Foreword by Andrew Chilvers
Despite these uncertain times, expanding overseas can be a key driver for future growth for an ambitious business. International expansion can breathe new life into a company, drive huge value and set it on a path of continued success.
Expanding a business overseas is a strategic opportunity that will help diversify revenue streams, revitalise product development and give high returns on investment. But expanding a business into different jurisdictions takes time – this is a long distance run, not a sudden sprint to the finish line. Furthermore, expanding operations into a new jurisdiction can be fraught with challenges and risks that need to be addressed long before the first boots are on the ground.
For any company turning up in a foreign country, a multitude of tax and legal issues need to be addressed. This can be a labyrinthine experience and not for the faint hearted – but then faint hearted businesspeople seldom set their sights on overseas expansion.
Tax and compliance have to be at the top of any board’s agenda, ensuring the correct steps are taken the moment the company representatives land in-country. It’s pivotal to learn these issues to avoid any costly mistakes from the start.
What are the main government incentives available in your jurisdiction to attract multi- nationals and FDI investment?
Canada provides numerous government incentive and grant funding programs at both the provincial and federal levels. These are mainly targeted at job creation and research and development (R&D). Canada’s largest R&D grant funding program is the Scientific Research and Experimental Development (SR&ED) tax incentive program. It is the largest single source of grant funding for R&D provided by the Canadian program. The program awards over $3.5 Billion to 21,000 taxpayers annually, the majority of which are small businesses. Companies of any size that invest in research can apply under this program providing they meet the criteria required including foreign held business.
The SR&ED program provides tax incentives to Canadian businesses that advance technology “leading to new or improved product, processes, materials or devices, including incremental improvements.” Most claims occur within commercial operations and facilities as opposed to dedicated research facilities and are in the fields of science and technologies spanning all industry areas including manufacturing, information, life science and bio-technology, medical, chemical, food and beverage, and other fields.
The tax incentives come in the form of cash for companies that are controlled by Canadian resident shareholders. For companies that are foreign held (controlled by non-resident shareholders), the incentives come in the form of a reduction in corporate income taxes. Where there are no taxes payable, the tax credits may be carried forward up to 20 years and applied against future taxes payable.
In order to meet eligibility, a project must meet the definition of SR&ED under Section 248(1) of the Income Tax Act as a “systematic investigation or search carried out in a field of science or technology by means of experiment or analysis that is basic or applied research, experimental development and support work.”
What industries do you feel there are opportunities in for international investors/ businesses in your jurisdiction? What factors do you think contribute to inward investment?
Canada has become a popular gateway into North America because of its openness to trade and immigration as well as its competitive tax rates when compared to the United States. In addition, ease of immigration of workers has made it a popular choice for companies looking to set up North American headquarters. In some cases, difficulty in renewing H-1B visas in the US has resulted in many companies moving their North American headquarters from the US to Canada. Advanced manufacturing and automotive engineering are two key industries in Ontario, particularly along with the Toronto region’s technology corridor, which links into several world class universities to provide a highly educated and skilled workforce. When combined with the various government incentive programs for research and development (R&D), mentioned above, Canada is an attractive destination.
Canada also has complex assurance and tax regulations, legislation designed to prevent money laundering and fraud, detailed workplace legislation and requirements around payroll deductions for employees. Canadian companies have access to markets through 14 free trade agreements currently in force and a number of others in various stages of negotiation. These include the Canada-United States-Mexico Agreement (CUSMA), the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Access to all three of these agreements provides companies with the ability to use Canada as a gateway to access other countries markets provided they meet the rules of origin.
Accordingly, the potential upsides – and the potential hazards – mean that to succeed in Canada, organizations need support from advisors who are familiar with the issues they might face, and what to do about them.
Why is it important to hire a local firm to support international expansion? How can you help smooth the process for your clients and overcome common pitfalls?
It is critical to utilize the services of a firm that has experience in managing companies through the process of global expansion. At BERTANI, we have developed a soft-landing program for foreign companies specifically and uniquely designed to assist companies in setting up their business in Canada.
There are many questions and answers on any expansion including how are you going to operate? As a sales office? Will the new entity create a self-sustaining operation in Canada and operate independently from the parent? What are the tax implications? Through our soft-landing program, we will manage the process.
As COVID-19 impacts the supply chains around the world, countries are looking to ensure that they will not be faced with shortages, particularly after the crisis, created with the shortage of PPE at the initial stages of the pandemic. This doesn’t necessarily mean globalization will end; however, it does change how global companies will operate within the nations they expand to. This could mean companies must immerse themselves in the economies of those nations they expand to and produce within those nations as opposed to simply taking a sales office approach.