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Canada: Market Profile

Picture: Canada factsheet
Picture: Canada factsheet

1. Overview

Canada has a stable government, skilled workforce, well-developed transport system and is rich in natural resources. Until recently, Canada's healthy banking and financial system and continued growth in non-commodity export-related industries aided by competitive currency dynamics and low statutory tax rates have lent support to domestic business and consumers amid soft crude oil prices and weak investment in the oil and gas sector. Although the Canadian economy is expected to strengthen in line with the stronger United States and global economy, the country's growth in the years ahead is likely to be tempered by the stabilisation of commodity prices, the end of the era of ultra-low interest rates – with potential consequences for households with large debt related to high residential house prices – and uncertainty stemming from global trade tensions and the United States's post-quantitative easing policies.

Sources: Invest in Canada, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

October 2016
Canada signed a free trade agreement (FTA) with the European Union (EU).

October 2018
The United States, Canada and Mexico reached a new trade deal to replace the North American FTA (NAFTA). The United States-Mexico-Canada Agreement (USMCA) broadly maintains the key tenets of the original NAFTA and also gives Canada greater exports of autos while allowing the United States greater access to Canada's dairy market.

October 2018
After nearly a century of prohibition, Canada became the second country in the world (after Uruguay) to legalise recreational cannabis. Subject to provincial or territorial restrictions, adults who are 18 years of age or older are legally able to possess up to 30 grams of dried cannabis and to buy it from a licensed retailer. Edible products and concentrates will become legal in October 2019.

December 2018
The arrest, at the request of the United States Department of Justice, in Canada of Meng Wanzhou, the chief financial officer of Huawei and daughter of the company's founder, set in motion a deterioration in relations between Ottawa and Beijing after two Canadian citizens were detained in Mainland China in retaliation. Despite more than six months of inter-governmental stand-off, in June 2019 Huawei's CEO said the company still wanted to make Canada its global centre for theoretical research.

June 2019
Against a backdrop of ongoing Canada-Mainland China tensions, Chinese importers have complained of pests in shipments of Canadian canola seed and have refused to purchase; Canada disputes the contamination. In 2018 canola seed exports to Mainland China were worth USD2.7 billion to Canada. Other exports from Canada to Mainland China, including beef and pork, have been suspended because of the discovery in meat products of food additives banned in Mainland China.

June 2019
Ships of the Royal Canadian Navy made their first-ever visit to Vietnam's Cam Ranh International Port.

June 2019
The Canadian government announced amendments to its Cannabis Regulations, setting out the rules governing the legal production and sale of edible cannabis, cannabis extracts and cannabis topicals. The measures will come into force in October 2019.

July 2019
For the first time in 10 months Canada's trade balance was in surplus following record exports to the United States.

July 2019
Federal scientists have concluded that between 1948 and 2016 the annual mean temperature in Canada's north increased by 2.3 degrees, or three times the global rate, the effects of which are now being felt in permafrost thaw, causing the ground to shift and destabilise parts of the Canadian Arctic, with consequences for roads and other essential infrastructure.

Sources: BBC Country Profile – Timeline, Bloomberg, Health Canada, Toronto Star, Fitch Solutions

3. Major Economic Indicators

Graph: Canada real GDP and inflation
Graph: Canada real GDP and inflation
Graph: Canada GDP by sector (2015)
Note: The most recent World Bank data for Canada is 2015. CIA World Factbook 2017 estimates are 1.6% agriculture, 28.2% industry and 70.2% services
Graph: Canada GDP by sector (2015)
Note: The most recent World Bank data for Canada is 2015. CIA World Factbook 2017 estimates are 1.6% agriculture, 28.2% industry and 70.2% services
Graph: Canada unemployment rate
Graph: Canada unemployment rate
Graph: Canada current account balance
Graph: Canada current account balance

f = forecast
Sources: IMF, CIA World Factbook
Date last reviewed: August 19, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Canada merchandise trade
Graph: Canada merchandise trade

Note: The 2018 estimate refers to imports only
e = estimate
Source: WTO
Date last reviewed: August 19, 2019

Graph: Canada major export commodities (2018)
Date last reviewed: August 20, 2019
Graph: Canada major export commodities (2018)
Date last reviewed: August 20, 2019
Graph: Canada major export markets (2018)
Date last reviewed: August 19, 2019
Graph: Canada major export markets (2018)
Date last reviewed: August 19, 2019
Graph: Canada major import commodities (2018)
Date last reviewed: August 20, 2019
Graph: Canada major import commodities (2018)
Date last reviewed: August 20, 2019
Graph: Canada major import markets (2018)
Date last reviewed: August 19, 2019
Graph: Canada major import markets (2018)
Date last reviewed: August 19, 2019

Sources: Trade Map, Fitch Solutions

4.2 Trade in Services

Graph: Canada trade in services
Graph: Canada trade in services

e = estimate
Source: WTO
Date last reviewed: August 19, 2019

5. Trade Policies

  • Canada has been a World Trade Organization (WTO) member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade (GATT) since January 1, 1948. Canada maintains a relatively liberal trade regime. There are no foreign exchange restrictions and import licences are only required for a limited number of goods. Imports are generally subject to import duties. To enhance productivity and boost the overall competitiveness of local businesses, Canada has become the first G20 economy to eliminate all remaining tariffs on manufacturing inputs, of which about 76% are textiles items with the remainder including chemicals, plastics, certain articles of wood, glass, aluminium and graphite, and machinery and equipment. Duties on 1,541 tariff lines were eliminated on March 5, 2010, and duties on an additional 381 tariff lines were phased out over a five-year period and removed altogether by 2015.

