Canada and the United States have one of the largest and most comprehensive investment relationships in the world. U.S. investors are attracted to Canada’s strong economic fundamentals, proximity to the U.S. market, highly skilled work force, and abundant resources. Canada encourages foreign direct investment (FDI) by promoting stability, global market access, and infrastructure. The United States is Canada’s largest investor, accounting for 44 percent of total FDI. As of 2020, the amount of U.S. FDI totaled USD 422 billion, a 5 percent increase from the previous year. Canada’s FDI stock in the United States totaled USD 570 billion, a 15 percent increase from the previous year.
Canada attracted USD 61 billion inward FDI flows in 2021 (the highest since 2007), a rebound from COVID-19-related decreases in 2020 according to Canada’s national statistical office.
The United States-Mexico-Canada Agreement (USMCA) came into force on July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). The USMCA supports a strong investment framework beneficial to U.S. investors. Foreign investment in Canada is regulated by the Investment Canada Act (ICA). The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security. In March 2021, the Canadian government announced revised ICA foreign investment screening guidelines that include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The guidelines followed an April 2020 ICA update, which provides for greater scrutiny of foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services.
Despite a generally welcoming foreign investment environment, Canada maintains investment stifling prohibitions in the telecommunication, airline, banking, and cultural sectors. The 2022 budget proposal included language that could limit foreign ownership of real estate for a two-year period (to cool an overheated market and lack of housing for Canadians). Ownership and corporate board restrictions prevent significant foreign telecommunication and aviation investment, and there are deposit acceptance limitations for foreign banks. Investments in cultural industries such as book publishing are required to be compatible with national cultural policies and be of net benefit to Canada. In addition, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.
Canada has taken steps to address the climate crisis by establishing the Canadian Net-Zero Emissions Accountability Act that enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050 and issuing the 2030 Emissions Reduction Plan that describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Canada actively encourages FDI and maintains a sound enabling environment. Investors are attracted to Canada’s proximity to the United States, highly skilled workforce, strong legal protections, and abundant natural resources. Once established, foreign-owned investments are treated equally to domestic investments. As of 2020, the United States had a stock of USD 422 billion of foreign direct investment in Canada. U.S. FDI stock in Canada represents 44 percent of Canada’s total investment. Canada’s FDI stock in the United States totaled USD 570 billion.
The USMCA modernizes the previous NAFTA investment protection rules and investor-state dispute settlement provisions. Parties to the USMCA agree to treat investors and investments of the other Parties in accordance with the highest international standards, and consistent with U.S. law and practice, while safeguarding each Party’s sovereignty and promoting domestic investment.
Invest in Canada is Canada’s investment attraction and promotion agency. It provides information and advice on doing business in Canada, strategic market intelligence on specific industries, site visits, and introductions to provincial, territorial, and municipal investment promotion agencies. Still, non-tariff barriers to trade across provinces and territories contribute to structural issues that have held back the productivity and competitiveness of Canada’s business sector.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign investment in Canada is regulated under the provisions of the Investment Canada Act (ICA). U.S. FDI in Canada is also subject to the provisions of the World Trade Organization (WTO), the USMCA, and the NAFTA. The ICA mandates the review of significant foreign investments to ensure they provide an economic net benefit and do not harm national security.
Canada is not a party to the USMCA’s chapter on investor-state dispute settlement (ISDS). Ongoing NAFTA arbitrations are not affected by the USMCA, and investors can file new NAFTA claims by July 1, 2023, provided the investment(s) were “established or acquired” when NAFTA was still in force and remained “in existence” on the date the USMCA entered into force. An ISDS mechanism between the United States and Canada will cease following a three-year window for NAFTA-protected legacy investments.
The Canadian government announced revised ICA foreign investment screening guidelines on March 24, 2021. The revised guidelines include additional national security considerations such as sensitive technology areas, critical minerals, and sensitive personal data. The new guidelines are aligned with Innovation, Science, and Economic Development Canada’s April 2020 update on greater scrutiny for foreign investments by state-owned investors, as well as investments involving the supply of critical goods and services. The 2020-21 Investment Canada Act Annual Report (released February 2, 2022) indicated a record high 24 investments were subject either to formal national security review or heightened screening despite historically fewer total foreign investments in Canada due to COVID-19-related factors. In contrast, a total of 21 investments were subject to similar screening in the four years from 2016 to 2020. Still, some Canadian elected officials and national security experts assess national security standards should be heightened. The government is exploring proposed amendments to the National Security Review of Investments Regulations which would introduce a voluntary filing mechanism for investments by non-Canadians that do not require an application or a notification.
