Foreign Investment in Canada – A Primer
June 16, 2017
Foreign investment in Canada is generally subject to a screening and review process, pursuant to the Investment Canada Act. The Act applies to any person that is not a Canadian citizen or permanent resident, and any entity which is not controlled by Canadians.
Notification of a proposed foreign investment in Canada
A Canadian business is defined has having a “place of business” in Canada, with individual(s) employed in the country in connection with the business, and assets in Canada used in operating the business. Where a non-Canadian is planning to make an investment to establish a new Canadian business, or acquire a controlling interest in a Canadian business, they must provide notice of the investment in accordance with the Act.
Based on certain financial and ownership thresholds, the establishment or acquisition of a Canadian business requires either filing of a Notification, or triggers a “net benefit” review. In the latter case, an Application for Review must be filed, and the Minister of Industry will determine whether the investment will be of a “net benefit” to Canada. If no net benefit review is required, then a Notification can be filed at any time prior to the investment, and up to 30 days after it is completed.
Applications for Review must be filed and approved prior to any investment being made. Any businesses with a cultural element must also be reviewed by Heritage Canada.
What constitutes a “net benefit” to Canada
When determining whether a business will be of a net benefit to Canada, the Minister will consider:
- Potential impact on economic activity, including employment and productivity, resource use, Canadian services, and local exports
- Whether Canadians will participate in the business
- Any potential improvements to technological development, innovation and efficiency in Canada
- Compatibility with Canadian policies including industrial, economic and cultural objectives at the local and provincial level
An investor may be required to provide short-term undertakings relating to ongoing operations, which are negotiated with the Minister and remain confidential. These may include maintaining a certain level of employment in Canada, or participation by Canadians in senior roles. These undertakings address any areas of concern and facilitate a finding that an investment is a “net benefit.”
National security review process
The national security review applies to any non-Canadian investment or acquisition of a new or existing business, including minority investments that may not require investors to file a Notification or Application for Review.
If the Minister believes that any proposed or completed investment may pose security concerns, they may order a full national security review. This process includes independent fact finding, as well as consultation with relevant Canadian agencies including police, border services, CSIS, and federal Departments such as Defence, Immigration and Finance. Finally, the matter can be referred to Cabinet for a final determination or refusal of the investment.
Legal and tax advice for foreign investment in Canada
At Feigenbaum Tax Law, our accounting and tax specialists offer business services for US professionals and companies with a presence in Canada. In addition to tax advice and corporate commercial litigation support, we also offer comprehensive business management services.
If you have questions about a new or existing business enterprise, our cross-border experts can develop custom solutions to your tax and other organizational needs. Contact us online, or call our office toll free at (877) 275-4792 to make an appointment.