  • On November 27, 2013, Canada launched an updated foreign policy and trade plan, entitled the Global Markets Action Plan (GMAP), as a means to encourage market diversification while concentrating its efforts on the markets that hold the greatest promise for Canadian business. Under the Plan, 20 emerging markets and 22 priority sectors have been highlighted with strong competitive advantages or dynamic growth opportunities for Canadians, including aerospace, agriculture and processed foods, education, information and communications technology, life sciences, sustainable technology and transport regarding to Hong Kong.

  • Customs tariffs (also known as duties) are tariffs or taxes levied on goods imported into Canada. The customs duty that applies to imported goods depends on a number of factors, including the nature of the duty (i.e. ad valorem or specific), tariff classification, country of origin, and value for duty declared. The Tariff Schedule to the Customs Tariff, which is based on the World Customs Organization's Harmonized Commodity Description and Coding System, sets out the customs duty rates for goods imported into Canada. Goods that originate from most countries with which Canada does not have an FTA or other preferential tariff arrangement will generally attract the 'Most Favoured Nation' (MFN) duty rate or tariff treatment.

  • Canada also extends preferential tariff rates to many (but not all) products imported from certain countries via the General Preferential Tariff (GPT), the Least Developed Countries Tariff, the Commonwealth Caribbean Countries Tariff, the Australia Tariff, and the New Zealand Tariff. To qualify for preferential tariff rates, goods must meet various requirements with respect to the rules of origin and transhipment, among other things.

  • The importation of certain commodities is, however, tightly controlled. Examples of regulated goods include food products, drugs and medical devices, hazardous products, some weapons and firearms, endangered species and motor vehicles. Import licences are required for items regulated under the Export and Import Permits Act. The act lists various agricultural products (poultry, eggs and dairy), a number of textile and clothing items and certain steel products. In June 2019, the act was amended to ensure that Canada could join the Arms Trade Treaty (ATT) to ensure that the international trade of arms can be more effectively regulated.

  • Duties are assessed on the transaction value (the price actually paid or payable for the goods), including commission, brokerage, packing, royalties and transport. Goods originating in Hong Kong and Mainland China origin goods are eligible for the preferential tariffs under the Canadian GPT Scheme.

  • There are several consumption taxes in Canada: a Federal Goods and Services Tax (GST) is levied in every province at a rate of 5% on the supply of many goods and services, albeit with many exemptions. Five provinces have impose a single harmonised sales tax (HST), incorporating the GST, which results in an HST rate of 15% in four provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island) and 13% in one province (Ontario). An additional Provincial Sales Tax (PST) is levied in British Columbia (BC) (at a rate of 7%), Manitoba (7%) and Saskatchewan (6%). Quebec has added the Quebec Sales Tax (QST) at 9.975%, creating a combined rate of 14.975%. No additional Retail Sales Tax is applied in Alberta or the Northwest Territories, Nunavut and the Yukon, where only the GST is levied. In addition, excise duties and taxes are charged on goods, such as spirits, wine, beer, tobacco products, fuel-inefficient vehicles, automobile air conditioners and certain petroleum products.

  • In October 2018, the United States, Mexico and Canada reached an agreement on a new and modern trade agreement called the USMCA. This modernised agreement maintains the tariff-free market access from the original NAFTA (NAFTA and includes updates and new chapters to address modern-day trade challenges and opportunities. The original NAFTA eliminated virtually all tariffs between the United States, Mexico and Canada with very few exceptions. The USMCA maintains these benefits and ensures that the vast majority of United States-Mexico-Canda trade will continue to be duty free. Additionally, a new Customs Administration and Trade Facilitation Chapter standardises and modernises customs procedures throughout North America to facilitate the free-flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for businesses to export goods within the USMCA region. The USMCA comprises 34 chapters, three schedules, 18 annexes and 12 side letters. One of the chapters (on rules of origin) is 234 pages in length. In June 2019, Mexico became the first country to ratify the agreement.

  • The USMCA has made a key change to the autos rules of origin. The revised automotive rules of origin require higher levels of North American content in order to incentivise production and sourcing in North America. The agreement specifies that 40% of vehicles sold in the region must come from a market with wages of USD16/hour or more. This wage provision was brought into place in order to attempt to level the playing field between United States, Mexican and Canadian workers and reduce the incentives for companies to outsource manufacturing jobs to cheaper locations.

  • Canada may impose anti-dumping (AD) duties on imports considered to be priced less than the 'normal' price charged in the exporter's domestic market and negatively affect the concerned industry in Canada. Furthermore, if a country is found to be unfairly subsidising its exporters, Canada is authorised to impose a countervailing (CV) duty equal to the amount of the subsidy expressed as a percentage of the export price of the goods. These duties remain in place for five years and can be renewed for additional terms of five years. In July 2019, there were approximately 40 measures in force.

