Doing Business in Canada

There are many reasons for wanting to do business in Canada including the availability of a skilled workforce, low corporate tax rates, abundant natural resources and a stable political system and economy. This article describes, in very summary form, some of key legal issues you should be aware of when deciding to start a new business or acquire an existing business in Canada.

Foreign Investment Regulation

All foreign investment into Canada above certain financial thresholds is subject to a federally- administered investment review process. The process generally seeks to assess whether the investment will result in a “net benefit to Canada” taking into consideration all relevant factors. Obtaining the necessary approvals may require investors to enter into legally binding undertakings with the Canadian government relating to matters such as maintenance or creation of jobs or facilities in Canada or expansion of existing Canadian facilities after completion of the investment.

In addition, investments into businesses which involve national security or culturally sensitive industries (such as telecommunications, air transportation and radio and television) are subject to more extensive review processes and additional requirements and restrictions.

Tax Issues

In Canada, taxes are imposed at both the federal and provincial levels on both individuals and corporations. These include taxes on income, capital gains and sale of goods and services. The rates and exact types of taxes payable by a business will depend in part on which jurisdictions in Canada the business carries on its operations.

In general, Canada currently has one of the lowest corporate tax rates in the OECD. As an example, the combined federal/provincial corporate rate in the Province of British Columbia is approximately 25% as compared to 35% in Washington State and 39-41% in California, New York and Oregon.

In addition, Canada has an extremely generous and attractive regime to provide tax credits for qualifying scientific research and development expenditures by Canadian-based companies.

Finally, payroll taxes payable by employers in Canada are typically about half of what employers would expect to pay in the United States.

Business Formation and Structuring

United States based investors can operate Canadian businesses either as a branch of the existing U.S. business or as a separate subsidiary incorporated under Canadian law. Each Province in Canada and the federal government have established statutes under which corporations can be incorporated. The terms of each statute can vary and, in particular, may impose requirements for a minimum number of Canadian resident directors. However, the relevant corporate statute in the Province of British Columbia imposes no such restrictions on director residency and, as such, the directors of a British Columbia company may be 100% foreign residents.

Recent changes to Canadian tax laws have eliminated Canadian withholding tax on interest payments made by Canadian subsidiaries to their U.S. parent companies (subject to compliance with some applicable thin capitalization rules). As a result, U.S. parent companies can structure the financing of their Canadian subsidiary with a combination of equity and interest-bearing debt to permit them, through the payment of the interest on that debt, to move significant amounts of cash from their Canadian business back to the United States without having to pay Canadian tax on the amount paid. In addition, a long-standing requirement for non-residents to obtain a Canadian clearance certificate from tax authorities when they sell their Canadian investment has also generally been eliminated making such a subsequent sale much less complicated.

Employment Issues

Unlike many U.S. jurisdictions, Canada does not generally recognize the concept of “at will” employment. In the absence of a specific contract which sets out the terms of compensation upon termination, Canadian law generally imposes an obligation to provide adequate notice of termination of an employee without cause or, in the absence of such adequate notice, payment of the salary and other amounts the employee would have earned during the notice period (called “payment in lieu of notice”).

The length of the period determined to constitute “adequate notice” will depend on a number of factors including the employee’s age, seniority and length of service with the company. However, in extreme cases the period can extend up to 2 years. As such, the process of terminating employees without cause can be very expensive and must be carefully considered at the time of any initial investment if significant changes in employees are part of the investor’s plan for the business after completion of the investment.

Immigration Issues

Generally, work permits are only granted to foreign workers if there are no qualified Canadians available to fill available positions. However, there are a number of exceptions to this general rule and they must be carefully considered in light of the particular circumstances. However, the general availability of skilled and well-educated workers is one of Canada’s key strengths as a destination for doing business.

While this article sets out, in summary form, some basic considerations for anyone considering doing business in Canada, the way these and other issues are dealt with depends on the particular facts involved in any particular investment or business. As one of Canada’s largest law firms, Borden Ladner Gervais has the knowledge and experience necessary to ensure whatever issues apply to any particular fact situation are dealt with in the most practical and cost-effective manner possible. We encourage you to contact us anytime to discuss your questions or your particular circumstances.

Authors

Warren Learmonth
Corporate Finance and Securities
Vancouver
604.640.4166
WLearmonth@blg.com

Jeffrey Read
Business and Corporate Commercial
Vancouver

 

The Hare or the Tortoise? Options  for Speeding Up Patent Prosecution in Canada

Timelines for patent prosecution in Canada can vary greatly depending on the technology area, backlogs in the Canadian Intellectual Property Office (CIPO), etc. Furthermore, in Canada, substantive examination is not automatic. A specific request for examination must be made within five years from the Canadian filing date, after which it can easily take two or more years for the first Office Action to issue. While these long delays permit applicants to defer patent costs and also conduct patent prosecution in Canada in light of prosecution in corresponding applications in, for example, Europe and the U.S.A., it may be advantageous for some applicants to pursue a quick patent grant in Canada.

Fortunately, Canada offers multiple alternative pathways by which prosecution can be expedited. The first option for expediting prosecution in Canada is to request that the application be advanced out of its regular order for examination – commonly known as a “special order” request. Special order can be requested by stating that failure to do is likely to prejudice the applicant’s rights and paying the prescribed fee, currently set at $500 CAD. This option is however limited in that applications that have been abandoned and reinstated after April 30, 2011, or that have been granted an extension of time for any reason, are ineligible.

In addition, CIPO has recently instituted an accelerated examination option for applications relating to environmental or “green” technologies, defined as “technology the commercialization of which would help to resolve or mitigate environmental impacts or to conserve the natural environment and resources.” For entry into the green technology program, the applicant must submit a Declaration attesting that their application relates to green technology. CIPO will not verify the content of the Declaration and, as this is a recent program, the definition of the green technology has not been tested; this option is therefore not recommended if there is any doubt as to whether or not the subject matter of the application would fall under the above definition of green technologies. There is no additional government fee for this option. As with special order requests, applications that have been abandoned and reinstated after April 30, 2011, or that have been granted an extension of time for any reason, are not eligible for entry into the green technology program.

A third option for accelerating examination in Canada, based on claims allowed or issued by another patent office, is the Patent Prosecution Highway (PPH) program. Canada has established PPH programs with a number of patent offices worldwide, including the U.S.A. Entry into the Canada-U.S.A. PPH program can be requested by conforming the claims of a Canadian application to those allowed or issued by the USPTO in a corresponding application. As with green technology applications, there is no additional government fee for PPH requests. An advantage of the PPH program is that, unlike requests for special order or under the green technology program, PPH request are not subject to the limitations relating to abandonment and reinstatement. Accordingly, even if an application has been abandoned and reinstated at any time, it will still be eligible for entry into the PPH program, provided the other requirements are met. Applicants interested in the PPH program should however take into consideration the significant differences between the unity of invention requirements in Canada and restriction practice in the U.S.A. before requesting entry into the program.

All the accelerated examination options require that the subject application must have been published and examination must have been requested. If not, a request for publication and for examination must be made together with the request for accelerated examination.

There are therefore multiple alternative options for speeding up examination in Canada. Each has advantages (and potential traps) but, used strategically, can be combined as part of a multi-jurisdictional strategy.

Author

Alaka Chatterjee

Author

Warren B. Learmonth 
WLearmonth@blg.com
604.640.4166

Other Author

Jeffrey A. Read

Expertise

Corporate Finance and Securities
Business and Corporate Commercial
Intellectual Property