As the second-largest country in the world, Canada unsurprisingly offers an array of opportunities for businesses to invest and trade.
Boasting an educated local labour force and enviable natural resources, there are plenty of reasons why any overseas businessperson should consider relocating to the Great White North.
Does Canada welcome overseas businesses?
Canada values entrepreneurship from all over the world and is regarded as one of the most welcoming countries for overseas businesses. While you will need to familiarise yourself with an array of federal and provincial regulations, your application to trade in Canada will likely be accepted if you can prove that your business plan is in the national interest.
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What industries are most popular in Canada?
The most prominent industries in Canada are:
- Commercial banking
- Gasoline and petroleum
- Oil drilling and gas extraction
- Automobile trading
- Grocery sales
- Life insurance and annuities
- Public and private healthcare
- IT consulting
The latter is particularly interesting for an SME, as you will see when we discuss the Global Talent Stream program later in this guide.
Is it easy to set up a business in Canada?
Setting up a business in Canada is comparatively simple. You need to follow these steps:
How to set up a business in Canada
- Find a trading address in Canada
You can hire an office space if necessary
- Choose a business name
This cannot infringe on an existing trademark
- Put together a business plan, including details of your finances
You may need to present this to the Canadian authorities
- Choose your business structure
Sole proprietorship, partnership, or corporation
- If you settle on a corporation…
…Decide if this will be a federal or provincial corporation
- If you choose a federal business…
…Apply for a federal business number from the Canada Revenue Agency (CRA)
- Apply for an extra-provincial or extra-territorial corporation in your province
You’ll still need to do this if you’re running a federal corporation, as you need to pay provincial corporation taxes
- Check if you need any licenses to operate your business
Consult with an expert if you’re unsure
- Appoint directors to your business
If you are running a corporation
- Open a Canadian bank account
You’ll find it difficult to do business with other Canadian companies if you don’t have a domestic business bank account
- Apply for necessary taxpayer status from the CRA
This is the Canada Revenue Agency
- Register your business with the Canadian government and pay the necessary fees
If your business proposal is accepted without the need to meet in person, this can be done online
Can I run a business in Canada while living overseas?
You can remain in the UK or USA while running a business in Canada, but you will need to appoint two additional directors, at least one of which lives and works in the country.
It is advisable to make this director a trusted full-time employee of your business in case they need to make rapid decisions without your input. Additionally, a permanent resident of Canada is likelier to understand the legal nuances found in different provinces.
Cultural considerations when running a business in Canada
If you plan to do business in Canada, it will help to understand some of the cultural nuances associated with the country. These include:
- It will benefit your cause to learn to speak French. This is especially important in Quebec, where French is acknowledged as the official language, many Canadians are bilingual
- To this point, add French translations to any business cards or email signatures
- When sending business communications, be direct and get to the point. Canadians are polite to a fault in person but prefer to keep written communication brief
- Canada believes in an egalitarian workplace, so treat everybody equally – never disregard the opinions of junior associates or speak only to the most senior person in the room
- Many workplaces in Canada do not permit their staff to wear perfume or cologne in respect for employees with allergies, so avoid dousing yourself in an expensive scent
- Many business deals are conducted over lunch or dinner and will be formal affairs, so dress and behave accordingly. However, if you are invited to drinks by an associate, it is considered bad manners to decline
- Do not skimp or fudge details when attempting to strike a business deal. A Canadian associate is highly unlikely to reach an agreement until they are satisfied that they have all the facts
What business structures are supported in Canada?
There are three significant structures if you wish to set up a business in Canada:
| Type of Canadian business entity | What is it? |
|---|---|
| Sole proprietorship | The simplest business structure to set up in Canada, but this arrangement means that you will be personally liable for all business affairs, including unpaid debts. You will pay tax on your profits as an individual, so you will not be liable for corporate taxes |
| Partnership | Similar to sole proprietorship, but with two or more equal partners that share profit and liability |
| Corporation | You will register a company as a separate legal entity, so you will not be personally responsible for any legal or financial difficulty encountered by your business. You will pay taxes as a business, which could save you money, but it involves much more administration and detailed records. A corporation needs no less than three directors, 25% of whom must be permanent residents of Canada |
Alternatively, you can open a branch of your existing business that operates from overseas. This enables you to benefit from brand recognition, but it also means your parent business is liable for any legal or financial difficulties encountered while doing business in Canada.
Corporations can be registered as national or provincial. If you register a national corporation, you can trade anywhere in Canada. If you register as a provincial, you can only do business in your province.
You can still trade with Quebec if you are based in Ontario, but your clients will need to fly to you and finalise the deal in Ontario.