  • Currently, Canada imposes AD and/or CV duties on several imports from mainland China, including aluminium extrusions and as well as various carbon, copper and alloy steel product lines, photovoltaic modules and laminates, piling pipe, polyethylene terephthalate resin, pup joints, seamless casing, silicon metal, thermoelectric coolers and warmers, and unitised wall modules. Canada has also imposed a definitive AD duty of 108.5% on imports of certain concrete reinforcing bar from Hong Kong (except for one company which has an individual rate of 54%) for a period of five years from May 4, 2017.

  • Canada requires bilingual labelling (English and French) for most products. Bilingual designation of the generic name on most pre-packaged consumer products is required under the Consumer Packaging and Labelling Act. Under this act, the product identity declaration, net quantity declaration and dealer's name and principal place of business must appear on the package or label of consumer goods sold in Canada. In addition, textile labelling and advertising regulations have been amended to allow the use of lastol and polylactic acid as generic fibre names in textile and apparel labels in April 2010.

  • The agency responsible for inspection of imports, the Canada Customs and Revenue Agency, also requires an indication of the country of origin on several classes of imported goods. Goods not properly marked will not be released from Canada Customs until suitably marked. In general, environmental claims that are ambiguous, misleading or irrelevant, or that cannot be substantiated, should not be used.

  • Canada's position had slipped several places in the most recent IMD World Competitiveness Rankings, which rated the country consistently highly but highlighted insufficient levels of digitisation among small businesses and the minimal capacity of educational systems to react to the rapidly changing needs of high-growth sectors like technology.

Sources: WTO – Trade Policy Review, Government of Canada, Global Markets Action Plan, Department of Finance Canada, Canada Border Services Agency, IMD World Competitiveness, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

  • On October 29, 2018, Canada ratified the the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The CPTPP will add nearly half a billion consumers to the growing list of places where Canadian businesses can compete and succeed on a level playing field. The ratification of the CPTPP represents another important step towards trade diversification.

  • After significant negotiations, in October 2018, the United States, Mexico and Canada reached an agreement on a new and modern trade agreement called the USMCA. Additionally, a new Customs Administration and Trade Facilitation Chapter standardises and modernises customs procedures throughout North America to facilitate the free-flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for businesses to export goods within the USMCA region. This outcome will reinforce the strong economic ties between the three countries and support job creation. On June 20, 2019, Mexico became the first country to ratify the USMCA.

  • Canada has refused to roll over the Comprehensive Economic and Trade Agreement (CETA) in the event of the United Kingdom leaving the EU without a withdrawal agreement.

6.2 Multinational Trade Agreements

Active

  1. USMCA/NAFTA: In October 2018, the Uited States, Mexico and Canada reached an agreement on a new and modern trade agreement called the USMCA. Additionally, a new Customs Administration and Trade Facilitation Chapter standardises and modernises customs procedures throughout North America to facilitate the free-flow of goods. There are also important improvements to disciplines on technical barriers to trade that will make it easier for businesses to export goods within the USMCA region. The USMCA maintains many of the benefits of the previous NAFTA and ensures that the vast majority of USMCA trade will continue to be duty free. More robust rules of origin for the automotive sector will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labour. However, neither Canada nor the United States has yet ratified the agreement (as of July 3, 2019) although Mexico did so on June 20, 2019.

  2. CPTPP: Following the withdrawal of the United States from the original Trans-Pacific Partnership (TPP) a broad agreement on the TPP's core elements was reached between the remaining 11 countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The countries represent 13.4% of global GDP, or approximately USD13.5 trillion. The CPTPP is the third largest free trade area in the world, after the USMCA and the EU. By October 2018 Canada and five other countries (Australia, Japan, Mexico, New Zealand and Singapore) had ratified the CPTPP agreement, which meant it automatically came into force on December 30, 2018. The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards and intellectual property protections. Vietnam came on board in January 2019 and the remaining countries are expected to follow in accordance with the terms of the treaty.

Provisionally Active

The CETA: The CETA is an agreement between the EU and Canada. CETA was signed in October 2016 and ratified by the Canadian House of Commons and the EU Parliament in February 2017. However, the agreement has not been ratified by every European state and has only provisionally entered into force. CETA is expected to strengthen trade ties between the two regions, having come into effect in on September 21, 2017. Some 98% of trade between Canada and the EU will be duty free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport. CETA will take approximately seven years to be fully implemented, after which 99% of the EU's tariff lines will be duty-free.

Under Negotiation

Canada is also undertaking discussions of bilateral or multilateral free trade or economic partnership agreements with Mainland China, Japan, the Association of Southeast Asian Nations and Mercosur, among others, in order to expand market access.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Canada FDI stock
Graph: Canada FDI stock
Graph: Canada FDI flow
Graph: Canada FDI flow

Source: UNCTAD
Date last reviewed: August 19, 2019

7.2 Foreign Direct Investment Policy

  1. Invest in Canada, established in March 2018 as a federal agency, aims to attract, increase and facilitate foreign direct investment (FDI) in Canada by expanding trade, encouraging innovation and further integrating firms into global supply chains. The organisation directs FDI into sectors aligned with the government's economic growth strategy,  particularly aerospace, agri-food, biopharmaceuticals, digital media, machinery and equipment, mining, renewable energy, and software.