Foreign ownership limits apply to Canadian telecommunication, airline, banking, and cultural sectors. Telecommunication carriers, including internet service providers, that own and operate transmission facilities are subject to foreign investment restrictions if they hold a 10 percent or greater share of total Canadian communication annual market revenues as mandated by The Telecommunications Act. These investments require Canadian ownership of 80 percent of voting shares, Canadians holding 80 percent of director positions, and no indirect control by non-Canadians. If the company is a subsidiary, the parent corporation must be incorporated in Canada and Canadians must hold a minimum of 66.6 percent of the parent’s voting shares. Foreign ownership of Canadian airlines is limited to 49 percent with no individual non-Canadian able to control more than 25 percent by mandate of the 2018 Transportation Modernization Act. Canadian airlines cannot be directly or indirectly controlled by non-Canadians to meet Canadian Transportation Agency “control in fact” licensure requirements. Foreign banks can establish operations in Canada but are generally prohibited from accepting deposits of less than USD 112,000. Foreign banks must receive Department of Finance and the Office of the Superintendent of Financial Institutions (OSFI) approval to enter the Canadian market. Investment in cultural industries also carries restrictions, including a provision under the ICA that foreign investment in book publishing and distribution must be compatible with Canada’s national cultural policies and be of net benefit to Canada.
Individuals from Canadian civil society organizations, industry, and academic institutions regularly comment on and assess investment policy-related concerns. In January and February 2022, for example, subject matter experts gave evidence to Canada’s House of Commons Standing Committee on Industry and Technology regarding an investment policy decision concerning a high-profile critical mineral sector investment.
The Canadian government provides information necessary for starting a business at: https://www.canada.ca/en/services/business/start.html. Business registration requires federal or provincial government-based incorporation, the application of a federal business number and corporation income tax account from the Canada Revenue Agency, the registration as an extra-provincial or extra-territorial corporation in all other Canadian jurisdictions of business operations, and the application of relevant permits and licenses. In some cases, registration for these accounts is streamlined (a business can receive its business number, tax accounts, and provincial registrations as part of the incorporation process); however, this is not true for all provinces and territories.
Canada has a bilateral tax treaty with the United States and 93 other countries.
The federal government announced several tax proposals in its 2022 Budget including a one-time 15 percent tax on taxable income above USD 800 million for banking and life insurance companies and an increase from 15 percent to 16.5 percent on the taxable income of banking and life insurance groups above USD 80 million.
Canada is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting, and the government is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax.
3. Legal Regime
Transparency of the Regulatory System
Canada’s regulatory transparency is similar to the United States. Regulatory and accounting systems, including those related to debt obligations, are transparent and consistent with international norms. Proposed legislation is subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation in the Canada Gazette, the government’s official journal of record. While federal and/or provincial licenses or permits may be needed to engage in economic activities, regulation of these activities is generally for statistical or tax compliance reasons. Under the USMCA, parties agreed to make publicly available any written comments they receive, except to the extent necessary to protect confidential information or withhold personal identifying information or inappropriate content.
Canada published regulatory roadmaps for clean technology, digitalization and technology neutrality, and international standards in June 2021. These roadmaps, part of the federal government’s multi-year Targeted Regulatory Review program, lay out plans to advance regulatory modernization to support economic growth and innovation. Canadian securities legislation does not currently mandate environmental, social, and governance (ESG) disclosure for public or private companies. The Canadian Securities Administrators, an umbrella organization of all provincial and territorial securities regulators, released two proposed ESG disclosure policies for public comment between October 2021 and February 2022. The policies would require climate-related governance disclosures and climate-related strategy, risk management and metrics and targets disclosures if adopted.
Canada publishes an annual budget and debt management report. According to the Ministry of Finance, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity.
