Canada is often seen as an accessible, stable and open market for foreign companies.
In practice, setting up a business in Canada from abroad quickly raises legal, tax, operational and strategic challenges which, if not properly anticipated, can lead to significant costs, delays and long-term structural issues.
- Should you set up a subsidiary or a branch?
- Where should your business be located?
- How to structure governance and taxation?
- What regulatory obligations actually apply to a non-Canadian business?
Before any decision is made, certain questions must be asked.
This article provides a structured framework to help you address the five essential questions to consider before starting a business in Canada, in order to secure your market entry project and build a solid foundation for sustainable international growth.
- What legal structure?
- How to create a business?
- How to optimize your tax situation?
- How to recruit and obtain staff?
- International Trade Between Canada and Foreign Markets
1 – What legal structure?
At Zèbre Stratégie, we support European, Canadian and Asian companies in their international market entry and expansion projects, particularly between Europe, Canada and South Korea.
Our approach goes beyond legal incorporation: it integrates market entry strategy, operational structuring, regulatory constraints and cultural considerations to ensure a coherent and sustainable deployment.
The first step for any foreign company entering the Canadian market is to determine the most appropriate legal structure. Common options include setting up a representative office, branch, subsidiary or sole proprietorship. Each of these options has its own advantages and disadvantages in terms of legal liability, management and taxation.
You will also need to determine who will incorporate or register the entity in Canada… These may be the partners of the European company, a holding company or the parent company.
Each of these options will have implications for the management of the profit generated and its taxation.
The office
A representative office is not a commercial entity. It allows a foreign company to establish a presence in Canada for non-commercial purposes only.
It can be useful for establishing contacts with potential partners or for conducting marketing and promotional activities
On the other hand, with this option, you will not be able to close deals and do business in Canada. Instead, a branch or subsidiary should be established.
The Branch
A branch is an extension of the foreign company operating in Canada. The branch office is not a separate legal entity from its parent company. It operates in Canada under the direction and control of the foreign company.
The main advantage of setting up a branch office is the sharing of operating costs with the parent company. There may be tax advantages depending on the applicable tax rates in the company’s home country compared to Canada. A comparative tax analysis is therefore essential before making any decision.
On the other hand, the main disadvantage is legal liability. Debts and social obligations are the responsibility of the parent company.
The subsidiary
A subsidiary is a separate legal entity from its foreign parent company. It exists legally in Canada through its registration or incorporation at the provincial or federal level. However, it is controlled by the foreign company that holds a majority of its shares.
The advantage of creating a subsidiary is to reduce the risks since the foreign company can limit its liability to the Canadian subsidiary and thus limit the impact of its activity in Canada.
2 – How to create a business?
Once you have determined the structure of your business, you will need to complete the process of registering the business in Canada.
From an administrative standpoint, this is often the most straightforward part of establishing a business in Canada. The steps will depend on the type of business you are going to create.
Please note that the exact procedures may vary depending on the province or territory where the business is registered, as well as the legal form chosen.
Sole proprietorship
The process involves choosing a trade name and registering it with the Registraire des entreprises by filing a registration declaration. It is a simple procedure that costs $38. Revenu Québec has also set up a Start-up section to make the process easier.
You will then obtain a company number proving the existence of your company.
You can also sign up for local taxes so you can get them back. Registration for sales taxes is not mandatory as long as annual revenues do not exceed CAD 30,000.
The Incorporated Company
An “incorporated” corporation is any incorporated business. This allows the partners to benefit from limited liability. This structure provides limited liability to shareholders.
The most common forms are certainly the corporation and the general partnership.
Here too, the procedures are very simple. All you have to do is choose a company name, create articles of incorporation (you can download a basic template), choose where to domicile the head office and pay the fees.
All of these steps can be done online on the federal government’s website: how to incorporate a business.
3 – How to optimize your tax situation?
Understanding both Canadian tax law and the tax rules applicable in the company’s home country is essential to avoid double taxation and inefficient structures. It is for this reason that Zèbre Stratégie has an expert in international taxation on its team to help you determine your tax obligations and optimize your tax situation.
Depending on the legal structure you choose, the tax rate on the profit generated may be taxed in Canada, in the country of origin, or even in both countries.
Corporate tax
If the business is established in a country with which Canada has a tax treaty, that treaty may provide specific rules for the taxation of the foreign business’s Canadian income.
Canada has tax treaties with many countries, particularly in Europe and Asia, that govern the taxation of profits, dividends and executive income. And according to Article 7 of the tax treaty:
‘The profits of an undertaking of a Contracting State shall be taxable only in that State, unless the undertaking carries on its business in the other Contracting State through a permanent establishment situated there.’
It will therefore be necessary to define whether your company has a “permanent establishment” in Canada and is therefore subject to Canadian corporate income tax, referred to here as “Corporate Income Tax (CIT)”.
In Canada, your profits will be subject to double taxation: federal tax (26.5%) and provincial tax (between 2.5% and 16%) depending on the province in which you wish to settle. A study of local tax rates can therefore be useful.