  2. Canada offers a number of sector-specific incentives to eligible companies, including over CAD3 billion for scientific research and experimental development, incentives to support the growth of clean technology, more than CAD1.3 billion for large industrial and technology projects and the possibility to fast track visas and work permits for specialised foreign workers.

  3. With a few exceptions, Canada offers full national treatment to foreign investors within the context of a developed open market economy operating with democratic principles and institutions. Under the Investment Canada Act (ICA), Canada reviews investments by non-Canadians 'that could be injurious to national security'. Foreign investment is prohibited or restricted in several sectors of the economy, including banking, air and rail transport, media and communications, and cultural businesses. Investment in specific sectors is covered by special legislation.

  4. Under the terms of the ICA, large acquisitions by non-Canadians are reviewed and a requirement is imposed that these investments be of net benefit to Canada. For the vast majority of small acquisitions and the establishment of new businesses, foreign investors need only notify the Canadian government of their investment. Fewer than 10% of foreign acquisitions are subject to ICA review. The threshold for investments subject to ICA review for 2019 is CAD1.04 billion in enterprise value for WTO members that are not state-owned enterprises (SOEs) – indirect control acquisitions by WTO members do not have to be reviewed. The threshold is CAD1.56 billion in enterprise value for trade agreement investors that are not SOEs. The threshold is CAD416 million in asset value for WTO investors that are SOEs. Thereafter, the review amount will be subject to indexation annually on January 1. Additionally, the time periods for the security review process will be increased from 130 days to 200 days. For non-WTO members investing or for investments in cultural business, the threshold remains CAD5 million in asset value for direct control and CAD50 million in asset value for indirect control acquisitions.

  5. Investment relations with other states are governed by Foreign Investment Promotion and Protection Agreements (FIPAs). These are bilateral treaties that promote and protect foreign investment through a system of legally binding rights and obligations. Canada has 38 FIPAs in force with countries in Central Europe, Latin America, Africa and Asia (Argentina, Armenia, Barbados, Benin, Burkina Faso, Cameroon, Mainland China, Costa Rica, Côte d'Ivoire, Croatia, Czech Republic, Ecuador, Egypt, Guinea, Hong Kong, Hungary, Jordan, Kosovo, Kuwait, Latvia, Lebanon, Mali, Mongolia, Panama, Peru, Philippines, Poland, Romania, the Russia, Senegal, Serbia, the Slovak Republic, Tanzania, Thailand, Trinidad and Tobago, Ukraine, Uruguay, and Venezuela). Two others, with Moldova and Nigeria, are signed but not in force. Negotiations have been concluded on five others: Albania, Bahrain, Madagascar, the United Arab Emirates and Zambia. Canada is actively pursuing FIPAs with 14 other countries, including India and Pakistan. Canada views Mainland China as an increasingly important trade and investment partner and ratified its agreement with Mainland China in September 2014.

  6. The CanExport-Community Investments (CECI) programme, formerly called Invest Canada-Community Initiatives, provides financial support ranging from CAD3,000 to CAD500,00 to communities for their FDI initiatives and activities to increase Canadian employment.

  7. Canada announced new SOE guidelines in December 2012, which included the statement that future SOE bids to acquire control of a Canadian oil sands business will only be approved on an exceptional basis. Canada altered the definition of an SOE in its 2013 budget implementation bill to an entity or individual that is influenced directly or indirectly by a foreign government. The bill also established a separate threshold review for SOE acquisitions of control and allows Canada's industry minister to review minority SOE investments for the first time.

  8. Amendments made to the Canada Transportation Act in June 2018 and confirmed in a Quebec Superior Court ruling in May 2019 mean that foreign ownership of Canadian air carriers is no longer limited to 25%. The government's stated purpose in permitting an increase from 25% to 49% in the level of foreign ownership of Canadian air carriers is to attract more foreign investment and encourage growth in the aviation sector. Prior to the amendments, no more than 25% of the voting interests of a Canadian air carrier could be owned or controlled by non-Canadians. Air Canada put a special procedure in place for foreign share transfers, reclassifying its stock as variable voting shares. This allowed non-Canadians to own more than 25% of the equity while reducing foreign voting rights. The amendments have introduced two new limitations on voting ownership and control, by capping the voting rights of single non-Canadians and of the aggregate of non-Canadian air carriers at 25%.

  9. Regulatory reform in electricity provision continues in Canada in expectation that increased competition will lower costs of electricity supply. Province-owned power firms are interested in gaining greater access to the United States’ power market. Several Canadian provinces have introduced initiatives to encourage the development and implementation of renewable sources of electricity. Canada continues to encourage additional foreign investment in its energy sector to develop its vast oil and gas resources.

  10. Bank ownership must be 'widely held' with no more than 25% of a bank's shares owned by a single shareholder. Canadian influence is still exerted through certain requirements of the Bank Act: the head office of a bank must be located in Canada, shareholders' meetings are required to be held in Canada, two thirds of the directors must be resident Canadians, the CEO of the bank must ordinarily be a resident in Canada, important corporate and transactional documents must be kept in Canada and certain administrative changes require ministerial approval.