International Regulatory Considerations
Canada addresses international regulatory norms through its FTAs and actively engages in bilateral and multilateral regulatory discussions. U.S.-Canada regulatory cooperation is guided by Chapter 28 of the USMCA “Good Regulatory Practices” and the bilateral Regulatory Cooperation Council (RCC). The USMCA aims to promote regulatory quality through greater transparency, objective analysis, accountability, and predictability. The RCC is a bilateral forum focused on harmonizing health, safety, and environmental regulatory differences. Canada-EU regulatory cooperation is guided by Chapter 21 “Regulatory Cooperation” of the CETA and the Regulatory Cooperation Forum (RCF). CETA encourages regulators to exchange experiences and information and identify areas of mutual cooperation. The RCF seeks to reconstitute regulatory cooperation under the previous Canada-EU Framework on Regulatory Cooperation and Transparency. The RCF is mandated to seek regulatory convergence where feasible to facilitate trade. CPTPP Chapter 25 “Regulatory Coherence” seeks to encourage the use of good regulatory practices to promote international trade and investment, economic growth, and employment. The CPTPP also established a Committee on Regulatory Coherence charged with considering developments to regulatory best practices in order to make recommendations to the CPTPP Commission for improving the chapter provisions and enhancing benefits to the trade agreement.
Canada is a member of the WTO and notifies draft technical regulations to the WTO Committee on Technical Barriers to Trade. Canada is a signatory to the Trade Facilitation Agreement, which it ratified in December 2016.
Legal System and Judicial Independence
Canada’s legal system is based on English common law, except for Quebec, which follows civil law. Law-making responsibility is split between the Parliament of Canada (federal law) and provincial/territorial legislatures (provincial/territorial law). Canada has both written commercial law and contractual law, and specialized commercial and civil courts. Canada’s Commercial Law Directorate provides advisory and litigation services to federal departments and agencies whose mandate includes a commercial component and has legal counsel in Montréal and Ottawa.
The judicial branch of government is independent of the executive branch and the current judicial process is considered procedurally competent, fair, and reliable. The provinces administer justice in their jurisdictions, including management of civil and criminal provincial courts.
Laws and Regulations on Foreign Direct Investment
Foreign investment in Canada is regulated under the provisions of the ICA. U.S. FDI in Canada is also subject to the provisions of the WTO, the USMCA, and the NAFTA. The purpose of the ICA is to review significant foreign investments to ensure they provide an economic net benefit and do not harm national security.
Competition Bureau Canada is an independent law enforcement agency charged with ensuring Canadian businesses and consumers prosper in a competitive and innovative marketplace as stipulated under the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act, and the Precious Metals Marking Act. The Bureau is housed under the Department of Innovation, Science, and Economic Development (ISED) and is headed by a Commissioner of Competition. Competition cases, excluding criminal cases, are brought before the Competition Tribunal, an adjudicative body independent from the government. The Competition Bureau and Tribunal adhere to transparent norms and procedures. Appeals to Tribunal decisions may be filed with the Federal Court of Appeal as per section 13 of the Competition Tribunal Act. Criminal violations of competition law are investigated by the Competition Bureau and are referred to Canada’s Public Prosecution Service for prosecution in federal court.
The federal government announced in February 2022 an intention to review competition law and policy including specific evaluation of loopholes that allow for harmful conduct, drip pricing, wage fixing agreements, access to justice for those injured by harmful conduct, adaptions to the digital economy, and penalty regime modernization. The announcement cited competition as a key tool to strengthen Canadian post-pandemic economic recovery.
In September 2020, the Bureau signed the Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities (MMAC) with the Australian Competition and Consumer Commission, the New Zealand Commerce Commission, the United Kingdom Competition & Markets Authority, the U.S. Department of Justice, and the U. S. Federal Trade Commission. The MMAC aims to improve international cooperation through information sharing and inter-organizational training.
Expropriation and Compensation
Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose and the obligation to pay compensation. The federal government has not nationalized a foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have assumed control of private firms, usually financially distressed companies, after reaching agreement with the former owners.
The USMCA, like the NAFTA, requires expropriation only be used for a public purpose and done in a nondiscriminatory manner, with prompt, adequate, and effective compensation, and in accordance with due process of law.
ICSID Convention and New York Convention
Canada ratified the International Centre for Settlement of Investment Disputes (ICSID) Convention on December 1, 2013 and is a signatory to the 1958 New York Convention, ratified on May 12, 1986. Canada signed the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (known as the Mauritius Convention on Transparency) in March 2015.
