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2. Bilateral Investment Agreements and Taxation Treaties

The NAFTA guides investment relations between Canada and the U.S. Investment relations with other states are governed by Foreign Investment Protection Agreements (FIPAs). These bilateral treaties promote and protect foreign investment through a system of legally binding rights and obligations based on the same principles found in the NAFTA. Canada has 37 FIPAs in force with countries in Central Europe, Latin America, Africa, and Asia. Canada is actively pursuing FIPAs with 14 countries including India, Pakistan, and Kosovo. Canada views China as an increasingly important trade and investment partner and ratified a FIPA with China in September 2014.  The Canada-EU Comprehensive and Economic Trade Agreement (CETA) was signed in October 2016 and came into force provisionally in September 2017. Canada is a partner to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which entered into force in December 2018.

Canada has tax conventions or agreements with many countries, including the U.S.

6. Financial Sector

Capital Markets and Portfolio Investment

Canada’s capital markets are open, accessible, and without onerous regulatory requirements. Foreign investors are able to get credit in the local market. Canada has its own stock market, the Toronto Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. The World Economic Forum ranked Canada’s banking system as the second “most sound” in the world in 2018. Among other factors, Canadian banking stability is linked to high capitalization rates that are well above the norms set by the Bank for International Settlements. The Canadian government and Bank of Canada do not place restrictions on payments and transfers for current international transactions.

Money and Banking System

The Canadian banking industry is dominated by six major domestic banks, but includes a total of 29 domestic banks, 24 foreign bank subsidiaries, 27 full-service foreign bank branches and three foreign bank lending branches operating in Canada. The six largest banks manage close to USD4 trillion in assets.  Many large international banks have a presence in Canada through a subsidiary, representative office, or branch of the parent bank. Ninety-nine percent of Canadians have an account with a financial institution.

Foreign financial firms interested in investing submit their applications to the Office of the Superintendent of Financial Institutions (OSFI) for approval by the Finance Minister. U.S. firms are present in all three sectors, but play secondary roles. U.S. and other foreign banks have long been able to establish banking subsidiaries in Canada, but no U.S. banks have retail banking operations in Canada. Several U.S. financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.

The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are monetary policy, promoting a safe, sound, and efficient financial system, issuing and distributing currency, and being the fiscal agent for Canada.

Foreign Exchange and Remittances

Foreign Exchange Policies

Canada has a free floating exchange rate.

Remittance Policies

The Canadian dollar is fully convertible and the central bank does not place time restrictions on remittances. Canada provides some incentives for Canadian investment in developing countries through programs offered by Global Affairs Canada.

Sovereign Wealth Funds

Canada does not have a sovereign wealth fund, but the province of Alberta has the Heritage Savings Trust Fund established to manage the province’s share of petroleum royalties. The fund’s net financial assets were US12.9 billion (C17.4 billion) on March 31, 2018. It is invested in a globally diversified portfolio of public and private equity, fixed income, and real assets. The fund follows the voluntary code of good practices known as the “Santiago Principles” and participates in the IMF-hosted International Working Group of SWFs. 45 percent of the Heritage Fund is currently held in equity investments, 14 percent of which are Canadian equities. The fund is currently heavily invested in the U.S. dollar (16 percent of total currency) with more than USD2.9 billion in reserves.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $1,583,000 2017 $1,653,000  
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in Partner Country ($M USD, stock positions) 2017 $299,609 2017 $391,208 BEA data available at  
Host Country’s FDI in the U.S. ($M USD, stock positions) 2017 $373,904 2017 $523,761 BEA data available at  
Total Inbound Stock of FDI as % host GDP 2017 39% 2017 40% N/A

*Host Country Source, Office of the Chief Economist, 2017 FDI Stats, Global Affairs Canada.

Note: Data converted to U.S. dollars using yearly average currency conversions from IRS

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $610,396 100% Total Outward $830,445 100%
U.S. $299,609 49% U.S. $373,904 45%
Netherlands $68,061 11% U.K. $76,018 9%
Luxembourg $36,965 6% Luxembourg $56,986 7%
U.K. $35,134 6% Barbados $36,257 4%
Switzerland $29,787 5% Cayman Islands $31,922 4%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $1,513,140 100% All Countries $1,204,811 100% All Countries $308,328 100%
U.S. $927,094 61% U.S. $715,534 59% U.S. $211,560 69%
U.K. $82,202 5% U.K. $67,976 6% U.K. $15,061 5%
Japan $69,822 5% Japan $57,038 5% Germany $7,786 3%
France $42,700 3% France $31,574 3% France $7,028 2%
Germany $36,807 2% Germany $29,806 2% Japan $4,992 2%
Investment Climate Statements
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