. “Doing Business in Canada,” Today Translations; https://www.todaytranslations.com/doing-business-in-canada

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