Investor-State Dispute Settlement
Canada accepts binding arbitration of investment disputes as obligated under its bilateral and multilateral agreements. As part of the USMCA, the United States and Canada agreed to phase out NAFTA’s investor state dispute settlement procedures over a three-year period. Under the USMCA, U.S. and Canadian investors rely on domestic courts and other mechanisms for dispute resolution. Ongoing NAFTA arbitrations are not affected by the USMCA and investors can file new NAFTA claims by July 1, 2023 provided the investment(s) were “established or acquired” when NAFTA was still in force and remained “in existence” on the date the USMCA entered into force.
International Commercial Arbitration and Foreign Courts
Provinces have the primary responsibility for regulating arbitration within Canada. Each province, except Quebec, has legislation adopting the UNCITRAL Model Law. The Quebec Civil Code and Code of Civil Procedure are consistent with the UNCITRAL Model Law. The Canadian Supreme Court has ruled that arbitration agreements must be broadly interpreted and enforced. Canadian courts respect arbitral proceedings and have been willing to lend their enforcement powers to facilitate the effective conduct of arbitration proceedings, by requiring witnesses to attend and give evidence, and to produce documents and other evidence to arbitral tribunals.
Bankruptcy in Canada is governed at the federal level in accordance with the provisions of the Bankruptcy and Insolvency Act (BIA) and the Companies’ Creditors Arrangement Act. Each province also has specific laws for dealing with bankruptcy. Canada’s bankruptcy laws stipulate that unsecured creditors may apply for court-imposed bankruptcy orders. Debtors and unsecured creditors normally work through appointed trustees to resolve claims. Trustees will generally make payments to creditors after selling the debtors assets. Equity claimants are subordinate to all other creditor claims and are paid only after other creditors have been paid in full per Canada’s insolvency ladder. In all claims, provisions are made for cross-border insolvencies and the recognition of foreign proceedings. Secured creditors generally have the right to take independent actions and fall outside the scope of the BIA.
4. Industrial Policies
Federal and provincial governments offer a wide array of investment incentives designed to advance broader policy goals, such as boosting research and development, and promoting regional economies. The funds are available to qualified domestic and foreign investors. Export Development Canada offers financial support to inward investments under certain conditions. The government maintains a Strategic Innovation Fund that offers funding to firms advancing “the Canadian innovative ecosystem.” Canada also provides incentives through the Innovation Superclusters Initiative, which is investing more than USD 700 million over five years (2017‑2022) to accelerate economic and investment growth in Canada. The five superclusters focus on digital technology, protein industries, advanced manufacturing, artificial intelligence, and the ocean. Foreign firms may apply for supercluster funding. A 2020 Canada Parliamentary Budget Office report concluded Supercluster Initiative spending lagged budgetary targets and the Initiative was unlikely to meet its ten-year goal to increase GDP by USD 37 billion.
Several provinces also offer incentive programs available to foreign firms. These incentives are normally restricted to firms established in the province or that agree to establish a facility in the province. Quebec is implementing “Plan Nord” (Northern Plan), a 25-year program to incentivize natural resource development in its northern and Arctic regions. The program provides financing to facilitate infrastructure, mining, tourism, and other investments. Ontario provides financial support to investments in targeted sectors (e.g., life sciences) and provincial areas including Northern Ontario, southwest Ontario, rural Ontario, and Eastern Ontario. Alberta offers companies a provincial tax credit worth up to USD 220,000 annually for scientific research and experimental development, as well as Alberta Innovation Vouchers worth up to USD 75,000 to help small early-stage technology and knowledge-driven businesses get their ideas and products to market faster.
The federal government and several provincial governments offer specific incentives for businesses owned by underrepresented investors. The Black Entrepreneurship Program, for example, is a partnership between the Government of Canada, Black-led business organizations, and financial institutions which will provide up to USD 160 million over four years (2021-2025) in loans to help Black Canadian business owners and entrepreneurs grow their businesses.