Taxation in Canada
If you want to do business in Canada, you must understand the taxation rules and regulations that will impact your bottom line.
What is the corporate tax rate in Canada?
You will pay two corporate taxes in Canada. The first is the federal corporate tax, a flat rate of 15% of your annual turnover. In addition, you will need to pay a provincial corporate tax, which varies as follows depending on where you are trading.
| Province | Corporate tax rate (turnover more than $500,000) |
|---|---|
| Alberta | 10% |
| British Columbia | 12% |
| Manitoba | 12% |
| New Brunswick | 14% |
| Newfoundland & Labrador | 15% |
| Northwest Territories | 11.5% |
| Nova Scotia | 16% |
| Nunavut | 12% |
| Ontario | 11.5% |
| Prince Edward Island | 16% |
| Quebec | 11.5% |
| Saskatchewan | 12% |
| Yukon | 12% |
So, if your business is located in Ontario, you would pay a total corporate tax of 26.5%, but if you choose to set up a business in Prince Edward Island, it will come to 32%.
If this seems daunting, all is not lost. SMEs with an annual turnover of $500,000 or less are entitled to considerably lower tax rates. You’ll still need to pay the federal corporate tax of 15%, but provincial taxes drop to the following.
| Province | Corporate tax rate (turnover less than $500,000) |
|---|---|
| British Columbia | 2% |
| Manitoba | 0% |
| New Brunswick | 2.5% |
| Newfoundland & Labrador | 3% |
| Northwest Territories | 2% |
| Nova Scotia | 2.5% |
| Nunavut | 3% |
| Ontario | 3.2% |
| Prince Edward Island | 1% |
| Saskatchewan | 0% |
| Yukon | 0% |
As you’ll see, Alberta and Quebec are not mentioned above. This is because these provinces do not offer reduced taxes for small businesses.
These reduced payments may help you establish a business without crippling you with taxation in your first year or two of trading.
The UK has a double taxation treaty with Canada, so you will not pay taxes in both countries.
What are the employee income tax brackets in Canada?
Employees in Canada will need to pay income tax. As always, income tax brackets in Canada vary according to the province in which you do business, and the higher the salary, the higher the tax band. The ranges break down as follows:
| Province | Income tax range |
|---|---|
| Alberta | 10% – 15% |
| British Columbia | 5.06% – 20.5% |
| Manitoba | 10.8% – 17.4% |
| New Brunswick | 9.4% – 20.3% |
| Newfoundland & Labrador | 8.7% – 21.8% |
| Northwest Territories | 5.9% – 14.05% |
| Nova Scotia | 8.29% – 21% |
| Nunavut | 4% – 11.5% |
| Ontario | 5.05% – 13.16% |
| Prince Edward Island | 9.8% – 16.7% |
| Quebec | 15% – 25.5% |
| Saskatchewan | 10.5% – 14.5% |
| Yukon | 6.4% – 15% |
You must withhold all income tax from a Canadian employee’s monthly or weekly wage.
How are taxes paid in Canada?
The Canadian tax year mirrors the calendar year, and all tax filing must be completed and issued to the Canada Revenue Agency by March 2nd of the following year. This means a business must file a tax return for 2023 by 2nd March 2024, along with all necessary payments. If you are self-employed, you can also pay by debit card at Canada Post outlets.
Payroll & hiring employees in Canada
Hiring the right talent can make or break a company. Ensure your Canadian business interests are staffed by the best possible talent.
Does Canada welcome overseas talent?
In 2017, Immigration, Refugees and Citizenship Canada (IRCC) and Employment and Social Development Canada (ESDC) joined forces to create the Global Talent Stream (GTS), a program designed to import skills lacking in the Canadian labour force from overseas. The GTS has been a huge success, filling thousands of positions.
Suppose you wish to employ overseas talent through the GTS. In that case, the potential employee will need to demonstrate an advanced knowledge of the industry, and hold no less than five years of experience or a relevant advanced degree. Some roles will only be eligible for the GTS if they pay an annual salary of $80,000 or above.
At the time of writing, the GTS recognises these roles as areas of need.
- Computer and information systems managers
- Computer engineers (except software engineers and designers)
- Computer network technicians
- Computer programmers and interactive media developers
- Database analysts and data administrators
- Digital media designers
- Information systems analysts and consultant
- Mathematicians and statisticians
- Software engineers and designers
- Web designers and developers
Who needs a visa or work permit to work in Canada?
Anybody that does not hold a Canadian passport will need a work permit to conduct business in Canada. Employees who plan to live in the country will also need a permanent resident card.
What employee benefits are compulsory in Canada?
Employees in Canada are entitled to many mandatory benefits, many of which are unique to this country. The benefits we list below are based on federal employment law – the province you trade in may have other regulations.
