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Doing Business in Canada: Advantages and Disadvantages

Most of the foreign investors overlook the prospects of doing business in Canada when they are thinking of entering the North American market. This piece of writing lists down the advantages and disadvantages of doing business in Canada.  

What are the benefits of doing business in Canada?  

Following are some of the benefits of doing business in Canada:

1. Lower corporate tax rate: One of the major reasons for the relocation of businesses to other locations is the lower corporate tax structure which makes it easy for the companies to invest the surplus in development of their business instead of depositing the same in the government exchequer. Canada in order to attract investments and to make it economically feasible for businesses to operate in Canada has kept the corporate tax rate lower than most of the developed countries reducing it from 18 percent to 15 percent.

• Advantages from Trade agreements: Canada has entered into a number of free trade agreements^[1] with a number of countries and economic regions such as North American Free Trade Agreement (NAFTA), EU’s Comprehensive Economic and Trade Agreement (CETA) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which provides extensive access to the markets across the world at favourable terms.  

• Strong Intellectual Property regime: Canada has displayed its commitment for a strong intellectual property regime to provide protection to innovation. The Canadian Intellectual property regime keeps on improving itself to make its administrative processes smooth and streamlined to provide protection to the innovation and inventions to Canadian businesses. The commitment towards a strong IP regime is reflected from Canada’s efforts in acceding to the Hague Agreement and becoming part of several other international IP treaties such as the Madrid Protocol, the Singapore Treaty, the NICE Agreement, WIPO’s Patent Law Treaty etc.

• Perks of a developed economy: The Canadian economy is a developed economy where the unemployment rate pre-covid times stood at below 5 percent. Additionally, the wage rate has been found to be competitive compared to rest of the developed countries making Canada financially stable and the overall economy mature and developed.

• Abundant natural resources: Canadian economy has significantly benefited from the exports of natural resources which are abundantly present in the Canadian market such as natural gas, crude oil, timber, minerals, coal etc.

Coupled with a strong economic fundamentals and abundance of natural resources, the companies who wish to do business in Canada.  

• Favourable business environment: Canada ranks among the top countries of the world in terms of ease of doing business. A favourable business environment is provided to the business especially at their nascent stages in terms of offering lower corporate tax rate. Further, the credit rate is very low for loans and grants and enough funding opportunities are available for the start-ups.

• Educated and competitive workforce: Canadian workforce has been ranked among the second most educated workforce and ranks amongst the top ten competitive workforces of the world. With such a large pool of skilled workforce, it makes it easier for the business to draw the benefits of a skilled workforce. Another attractive feature of doing business in Canada is the absence of intensive labour restrictions which are prevalent in most of the other developed nations making staffing easier for the businesses.    

What are the disadvantages and potential risks of doing business in Canada?  

Though a number of advantages exist in doing business in Canada, certain disadvantages and potential risks do exist which a business must be aware of before doing business in Canada:

1. Multiple provincial rules: Though federal laws are applicable throughout Canada, a number of provincial laws exist which are different from other provinces which becomes a big cause of concern for new businesses to navigate through a myriad of local laws, rules and regulations. This deters the businesses from opening their businesses in Canada to an extent.

• Small market size: One of the factors which makes Canada not the most attractive destination is its smaller market size it has which restricts business to scale up within Canada. This is the reason why most of the successful businesses within Canada have become big because they have been offering their products and services to other nations.

• Longer time in obtaining in permits: compared to other countries, the procedure of obtaining a license requires training and rigorous examinations thus making the process to get such permits difficult for the new businesses and acts as an entry barrier to do business. Every business needs to apply for a license in every provincial jurisdiction. Further, in some specific sectors such as construction, the time extends up to nine months to receive the permit.

• Longer time in enforcement of contracts: another major deterrent for businesses to invest in Canada is the significant amount of time its regulatory system takes in the enforcement of contracts. On an average, an unpaid contract takes around a period of 910 days for the enforcement of contracts in Canada.

• Restrictions in Investment decisions: Initial setting up of a business is not that difficult a process as winding it up. There are restrictions in case a foreign company attempts to acquire a majority stakes in a Canadian business such as foreign investors need to notify the government whenever they wish to start a new business or acquire an existing Canadian business. Further, some of the direct acquisitions are under review where the total asset value of the business exceeds 5 million Canadian dollars.     

Conclusion 

Despite having its own set of challenges in doing business in Canada, the advantages existing in Canada certainly outweigh them making Canada an attractive destination for investing and starting a new venture or expansion of an existing venture. In order for a business to be established in Canada, it is advised for the new businesses to take professional in conducting due diligence before doing business in Canada.    

Read Our Article: How to Start Small Business in Canada