The federal government and several provincial governments offer incentives aimed at attracting and facilitating green investment. The federal government’s Clean Growth in Natural Resource Sectors Program is a USD 120 million fund to incentivize clean technology investment in the energy, mining, and forestry sectors. In April 2022, the federal government proposed a 50 percent tax credit for the construction of carbon capture, utilization, and storage projects for heavy greenhouse gas emitters.
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 programs for film production in Canada are available to foreign filmmakers.
Foreign Trade Zones/Free Ports/Trade Facilitation
Under the USMCA, Canada operates as a free trade zone for products made in the United States. Most U.S.-made goods enter Canada duty free.
Performance and Data Localization Requirements
As a general rule, foreign firms establishing themselves in Canada are not subject to local employment or forced localization requirements, although Canada has some requirements on local employment for boards of directors. Ordinarily, at least 25 percent of the directors of a corporation must be resident Canadians. If a corporation has fewer than four directors, however, at least one of them must be a resident Canadian. In addition, corporations operating in sectors subject to ownership restrictions (such as airlines and telecommunications) or corporations in certain cultural sectors (such as book retailing, video, or film distribution) must have a majority resident Canadian director.
Data localization is an evolving issue in Canada. The province of Quebec adopted a law in September 2021 that amends its data protection regime. Under the new law, the transfer of personal data outside of Quebec is limited to jurisdictions with data protection regimes possessing an adequate level of protection based on generally accepted data protection principles. Implementation of the law will be phased in 2021-2024. The federal government failed to pass a bill to modernize data protection and privacy standards in 2021, but pledged to re-introduce privacy legislation. Privacy rules in Nova Scotia mandate that personal information in the custody of a public body must be stored and accessed only in Canada unless one of the few limited exceptions applies. The law prevents public bodies such as primary and secondary schools, universities, hospitals, government-owned utilities, and public agencies from using non-Canadian hosting services. British Columbia maintained similar rules, however, the province passed legislation November 25, 2021 permitting some public bodies to disclose and store personal information outside of Canada to ensure operations, including meeting public health demand during the pandemic. Under the USMCA, parties are prevented from imposing data-localization requirements.
The Canada Revenue Agency stipulates that tax records must be kept at a filer’s place of business or residence in Canada. Current regulations were written over 30 years ago and do not consider current technical realities concerning data storage.
5. Protection of Property Rights
Foreign investors have full and fair access to Canada’s legal system, with private property rights limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Investors under the USMCA have mechanisms available for dispute resolution regarding property expropriation by the Government of Canada. The recording system for mortgages and liens is reliable. Canada is ranked 36 out of 190 countries in the World Bank’s “Ease of Registering Property” 2020 rankings. Approximately 89 percent of Canada’s land area is government owned (Crown Land). Ownership is divided between by federal (41 percent) and provincial (48 percent) governments. The remaining 11 percent of Canadian land is privately owned.
British Columbia and Ontario tax foreign buyers of real property. In British Colombia, foreign buyers of real property in Metro Vancouver, the Fraser Valley, the central Okanagan regional district, Nanaimo, and the Capital Regional District are taxed at 20 percent of the property’s fair market value. In 2018, British Columbia broadened taxation on foreign ownership in Metro Vancouver and enacted a 0.5 percent Speculation and Vacancy Tax, targeting vacant foreign-owned homes. In 2019, the British Colombia Ministry of Finance increased the tax to 2 percent. The tax includes foreign owners and satellite families defined as those who earn most of their income outside of Canada. In Ontario, non-resident buyers of real property are subject to a non-resident speculation tax (NRST) at 15 percent of the property’s fair market value. Ontario extended the NRST in 2022 to apply to real property throughout the province. In 2022, Nova Scotia began levying property taxes on non-residents of Nova Scotia. Residential properties owned by non-residents of Nova Scotia (with exceptions for multi-unit buildings and properties leased for at least twelve months) are subject to a two percent property tax. In addition, non-residents who buy property and do not move to Nova Scotia within six months of closing have to pay a transfer tax of five percent of the property’s value. A federal one percent tax on the value of non-resident, non-Canadian owned residential real estate considered to be vacant or underused is undergoing parliamentary review as of March 2022. In April 2022, the federal government announced a proposed two year ban on sales of residential properties to non-Canadian residents.