  11. Foreigners cannot be majority owners of uranium mines.

  12. Under the provisions of Canada's Telecommunications Act, foreign ownership of transmission facilities is limited to 20% direct ownership and 33% through a holding company for an effective limit of 46.7% total foreign ownership. Canada also requires that at least 80% of the members of the board of directors of facilities-based telecommunications service suppliers must be Canadian citizens. Since 2012 the restrictions only apply to companies with less than a 10% market share based upon total Canadian telecoms revenue as determined by the Canadian Radio-Television and Telecommunications Commission. Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital or tax credits. Provincial incentive programmes for film production in Canada are available to foreign filmmakers.

  13. The primary responsibility for property law rests with the provinces. Government authorities can expropriate property after paying appropriate compensation. British Columbia began a 15% tax on foreign buyers of residential real estate in the Metro Vancouver area in August 2016. In early 2017, the province announced that foreign buyers with work permits would be exempt from the tax. In 2018 the rate was increased to 20% and the applicable area was expanded.

  14. The November 2018 Federal Fall Economic Statement proposed an immediate 100% capital cost allowance deduction for manufacturing and processing and specified clean energy equipment acquired after November 20, 2018 and available for use before 2024, subject to a phase-out period for equipment first becoming available for use after 2023 and before 2028.

  15. According to the 2019 FDI Confidence Index compiled by AT Kearney, despite falling one place, to third out of 25, Canada's score has been steadily improving in recent years and efforts to boost investment appeared to be paying off because FDI inflows had increased nearly 60% from last year, reversing a years-long downward trend.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, Investment Canada Act, Government of Canada, CanExport, Invest in Canada, Air Canada, AT Kearney

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Any location- Lowest overall tax rate on new business investment in the G7.

- Duty-free tariff regime on imports of manufacturing inputs and machinery.

- The GST/HST is recoverable for most businesses and does not apply to exports.

- Canada's duty and tax relief is geographically flexible. It can be enjoyed anywhere in the country.

- Canada is the first country in the G20 to offer a tariff-free zone for industrial manufacturers. Canada's initiative applies across the entire country, making it one large free trade zone for firms importing manufacturing inputs.

- Although Canada's nationwide free trade approach negates the need for the locally oriented trade zones that exist in other countries, it has marketed the concept to foreign entities by creating nine foreign trade zone (FTZ) points where regional development agencies can ease access to a task force expert in federal government policies, programmes and regulatory agencies. The nine FTZs are Windsor-Essex, Ontario; Port Alberta; Quebec City; Cape Breton Regional Municipality, Nova Scotia; Halifax Gateway, Nova Scotia; Niagara, Ontario; CentrePort Canada, Winnipeg, Manitoba; Calgary Region Inland Port; and Regina Global Transportation Hub, Saskatchewan.

- Investors who choose Canada will have the advantage of importing advanced machinery and equipment into Canada free of import duties. This reduces the import cost of advanced machinery and equipment.

- Invest in Canada's Strategic Innovation Fund (SIF) has CAD1.26 billion to provide funding for large projects (over CAD10 million) through one of five funding streams. The SIF has announced 51 projects and has CAD41 billion total investment leveraged.

- Invest in Canada's Scientific Research and Experimental Development Tax Incentive Program offers CAD3 billion in tax incentives for eligible companies to conduct business research and development in Canada. The tax credit varies by province or territory.

- The Clean Growth Hub has CAD2.3 billion (in the 2017 budget) to support clean technology in Canada and the growth of Canadian firms and exports that promote the global transition to a low-carbon, low-pollution and resource-efficient economy.
Other incentives (regional)- Federal and provincial governments in Canada offer a wide array of investment incentives that municipalities are generally prohibited from offering. The incentives are designed to advance broader policy goals, such as boosting research and development or promoting regional economies. The funds are available to any qualified Canadian or foreign investor who agrees to use the money for the stated purpose. For example, the province of Quebec has a 20-year sustainable development investment initiative that is intended to harness the economic, mineral, energy and tourism potential of Quebec's northern territory. Quebec has also designated 16 ports where maritime industrial zones will be developed or improved. The provincial government has pledged to invest CAD300 million annually for the next five years. Other provinces and territories have similar initiatives and funding plans.

- Many provincial incentives may be restricted to firms established in the province or that agree to establish a facility in the province.

Sources: National sources, Windsor-Essex, Port Alberta, Niagara, CentrePort Canada, Global Transportation Hub, Strategic Innovation Fund, SR&ED, Clean Growth Hub, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: 5% (plus PST)
  • Corporate Income Tax: 15% (plus PST)

Source: Canada Revenue Agency

8.1 Important Updates to Taxation Information

The Canada Revenue Agency (CRA) administers tax laws for the government of Canada and for most provinces and territories as well as administers various social and economic benefit and incentive programmes delivered through the tax system. It is mandatory for corporations with annual gross revenue that exceeds CAD1 million to file a tax return electronically. The mandatory QST has been extended to suppliers that make digital and certain other supplies to specified Quebec consumers, requiring those suppliers to register for QST from January 1, 2019, for suppliers non-resident in Canada and from September 1, 2019, for Canadian suppliers based outside Quebec.

