Unprecedented post-pandemic growth. Supply-chain disruptions. Labor shortages. Employee retention challenges. Inflation. Demands for cost-of-living wage increases. Decreased purchasing power. Rising interest rates. All of it a cascade of post-pandemic challenges facing today’s entrepreneurs.
The International Monetary Fund reports that Canada’s annual GDP growth rate was 1.9% in 2019, plummeting to –5.2% in 2020, when its economy was essentially shut down. Then came 2021 and an unprecedented frenzy of activity due to pent-up demand, spurring GDP growth of 4.6%—a boost that continued into this year, with a project annual GDP growth of 3.9%. To put these significant variations into context, the IMF notes that between 2009 and 2019, Canada’s annual growth rate ranged from 0.7% (2015) to 3.1% (2009, 2010). The fund forecasts growth of 2.8% in 2023 and 1.7% in 2024—a return, in essence, to the pre-pandemic normal.
Although many economists would rightly say that this is only one factor among many explaining the stresses Canadian entrepreneurs face, it does illustrate the shock the Canadian economy has endured. Yet if GDP growth is back closer to its historical norm, the issues businesspeople faced before the pandemic will surely make a similar impact this time. Before COVID-19 Canada was, among other things, near full employment, looking to increase its share of foreign trade beyond the U.S. and relying ever more on temporary foreign workers to perform essential jobs.
Some solutions to what Canadian entrepreneurs will face as the country rights the economic ship can be found in the free-trade agreements that Canada has enacted with 53 countries. If entrepreneurs are to leverage the opportunities these pacts present, they need to take the time now to plan their next moves, considering some of the following issues and questions related to international business expansion.
- Do you have a tax plan?
- Does the foreign jurisdiction where you intend to do business have a tax treaty with Canada?
- If it does, what are the tax rules applicable to operating in the foreign jurisdiction where you intend to do business?
- What are the corporate tax rates in the foreign jurisdiction?
- Are there any rules applicable to the free flow of capital between Canada and your desired foreign jurisdiction?
- Are there any strategies you can put in place to minimize the negative impact of certain rules?
- Do you have a business plan?
- How do you intend to do business in your chosen foreign jurisdiction?
- Do you require a special permit or license for your line of work in the foreign jurisdiction?
- Will you hire a local employee to promote your business in the foreign jurisdiction?
- Are you aware of the requirements of the employment laws of the foreign jurisdiction in which you hire the employee?
- Are you aware of the requirements of those laws when terminating an employee?
- Would you prefer to enter into a distribution agreement with a business in the foreign jurisdiction that’s already in your line of work?
- What rules will govern that relationship?
- When and how will you be paid, and in what currency?
- Will you want the protection of a noncompetition or non-solicitation clause?
- Are such clauses enforceable in the foreign jurisdiction in which you’re entering into these commercial agreements? If so, in what types of circumstances?
- Which laws will govern your business relationship?
- Will you go before the civil courts or settle your disputes by arbitration, and in what jurisdiction?
- Which language will be used to settle the dispute?
- Would you prefer instead to acquire a business in the foreign jurisdiction?
- If yes, what are the critical questions you need to answer as you perform your due diligence?
- Are there any special rules or authorizations that will apply to your business in the jurisdiction?
- Does the business require an environmental permit to operate?
- Are there any director liability issues affecting the business you seek to purchase?
- Should you buy the business’s assets, or should you simply buy shares in it?
- Would you prefer to set up your own new business in the foreign jurisdiction?
- How easy is it to incorporate a subsidiary in the foreign jurisdiction?
- Does a director of such a subsidiary need to be a resident of the jurisdiction?
- What potential liabilities does a corporate director have in the foreign jurisdiction, and can such liability be covered by director’s insurance?
- Would you prefer to do business in the foreign jurisdiction from an electronic platform?
- Does your website comply with the laws of the foreign jurisdiction in which you have customers?
- Does your website comply with applicable consumer protection, confidentiality and sales tax legislation in the foreign jurisdiction in which you have customers?
- Your strategy will depend on your objectives. Have you defined them?
Intellectual Property Protection
- Do you have an intellectual property plan?
- Are your trademarks and patents registered in the foreign jurisdiction?
- Do the licenses you hold for third-party intellectual property grant you the rights you need to do business in foreign jurisdictions?
- Do your products violate the intellectual property rights of another party already registered in the foreign jurisdiction?
- For whatever portion of your intellectual property is not protected by trademarks and patents, do you have confidentiality agreements in place with your business correspondent in the foreign jurisdiction, and are such agreements enforceable in the jurisdiction in which you’re conducting business?
Customs and Duties
- Do you have a rule-of-origin plan?
- Rules of origin determine whether your product is eligible for duty-free access to the foreign jurisdiction. Are your goods made in a country that has a free-trade agreement with Canada?
- Are all the components of your products made in that country?
- Are the raw materials of the components incorporated in your products sourced in that country?
- Do they come from Canada?
- Do they come from a country that has a free-trade agreement with Canada?
- Do you have a personnel mobility plan?
- Do you intend to send employees to the foreign jurisdiction to drum up business?
- Do those employees require a visa, a work permit or both?
- How do the immigration rules apply to short-term business trips versus long-term stays?
- Do you intend to attract skilled workers from Canada to your business in the foreign jurisdiction?
If you’re looking to expand your market beyond Canada, these are just some of the questions you’ll face. Consider this preliminary guidance—and then get to work. You have plenty of homework to do.
With nearly 30 years of experience, Didier Culat is a counsel at BCF who practices in cross-border mergers and acquisitions, corporate financings and securitized transactions. He also frequently assists Canadian and foreign law firms in their commercial or securities work in the Province of Québec.