In terms of non-resident access to land, including farmland, Ontario, Newfoundland and Labrador, New Brunswick, and Nova Scotia have no restrictions on foreign ownership of land. Prince Edward Island, Quebec, Manitoba, Alberta, and Saskatchewan maintain measures aimed at prohibiting or limiting land acquisition by foreigners. The acreage limits vary by province, from as low as five acres in Prince Edward Island to as high as 40 acres in Manitoba. In certain cases, provincial authorities may grant exemptions from these limits, including for investment projects. In British Columbia, Crown land cannot be acquired by foreigners, while there are no restrictions on acquisition of other land.
Intellectual Property Rights
Canada took significant steps to improve its intellectual property (IP) provisions when the USMCA came into force July 1, 2020, addressing areas with long-standing concerns, including full national treatment for copyright protections, transparency, and due process with respect to new geographical indications (GIs), more expansive trade secret protection, authority to seize counterfeit goods in transit to other countries, and enforcement measures in the digital environment. Canada must implement three additional provisions, including legislation to implement patent term adjustments to compensate for unreasonable patent prosecution delays by December 2024, legislation to extend copyright protections from 50 years to 70 years after the life of the author by December 2022, and accession to the Brussels Convention Relating to the Distribution of Program-Carrying Signals Transmitted by Satellite by July 2024. The Canadian courts have established meaningful penalties against circumvention devices and services. In 2019, Canada made positive reforms to the Copyright Board related to tariff-setting procedures for the use of copyrighted works, and efforts remain ongoing to implement those measures
Various challenges to IP protection in Canada remain despite this strong legal framework. Canadian IP enforcement of counterfeit and pirated goods at the border and within Canada remains limited. Canada’s system for providing patent term restoration for delays in obtaining marketing approval is also limited in duration, eligibility, and scope of protection. Canada’s ambiguous education-related exemption included in the 2012 copyright law undermines the market for educational publishers and authors.
Canada is on the 2022 Watch List in the Office of the U.S. Trade Representative’s (USTR) Special 301 Report to Congress. The Pacific Mall located in Toronto, Ontario was listed in USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy.
Canada’s capital markets are open, accessible, and regulated. Credit is allocated on market terms, the private sector has access to a variety of credit instruments, and foreign investors can get credit on the local market. Canada has several securities markets, the largest of which is the Toronto Stock Exchange, and there is sufficient liquidity in the markets to enter and exit sizeable positions. 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 system is composed of 35 domestic banks and 16 foreign bank subsidiaries. Six major domestic banks are dominant players in the market and manage close to USD 5.4 trillion in assets. Many large international banks have a presence in Canada through a subsidiary, representative office, or branch. Ninety-nine percent of Canadians have an account with a financial institution. The Canadian banking system is viewed as very stable due to high capitalization rates that are well above the norms set by the Bank for International Settlements. The OSFI, Canada’s primary banking regulator, announced in January 2022 revised capital, leverage, liquidity, and disclosure rules that incorporate the final Basel III banking reforms with additional adjustments to make them suitable for federally regulated deposit-taking institutions. Most of the revised rules will take effect in the second fiscal quarter of 2023, with those related to market risk and credit valuation adjustment risk taking effect in early 2024.
Foreign financial firms interested in investing submit their applications to the OSFI for approval by the Minister of Finance. U.S. and other foreign banks can establish banking subsidiaries in Canada. Several U.S. financial institutions maintain commercially focused operations, principally in the areas of lending, investment banking, and credit card issuance. Foreigners can open bank accounts in Canada with proper identification and residency information.
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
The Canadian dollar is a free-floating currency with no restrictions on its transfer or conversion.
The Canadian dollar is fully convertible, and the central bank does not place time restrictions on remittances.
Sovereign Wealth Funds
Canada does not have a federal sovereign wealth fund. The province of Alberta maintains the Heritage Savings Trust Fund to manage the province’s share of non-renewable resource revenue. The fund’s net financial assets were valued at USD 14 billion as of December 31, 2021. The Fund invests 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. The Heritage Fund holds approximately 50 percent of its value in equity investments, seventeen percent of which are domestic.