8.2 Business Taxes

Type of TaxTax Rate and Base
Federal Corporate Income Tax (CIT) rate (net)15%; A basic rate of 38% applies, which is reduced by a 10% abatement to enable a provincial CIT. The federal rate is effectively 28%, but a 13% general deduction leaves a net federal rate of 15%.
PST rateBetween 10% and 16%, varying by activity and province/territory (a 3% tax credit for qualifying liquefied natural gas investments in BC means that the effective provincial CIT rate there can be reduced from 12% to 9%).
Branch Tax rate25% (5%, 10%, or 15% if treaty with non-resident country is enacted – rates apply according to the treaty)
GST5% is levied as a VAT on the supply of a broad range of goods and services, but many things are zero-rated, including basic groceries and prescription drugs.
PST6-9.975% additional VAT applied to the same broad range of goods and services as GST in certain provinces, resulting in an overall GST/PST rate of 11-14.975%. No additional retail sales tax is applied in Alberta or the territories of Northwest Territories, Nunavut and the Yukon.
HST13-15%; Five provinces impose a single HST that incorporates the federal GST rate of 5% and a provincial retail tax, giving an overall total rate of 15% in four provinces (effectively levying a PST of 10%) and 13% in one province (effectively levying a PST of 8%).
Withholding TaxesFor both residents and non-residents the rate is generally 25% on dividend income, interest and royalties, although a double taxation agreement (DTA) may reduce this – for example, a DTA with Mainland China makes this 10% on each (15% on dividends in some circumstances) and a DTA with Hong Kong makes this 15% on dividends (but as low as 5% on dividends in some circumstances) and 10% on interest and royalties.
Branch Remittance Tax25%
Property TaxProperty taxes are levied on the estimated market value of real property within a municipality, province or territory boundary. A general property tax is levied on the owner in most, but some levy a separate tax if the premises are used for business purposes. Taxes are based on the rental value of the property at rates set each year by the authority. School taxes, generally based on property value, are levied by local and regional school boards. In BC an annual speculation and vacancy tax is imposed on residential property in several urban centres for those not paying income tax in BC, which is levied at 2% for foreign nationals and 0.5% for nationals.
Land TaxA land transfer tax or registration fee is payable in all provinces and territories by the purchaser of property within their boundaries. This is generally paid when title to the property is registered and is usually a percentage on a sliding scale of the sale price or the assessed value of the property. Rates generally range from 0.02% to 3%, but can be higher for non-residents. In BC, purchases of  residential property by foreign entities (nationals or corporations) are subject to an additional 20% land transfer tax (in addition to the general land transfer tax).
Social security contributionsFrom January 1, 2019, the Canada Pension Plan and Quebec Pension Plan have been enhanced, requiring higher employer and employee contributions of 5.10% phased in over seven years. The maximum annual employer and employee contribution becomes CAD2,748.9 and up to CAD1,204.31 employment insurance premiums. In Quebec the maximum contribution becomes CAD2,991.45, as well as CAD929.25 in employment insurance premiums and CAD563.04 for a Quebec parental insurance plan. In BC, Manitoba, Newfoundland and Labrador, Ontario and Quebec employers also pay a payroll tax rate ranging from 1.95% to 4.3%. Employers in the Northwest Territories and Nunavut must deduct from salaries a payroll tax equal to 2% of earnings.

Sources: Canada Revenue Agency, Canada Pension Plan
Date last reviewed: August 19, 2019

9. Foreign Worker Requirements

9.1 Entry Visas

An individual who is not a citizen or permanent resident of Canada or a national from a designated country that is exempt from the visa requirement, and who wishes to enter the country as a tourist, business visitor, student or foreign worker must obtain a Temporary Resident Visa through a consulate outside Canada before entering the country. A foreign national who is exempt from the requirement to possess a travel entry visa (for example, most citizens of a EU country, Australia and Japan) must first obtain an electronic travel authorisation (ETA) before departing for Canada. An ETA is normally valid for five years or for the duration of the traveller's passport, whichever is shorter. The application and approval process is normally very fast for most travellers through the Immigration, Refugees and Citizenship Canada website, but must be completed before departure in order for the airline to allow the traveller to board the aircraft.

9.2 Skilled Workers

Canada has launched various initiatives in recent years, including the Temporary Foreign Worker Program (TFWP). Others include the global skills visa, announced in November 2016, to address the country's skilled labour shortage, including through immigration reform. Labour mobility provisions have been included in FTAs, including the Canada-EU CETA. The Global Talent Stream of the TFWP makes it easier for businesses in Canada to attract skilled foreign workers by processing the work permit and visa in only two weeks. The TFWP is jointly managed by Human Resources and Skills Development Canada and Citizenship and Immigration Canada and is divided into two categories: the International Mobility Program, which primarily includes high-skilled or high-wage professions, and the TFWP, which refers primarily to low-skilled workers. The number of temporary foreign workers a business can employ is limited.

