Investing in Canada

MARK

Hello and welcome to TLT's International Tax Video Series, where we're looking at five essential questions to explore key tax issues for businesses operating across borders in just ten minutes. I'm Mark Brody, I'm a partner at TLT and head of our corporate tax and real estate tax practice. I'm delighted to be joined today by Noah Weinstein, partner at BLG.

Noah specializes in advising Canadian corporations, owner-operated businesses, individuals, accounting firms, and foreign enterprises on tax planning and related corporate and commercial deals. In this episode, Noah is going to share practical insights into why Canada is a key jurisdiction for international groups and inbound investment. Together, we'll explore the current landscape, the key features of the Canadian tax system, and what businesses need to consider when operating in Canada today. So, Noah, welcome.

First question today. Why do international businesses choose Canada as a strategic location for investment and growth?

NOAH

Thanks for having me here, Mark. So international businesses would choose Canada for many different reasons. First, Canada has a stable legal system. We are a pillar in North America. We have a great extensive network of tax treaties, which is obviously an evolving discussion with the potential joining of the EU, the potential joining of some sort of friendly role in the EU. We have a North American similar treatment that's a tax treaty network that we heavily rely on. We also have an extremely skilled workforce. Canada is one of the most educated countries on earth, strong universities, global talent attraction. And then of course we have resource and sector opportunities. Canada is one of the countries on earth with the deepest resources. As you may know, we have access to the clean water, to oil, to lumber. And so these are the reasons that people often think about using Canada.

MARK

Right, that's really interesting. Could you tell us now a little bit about some of the key features of the Canadian corporate tax system, including more information perhaps about its treaty network that you mentioned?

NOAH

Yeah, so in Canada there are ten provinces across the country and each province has its own tax system. Most of them run through the federal government. In Quebec, where I'm sitting, it's run by its own regime, Revenue Quebec. And then we have a federal taxing authority called the Canada Revenue Agency. So pretty much everything you do, there's two levels of tax, the provincial tax and the federal tax. Now our corporate tax system, normally our corporate income tax is lower than it would be for an individual, but then we have an integration system in Canada. So, ultimately, the outcome would be that the individual on top of the shareholder would end up with the same kind of tax rate when it flows all the way through.

When we talk about our treaty network, I mean we have an extensive treaty network with all of our major trading partners and the treaties can reduce withholding tax on dividends, interest, royalties. They can facilitate having cross-border employment or permanent establishment considerations. So, the treaty network is something that Canadians, especially with inbound or outbound Canadians, heavily, heavily rely on. Another thing that's interesting in Canada is that we have various structuring considerations that could be evaluated.

So there are different treatments from a tax perspective of having a branch or a partnership or a corporation or a sole proprietorship. And these are all different kinds of considerations that we help clients work through, especially when it's a foreign parent, let's say, that wanted to have activities in Canada. Well, they have to ask themselves all these questions of how we would optimise that, and the flexibility that the Canadian market gives you allows for this kind of structuring.

MARK

That's really interesting. Thanks, Noah. Can you tell us a little bit more about the compliance and reporting obligations that businesses with a Canadian presence will need to deal with and face?

NOAH

Yeah, so most businesses, and again there's a federal and provincial element to this, but most businesses in Canada have three major compliance elements from a tax perspective. The first one being income tax, second one being sales tax, so our equivalent of the VAT, value added tax, and the third one being payroll withholding. So when you have employees in Canada, the employer in Canada is liable to withhold and remit the tax from the employee's income.

So, those are the three main ones that we often see with corporations in Canada. And then, obviously, when it comes to an international network, well, that adds a level of complexity. So that would be transfer pricing considerations, foreign affiliate rules, cross-border withholding obligations, so on and so forth. But I mean in Canada, the main three that when we have a new business coming here and saying, hey, I want to start doing business in Canada, the first three things we say are, okay, well, income tax, sales tax, and payroll tax.

MARK

Thank you. Tax is usually a sort of fast-changing world where you have lots of changes and developments. I'm curious as to what you're seeing in Canada recently. What sort of news or what are the really recent tax developments in Canada at the moment?

NOAH

Yeah, well I'm sure you're reading the news, but Canada is in a constantly evolving situation. Just this week, Mark Carney was in Europe, our Prime Minister was in Europe, trying to strengthen our relationship with Europe. We obviously have an evolving relationship with the US. So Canada's really trying its best to stay ahead of things. Certain very attractive elements about investing in Canada is that we now , or not now, but we've always had a very strong scientific research and development credit and regime. So there are many businesses who receive, you know, a ton of assistance from the government, both federal and provincial, for scientific research and development. Recently, since 2024, Canada has allowed for employee ownership trust exits, which a lot of our Canadian business owners really like because it allows their business to remain with their employees.

I know that there's a similar regime in the UK, but it's brand new in Canada. And then given all of our natural resources, we have a ton of sustainability and clean economics investments. So, for green, clean energy, hydrogen, I'm sure that many countries have the same kind of movement towards more environmentally friendly investments, but in Canada, given the magnitude of our resources, it's very attractive to a lot of investors.

MARK

That's really interesting. I'm going to move on to our final question now. So if you were advising a business that was considering Canada as a place to invest, what are the sort of key practical takeaways you would give them to think about?

NOAH

So if I was advising a business to come into Canada, first I would say Canada's open for business. We are ready and eager to have inbound business and we're a great market to invest in. We have, you know, easy access to Asia, easy access to Europe, easy access to the rest of North America, we have a stable government, we have a stable economic system.

The key consideration I would bring up from a tax perspective is that choosing the right structure is the most important first step. So, depending on what you want to do, depending if you want to open an establishment in Canada, depending if you want to have just one employee working from their house in Canada, all these different things would impact the structure you choose. And for most of our clients who are investing in Canada, that's the first question that we ask is, practically, what do you want to do and how can we optimise that for you?

MARK

That makes a lot of sense. Thanks, Noah, and thanks a lot for joining us today. For further insight and to watch any upcoming episodes, please visit the TLT website. You can also connect with myself or with Noah on LinkedIn. Many thanks for listening.

NOAH

Thanks for having me.

MARK

Thank you.