Direct distribution
Ownership structures
Can a foreign supplier create their own entity to import and distribute their products in your jurisdiction?
In general, yes. There is no specific filing or regulatory review process applicable to foreign suppliers seeking to establish a business entity or joint venture in Canada. However, if a subsidiary is established in Canada, some corporate laws establish residency requirements for directors whereby at least one director (or 25 percent of the directors if there are more than four) must be a Canadian resident.
Can a foreign supplier be a partial owner with a local company of the importer of its products?
In general, yes. If a subsidiary is established in Canada, some corporate laws establish residency requirements for directors under which at least one director (or 25 percent of directors if there are more than four) must be a resident. Canadian. Under the Investment Canada Act, foreign business entities seeking to acquire or establish a Canadian business are required to notify Innovation, Science and Economic Development Canada no later than 30 days after such acquisition or creation.
What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?
There are several different vehicles available to foreign suppliers wishing to operate in Canada, each with different tax and corporate consequences. A foreign supplier can:
- choose to contract directly with a Canadian distributor without doing business directly in Canada;
- choose to appoint a local agent or representative to sell its products in Canada;
- choose to operate in Canada using a Canadian branch or division; Where
- choose to carry on business in Canada through a subsidiary or other affiliated company incorporated at the federal or provincial level.
The preferred choice of vehicle used by an importer owned by a foreign supplier to enter the Canadian market is the incorporation of a Canadian subsidiary or other affiliate. Although corporations can be incorporated under Canadian federal law, provinces have also enacted laws regulating the formation of corporations and other unincorporated entities, including corporations, unlimited and limited liability companies and partnerships. Business entities are generally required to register with the company or business registry in each province in which they wish to operate, pay prescribed fees, and file company or business registry forms with basic information about the business. business, ownership and management.
Restrictions
Does your jurisdiction limit the activity of foreign companies in the jurisdiction or limit foreign investment or ownership of domestic business entities?
There are no substantial restrictions on investment except for very large transactions or investments. Under the Investment Canada Act, foreign business entities seeking to acquire or establish a Canadian business are required to notify Innovation, Science and Economic Development Canada no later than 30 days after such acquisition or creation. Onerous and in-depth review process applies to non-World Trade Organization investors when the asset value of the Canadian business acquired in 2018 is at least C $ 5 million for acquisitions direct or C $ 50 million for indirect acquisitions. However, the C $ 5 million threshold will apply to indirect acquisitions where the asset value of the acquired Canadian business represents more than 50 percent of the asset value of the overall transaction. The review threshold for World Trade Organization investors as of February 15, 2020 was equal to an enterprise value of C $ 1.075 billion. This threshold is indexed annually based on nominal GDP growth.
In addition, Canada has a federal system of parliamentary government, and the regulation and administration of certain trans-provincial industries fall within the sphere of federal legislative powers. As for those under provincial jurisdiction, various provinces have regulated certain industries which are considered to be of particular importance or importance. Thus, several federal and provincial laws impose restrictions on specific industries, such as aviation, collections, engineering, agriculture, fisheries, banking, trusts and loans, securities, broadcasting. , telecommunications, insurance, alcohol sales, cannabis and industries that involve the exploitation of Canada’s natural resources. Depending on the products distributed, these restrictions may affect international distribution agreements when the foreign supplier has a direct or indirect presence in Canada.
Participations
Can the foreign supplier have a stake in the local entity that distributes its products?
Generally yes, subject to certain restrictions.
There are several different vehicles available to foreign suppliers wishing to operate in Canada, each with different tax and corporate consequences. A foreign supplier can:
- choose to contract directly with a Canadian distributor without doing business directly in Canada;
- choose to appoint a local agent or representative to sell its products in Canada;
- choose to operate in Canada using a Canadian branch or division; Where
- choose to operate in Canada through a subsidiary or other affiliated company incorporated at the federal or provincial level.
The preferred choice of vehicle used by an importer owned by a foreign supplier to enter the Canadian market is the incorporation of a Canadian subsidiary or other affiliate. If a subsidiary is established in Canada, some corporate laws establish residency requirements for directors under which at least one director (or 25 percent of directors if there are more than four) must be a resident. Canadian.
Although corporations can be incorporated under Canadian federal law, provinces have also enacted laws regulating the formation of corporations and other unincorporated entities, including corporations, unlimited and limited liability companies and partnerships.
Tax considerations
What are the tax considerations for foreign suppliers and for the incorporation of an importer owned by a foreign supplier? What taxes are applicable to foreign companies and individuals who operate in your jurisdiction or have interests in local businesses?
Depending on the business structure chosen by a foreign supplier wishing to sell goods in Canada, different taxes may apply to its income.
Canadian residents are taxed on their worldwide income, while non-residents can be taxed in Canada when they sell taxable property or earn employment income in Canada. If the supplier carries on business in Canada through a fixed place of business or a permanent establishment, any income derived therefrom will generally be treated as business income taxable in Canada on the basis of the income. net.
Canada has concluded tax recognition treaties with a large number of countries; if the foreign supplier is from a treaty country, it will generally be exempt as long as it does not carry on business through a permanent establishment in Canada.
The income of a non-resident supplier who carries on a business through a “branch” type business in Canada will generally be subject to a “branch tax”, that is, the income tax. income that applies when a non-resident corporation carries on business in Canada Canada through a branch (i.e. having its own offices, employees, records or other aspects of a permanent establishment in Canada) as opposed to a Canadian subsidiary. The base branch tax rate is 25 percent of Canadian taxable income earned through the branch in Canada, but it may be reduced by tax treaties where appropriate.
If a foreign supplier appoints a local agent or representative to sell its products in Canada, the income earned by the supplier through sales from the agent may, depending on the agent’s commission or fee structure, be characterized as passive income and subject in Canada to withholding tax. If so, the agent would be responsible for withholding the tax and remitting the amounts to the Canadian tax authorities. The standard 25 percent withholding tax rate under Canadian tax law is often reduced to 10 percent by tax treaties, where applicable.
Canadian withholding tax on passive income would not be payable if a subsidiary or other affiliate were established in Canada. However, dividends paid to its parent company would be subject to a 25 percent withholding tax. This rate can be reduced by up to 5 percent by tax treaties, if applicable.
In conclusion, a thorough review of all relevant Canadian laws relating to each structure and a careful assessment of the effect of tax treaties entered into and ratified by Canada with the jurisdiction of the foreign supplier, on a case-by-case basis, is strongly advised.
Declaration date of the law
Corrected from
Indicate the date on which the above information is correct.
November 25, 2020.
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