9.3 Business Visitors

An individual wishing to enter Canada as a business visitor must first secure a temporary resident visa, or in the case of visa-exempt foreign nationals, an ETA. A foreign national may enter Canada as a business visitor without obtaining a work permit in certain limited instances. In general, these instances are limited to foreign nationals engaging in international business activities in Canada without directly entering the Canadian labour market or providing services to a Canadian entity. Common circumstances in which a foreign national may enter Canada as a business visitor include the following:

  • Foreign nationals attending business meetings or conferences.
  • Foreign nationals seeking to purchase Canadian goods or services or receiving training.
  • Foreign nationals giving or receiving training with a Canadian parent or subsidiary of the corporation that employs the foreign national abroad.
  • Foreign national sales representatives who come to Canada to sell goods (or services) manufactured outside Canada, if they do not sell to the general public.

9.4 Work Permits

With few exceptions, most individuals providing services in Canada's labour market require a work permit, regardless of duration of stay or source of income. Admission to Canada is generally granted for a specific purpose and is subject to a limited duration. All foreign nationals seeking entry to Canada must ensure that they have the appropriate status for their intended activities and length of stay. The federal government, through Service Canada and Employment and Social Development Canada, is responsible for ensuring that the Canadian labour market is not negatively affected by the use of foreign nationals in place of Canadian citizens or permanent residents. A foreign worker may apply to Immigration, Refugees, Citizenship Canada for a work permit only after Service Canada has provided a Labour Market Impact Assessment to the employer that states that a job may be offered to a foreign worker. However, in certain circumstances an employer is exempt from obtaining approval from Service Canada, and the qualifying employee may apply directly for a work permit. Foreign workers employed in low-skilled and low-wage occupations have greater restrictions on their ability to work in Canada.

9.5 Drivers Permits

Foreign nationals may drive temporarily in Canada using driver's licences from their home countries. Because each Canadian province issues driver's licences independently, rules for foreigners vary. In general, foreign nationals have 60 days from the time of their arrival in Canada to obtain a Canadian driver's licence. Depending on the province, an eye examination and a driving examination may be required. If you plan to use a foreign driver's licence in Canada it is recommended that you get an international driving permit in your home country, which will give you a translation of your licence into French and English.

Sources: Work in Canada, Invest in Canada, Global Skills Strategy, Immigration, Refugees and Citizenship Canada, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Aaa (Stable)
02/11/2018
Standard & Poor'sAAA (Stable)
29/07/2002
Fitch Ratings
AAA (Stable)17/07/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
22/190
18/190
22/190
Ease of Paying Taxes Index
28/190
16/190
19/190
Logistics Performance Index
N/A
20/160
N/A
Corruption Perception Index
8/180
9/180
N/A
IMD World Competitiveness12/63
10/63
13/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A27/20229/202
Short-Term Economic Risk Score
73.871.970.4
Long-Term Economic Risk Score72.573.073.1
Political Risk Index RankN/A4/2024/202
Short-Term Political Risk Score92.792.792.7
Long-Term Political Risk Score92.392.392.3
Operational Risk Index RankN/A11/2029/201
Operational Risk Score77.976.577.0

Source: Fitch Solutions
Date last reviewed: August 19, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Canada benefits from having a stable government, a skilled workforce, high incomes and a good standard of living. The country also has a well-developed logistics network and is rich in natural resources. The Canadian economy should continue operating near its potential through to 2020, although growth is expected to moderate as higher borrowing costs eat into household-spending gains. Moreover, buoyant economic sentiment should propel the further recovery of non-residential investment. A robust external sector, perhaps bolstered by the USMCA, as well as stronger oil and gas exports, should increasingly support activity over the medium term. Canada's economy remains vulnerable to a hard landing in the housing market given record-high household debt levels relative to disposable income. A trade-related downside shock to global growth and commodity prices would adversely affect Canadian exporters.

OPERATIONAL RISK
Canada has a robust free market economy, with businesses ranging from small owner-managed enterprises to multinational corporations. Canada's economic development was historically based on the export of agricultural staples, especially grains, and on the production and export of natural resource products, such as minerals, oil and gas, and forest products. However, secondary industry has evolved to the stage where Canada now ranks as one of the top manufacturing nations in the world. The service industry has also expanded rapidly and has transformed the Canadian economy from one based primarily on manufacturing to one with a significant service-based sector. Canada is among the world's major trading nations and the United States is its primary trading partner.

Source: Fitch Solutions
Data last reviewed: August 21, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Canada short term political risk index
Graph: Canada short term political risk index
Graph: Canada long term political risk index
Graph: Canada long term political risk index
Graph: Canada short term economic risk index
Graph: Canada short term economic risk index
Graph: Canada long term economic risk index
Graph: Canada long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Political and Economic Risk Indices
Date last reviewed: August 19, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Canada Score77.074.375.476.781.6
Developed States Average72.464.671.376.377.4
Developed States Position (out of 27)7
410
169
Global Average49.650.349.8
49.049.2
Global Position (out of 201)9
5
151811