- No less than 10 days of paid vacation – rising to 15 days after five years of service and 20 days after ten years. Employees in Saskatchewan are immediately entitled to a minimum of 15 days of paid vacation
- 5.5% of salary contributed to the Canada Pension Plan (the Quebec Pension Plan if you are doing business in this province)
- Overtime pay for any employee that works more than 40/48 hours in a single week, typically paid at 150% or 200% standard hourly rate
- The right to ask for flexible or adjusted working hours after six months of service. As an employer, you have the right to refuse this request, but employees can push back
- 7 statutory public holidays, plus additional regional holidays
- A minimum of 5 paid sick days per year, and up to 17 weeks of unpaid sick leave
- 3 fully paid days of personal leave outside of vacation, to be used in the event of family or personal difficulties
- A minimum of 15 weeks of maternity leave
- Up to 17 weeks of unpaid critical illness leave if caring for a sick relative – this rises to 37 weeks if the relative is a child
- Up to 28 weeks of unpaid compassionate leave
- 5 fully paid days of leave for victims of domestic violence
- Up to 52 weeks of unpaid leave following the disappearance of a child
Employment law considerations in Canada
If you are doing business in Canada, you must pay employees at a minimum wage or higher. This varies between provinces as follows.
| Province | Minimum wage |
|---|---|
| Alberta | $15 per hour |
| British Columbia | $15.65 per hour |
| Manitoba | $13.50 per hour |
| New Brunswick | $13.75 per hour |
| Newfoundland & Labrador | $13.70 per hour |
| Northwest Territories | $15.20 per hour |
| Nova Scotia | $13.60 per hour |
| Nunavut | $16 per hour |
| Ontario | $15.50 per hour |
| Prince Edward Island | $13.70 per hour |
| Quebec | $14.25 per hour |
| Saskatchewan | $13 per hour |
| Yukon | $15.70 per hour |
Other considerations surrounding Canadian employment law include:
- Federal law dictates that a contract does not need to be in writing – an oral agreement to give your employees an increase in salary could be deemed legally binding
- Always study the employment laws in your chosen province – while federal law overrides provincial, there may be some additional notices that only apply to your territory
Cultural considerations when hiring employees in Canada
If you want to hire employees in Canada, ensure you understand some of the cultural nuances prevalent in the country.
- Employees in Canada have the right to request flexible working hours, and many will take this up. You are entitled to refuse, but equally, the employer is entitled to push back and argue that their request is compelling and reasonable on the grounds of quality of life
- Avoid micro-managing. Employees in Canada are used to working on their own initiative and will not expect to have a boss hovering over their shoulders and giving orders
- Canadians are famously polite, so listen carefully to feedback – you’ll typically find the point sandwiched between compliments. For example, if employees think you are not flexible enough surrounding working hours, they might say, “I love working here. I sure would appreciate it if I could start and leave early on Thursdays as my kid has ballet, but this is a great company!”
- Canadian employees take charge of their career development but dislike bragging about performance. If an employee asks you for a promotion or salary increase, providing evidence as to why they deserve it, they likely have an offer from elsewhere. You may face a fight to keep them
FAQs about setting up a business in Canada
Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about setting up a business in Canada.
This varies by province. By federal law, “reasonable notice” is required. Most employers and employees will agree that two weeks is considered reasonable.
There is no share capital set by Canadian law – CA$1 should be enough to get you started.
Not long – most Canadian entities are registered and ready to start trading within a week.
You’ll need to make 12 contributions of 5.5% of an employee’s salary to the Canada Pension Plan. Add this to calculations for how much an employee will cost your business, alongside additional benefits.
This varies between provinces, but at the very least, be prepared to share personal ID, financial records and a proposed business plan.
As the names suggest, federal incorporations can do business all over Canada, but a provincial incorporation limits trading to a single province.
It is not necessarily mandatory, but setting up a Canadian bank account trading in the country is advisable.
Yes, at least one company director must be a permanent Canadian resident. If you have more than four directors, 25% of them must live in Canada.
Federal law in Canada caps a working week at 40 hours, divided into five 8-hour working days, or 48 hours in some provinces.
As employees in Canada already receive a wide array of benefits, there are comparatively few perks left to offer. However, some employers choose to provide private health insurance, disability insurance, and retirement savings plans, especially to top-tier employees.
No, at will termination in the workplace is not recognised under Canadian law. If you try to terminate an employee without reasonable notice (usually two weeks), the decision will be overturned in court if challenged.
Most provinces offer a minimum of 10 days paid leave – Saskatchewan offers 15. Most employers provide higher vacation packages after five years of service.