Finally, what do we do with the net profits generated? Do we pay them out in the form of dividends or do we make an account-to-account transfer in the case of a branch?
Here too, tax rates should be studied, not only for Canadian taxation but also for the taxation of the company’s country of origin, since any distributed income may be subject to taxation according to local legislation. To the extent that profits are not reinvested in a Canadian branch, Canada subjects bank transfers to an additional 25% tax, the Branch Profit Tax.
Social security contributions
Employees working in Canada and their country of origin will have to be subject to the social security contributions of the 2 countries. Here too, the total contributions can be high if those of the two countries are combined.
Some bilateral agreements provide for specific arrangements for posted employees, making it possible to avoid a double social security contribution. These mechanisms vary from country to country and need to be analysed on a case-by-case basis.
Finally, with regard to the partners, knowing that their remuneration will be subject to corporate income tax, branch transfer tax, dividends and/or income tax, a complex calculation is necessary to make the most of the tax treaty.
Our tax lawyer Xavier will be there to help you calculate which is the best option for you and your business.
4 – How to recruit and obtain work permits?
Canada has laws that govern employer-employee relations. You’ll need to familiarize yourself with these laws and make sure your business is in compliance with local standards. You will also need to ensure that your non-Canadian collaborators can obtain the necessary work permits to work in Canada.
Canadian Labour Law
Canadian labour law will help you rediscover the joys of entrepreneurship if you are used to more rigid legal frameworks. Compared to many European jurisdictions, Canadian labour law offers greater contractual flexibility for employers… You can hire and stop the contract as you see fit.
This is also true in the other direction: employees “only” owe you 2 weeks’ notice and therefore leave as quickly as they arrived if they find something better elsewhere. In short, competition is tough and keeping an employee is an obstacle course unless you put the price and very favorable conditions on it.
As labour law is relatively simple, the issue lies elsewhere. It is more about the habits and customs of the country. So it is “normal” here not to come to work if you have managed to get a medical appointment. Just as work-life balance is extremely important, no one will say anything if an employee puts his or her family first and does not come to work.
Our expert in inclusion and cultural management of teams, Cécile, will provide you with the knowledge you need to manage your staff in Canada. It will also be able to train your managers in the cultural differences and customs of the country for better management of your teams.
Work permits
In Canada, you and your teams are considered foreign workers. As such, you are required to obtain a work permit in order to carry out a paid professional activity. There are, however, exceptions with a list of occupations for which a work permit is not required. This is particularly the case for business visitors.
However, Canada differentiates between business visitors and business people, who generally need a work permit. So you have to make sure you don’t accidentally fall into the other category.
Certain categories of highly skilled workers may be exempt from work permit requirements for short-term assignments, depending on the nature and duration of the mission. This may be the case for some of your technicians or experts in a field, whom you send for a specific mission.
In all other cases, a work permit is required. Work permits are usually issued to a specific employer, for a specific type of work that must be performed at a specific location and for a specified period of time. Unless the type of work performed in Canada is exempted, an employer who wishes to bring a worker into Canada must first obtain a favourable Labour Market Impact Assessment (LMIA) from Employment and Social Development Canada (ESDC).
Fortunately, obtaining an LMIA is not mandatory in all cases. The signing of CETA/CETA makes it possible to facilitate the mobility of a certain category of workers by exempting companies from applying for an LMIA. This is particularly the case for business people, temporary intra-group transfers, independent professionals and short-term business visitors.
Be careful though! In Canada, 26% of the working population is an immigrant. You will also need to make sure that the local people you hire have a valid work permit to work in your company.
Our legal department remains at your disposal to study with you your work permit needs for you and your employees.
5 – International Trade Between Canada and Foreign Markets
Finally, it is important to understand the rules of international trade between Canada and foreign markets. This can include tariffs, free trade agreements, and regulatory standards. Working with Zèbre Stratégie helps you navigate these complexities and facilitate your business activities.
Canada’s free trade agreements, particularly with the European Union and certain Asian countries, facilitate cross-border trade and reduce customs fees, and certain rules and documents must be met in order to benefit from them.
Moreover, just because customs fees have almost disappeared does not mean that regulatory standards do not apply. Your products and services will therefore have to meet local standards if they want to enter the Canadian market. This can represent a significant compliance challenge for food products when it comes to sanitary and phytosanitary documents.
In conclusion, starting a business in Canada can be an exciting opportunity to develop your business. However, if you want to avoid the pitfalls and be well prepared, professional support from market entry specialists is essential.. Zèbre Stratégie can help you navigate these complexities and ensure that your business has created the right structure to succeed in the Canadian market.
Go further
Every business creation project in Canada is unique.
The choice of structure, location model and timetable depends strongly on the target market, the sector of activity and the development objectives.
Zèbre Stratégie assists foreign companies in structuring and securing their establishment in Canada, Europe and Korea, upstream of any operational decision.
If you are considering a project or wish to validate your approach, do not hesitate to contact us for an exploratory exchange.
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