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Canada vs global and regional averages
Graph: Canada vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Denmark80.4
74.8
76.2
88.382.3
Netherlands78.465.9
78.2
88.680.7
Sweden78.067.7
78.187.578.6
Switzerland77.775.077.675.183.2
New Zealand77.473.775.772.188.3
United States77.281.3
75.382.969.3
Canada77.074.375.476.781.6
United Kingdom76.871.479.078.578.2
Norway76.264.072.280.887.9
Finland74.255.874.183.483.7
Ireland73.966.878.072.079.0
Austria73.760.871.980.581.5
Luxembourg72.854.277.680.079.3
Germany72.365.569.081.273.6
Australia72.067.872.168.379.9
Japan71.872.465.577.971.5
France71.860.171.183.272.8
Iceland71.460.667.269.688.1
Belgium71.358.272.883.271.1
Spain71.359.469.880.976.0
Liechtenstein70.759.878.161.583.2
Portugal69.451.766.580.978.4
Israel67.471.464.671.162.7
Isle of Man65.869.162.449.382.4
Malta64.654.969.060.873.7
Italy
63.754.559.776.264.3
Greece58.054.249.268.959.6
Developed Markets Averages72.464.671.376.377.4
Emerging Markets Averages46.948.645.447.4
46.1
Global Markets Averages49.650.349.849.049.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 19, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Canada

Graph: Major export commodities to Canada (2018)
Graph: Major export commodities to Canada (2018)
Graph: Major import commodities from Canada (2018)
Graph: Major import commodities from Canada (2018)

Note: Graph shows Hong Kong imports from/exports to Canada (by consignment)
Date last reviewed: August 19, 2019

Graph: Merchandise exports to Canada
Graph: Merchandise exports to Canada
Graph: Merchandise imports from Canada
Graph: Merchandise imports from Canada

Note: Graph shows Hong Kong imports from/exports to Canada (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: August 19, 2019


2018
Growth rate (%)
Number of Canadian residents visiting Hong Kong377,992
2.1
 2017Growth rate (%)
Number of Canadians residing in Hong Kong14,8891.6

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division


2018
Growth rate (%)
Number of North American residents visiting Hong Kong1,682,240
6.1
 2017Growth rate (%)
Number of developed state citizens residing in Hong Kong65,680
1.6

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division
Date last reviewed: August 19, 2019

11.2 Commercial Presence in Hong Kong


2018
Growth rate (%)
Number of Canadian companies in Hong Kong113
6.6
- Regional headquarters21
10.5
- Regional offices3310.0
- Local offices593.5

Source: Business Expectation Statistics Section of the Hong Kong Census and Statistics Department

11.3 Treaties and Agreements between Hong Kong and Canada

  • Hong Kong and Canada have a comprehensive DTA that has been effective from October 29, 2013. Under the agreement, tax paid in Hong Kong will be allowed as a credit against tax payable in Canada and double taxation will be avoided in that any Canada tax paid by Hong Kong companies will be allowed as a credit against the tax payable in Hong Kong in respect of the income. The withholding tax on interests and royalties received from Canada will be reduced from 25% to 10% and the withholding tax on Canadian dividends will be reduced from the current rate of 25% to 15% (and will be further lowered to 5% on fulfilling certain conditions).

  • Hong Kong and Canada have an investment promotion and protection agreement that entered into force on September 6, 2016.

  • Canada has a bilateral investment treaty (BIT) with Hong Kong that entered into force on September 6, 2016, and a BIT with Mainland China that entered into force on October 1, 2014.

  • Canada has a tax treaty with Mainland China that has been applicable since January 1, 1987.

Sources: Inland Revenue Department, Trade and Industry Department, UNCTAD, State Administration of Taxation of The People's Republic of China

11.4 Chamber of Commerce or Related Organisations

The Canadian Chamber of Commerce in Hong Kong

The Canadian Chamber of Commerce in Hong Kong – Representing some 1,100 members with business interests in Canada, mainland China and Hong Kong, the Canadian Chamber of Commerce in Hong Kong is the largest Canadian business organisation outside Canada. It is also one of the largest and most active international chambers in Hong Kong and one of the most influential business groups in the Asia Pacific.

Address: Unit B & C, 10/F, China Overseas Building, 139 Hennessy Road, Wan Chai, Hong Kong
Tel: (852) 2110 8700
Website: The Canadian Chamber of Commerce in Hong Kong

Sources: Directory of Hong Kong Trade and Industrial Organisations, The Canadian Chamber of Commerce in Hong Kong

The Hong Kong-Canada Business Association

Source: Federation of Hong Kong Business Associations Worldwide

Consulate General of Canada in Hong Kong
The Consular Section: 9/F, Berkshire House, 25 Westlands Road, Quarry Bay, Hong Kong
The Office of the Consul General: 5/F, Tower 3, Exchange Square, 8 Connaught Place, Central, Hong Kong
Email: hkong@international.gc.ca
Tel: (852) 3719 4700
Fax: (852) 2847 7561

Source: Consulate General of Canada in Hong Kong

11.5 Visa Requirements for Hong Kong Residents

Starting March 2016, the Canada Electronic System for Travel Authorisation allows nationals from certain eligible countries to travel to Canada for stays of up to six months with an electronically delivered ETA e-Visa. Hong Kong residents are eligible for this entry method for tourist and business visits. Once approved, the ETA is valid for five years or until the passport expires, whichever comes first.

Source: Consulate General of Canada in Hong Kong
Date last reviewed: August 19, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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