7. State-Owned Enterprises (SOEs)
There are 35 SOEs at the federal level and 99 at the provincial level. The SOEs, classified as Government Business Enterprises (also referred to as Crown Corporations, Crown Agencies, and Operational Enterprises) in Canada, operate in a range of sectors including transportation, power, export development, and ports. A complete list of Canadian SOEs is available at http://www.osfi-bsif.gc.ca/Eng/fi-if/rtn-rlv/fr-rf/dti-id/Pages/GBE.aspx
In line with USMCA, WTO, and other trade obligations, Canada has committed its SOEs and designated monopolies to operating in accordance with commercial considerations and in a non-discriminatory manner. Canadian SOEs involved in for-profit operations are subject to the rules of the Competition Act to prevent abuse of dominance and other anti-competitive practices. Foreign investors are also able to challenge SOEs under the USMCA, NAFTA, and WTO provisions.
Federal and provincial privatizations are considered on a case-by-case basis, and there are no limitations to foreign participation. SOE privatization occurs via direct sales, share issuances, and employee-management buyouts that are considered non-discriminatory and transparent.
8. Responsible Business Conduct
Canada defines responsible business conduct (RBC) as “Canadian companies doing business abroad responsibly in an economic, social, and environmentally sustainable manner.” The Government of Canada has publicly committed to promoting RBC and expects and encourages Canadian companies working internationally to respect human rights and all applicable laws, to meet or exceed international RBC guidelines and standards, to operate transparently and in consultation with host governments and local communities, and to conduct their activities in a socially and environmentally sustainable manner.
Canada encourages RBC by providing RBC-related guidance to the Canadian business community, including through Canadian embassies and missions abroad. Through its Fund for RBC, Global Affairs Canada provides funding to roughly 50 projects and initiatives annually. Canada also promotes RBC multilaterally through the OECD, the G7 Asia Pacific Economic Co-operation, and the Organization of American States. Canada promotes RBC through its trade and investment agreements via voluntary provisions for corporate social responsibility. Global Affairs Canada and the Canadian Trade Commissioner Service issued an Advisory to Canadian companies active abroad or with ties to Xinjiang, China in January 2021. The Advisory set clear compliance expectations for Canadian businesses with respect to forced labor and human rights involving Xinjiang.
Canada is active in improving transparency and accountability in the extractive sector. The Extractive Sector Transparency Measures Act was brought into force on June 1, 2015. The Act requires extractive entities active in Canada to publicly disclose, on an annual basis, specific payments made to all governments in Canada and abroad. Canada joined the Extractive Industries Transparency Initiative (EITI) in February 2007, as a supporting country and donor. Canada’s Corporate Social Responsibility strategy, “Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada’s Extractive Sector Abroad” is available on the Global Affairs Canada website: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/other-autre/csr-strat-rse.aspx?lang=eng .
Canada is working toward reconciliation between Indigenous and non-Indigenous peoples including through the settlement of historical claims. The claims, made by First Nations against the Government of Canada, relate to the administration of land and other First Nation assets. As of March 2018 (the latest data provided by Canada), the Government of Canada has negotiated settlements on more than 460 specific claims. Hundreds of specific claims remain outstanding including 250 accepted for negotiation, 71 before the Specific Claims Tribunal, and 160 under review or assessment.
The Canadian Net-Zero Emissions Accountability Act enshrines in law the Government of Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050. The Act establishes a legally binding process to set five-year national emissions-reduction targets as well as develop credible, science-based emissions-reduction plans to achieve each target. It establishes the 2030 greenhouse gas emissions target of reductions of 40-45 percent below 2005 levels by 2030 as Canada’s Nationally Determined Contribution (NDC) under the Paris Agreement. The Act also establishes a requirement to set national emissions reduction targets for 2035, 2040, and 2045, ten years in advance. Canada issued on March 29, 2022, the first Emissions Reduction Plan under the Canadian Net-Zero Emissions Accountability Act. Progress under the plan will be reviewed in progress reports produced in 2023, 2025, and 2027. The 2030 Emissions Reduction Plan describes the measures Canada is undertaking to reduce emissions to 40 to 45 percent below 2005 levels by 2030 and achieve net-zero emissions by 2050. This Plan reflects economy-wide measures such as carbon pricing and clean fuels, while also targeting actions sector by sector ranging from buildings to vehicles to industry and agriculture. The 2030 plan is designed to be evergreen and governments, businesses, non-profits, and communities across the country are expected to work together to reach these targets.
Canada’s 2020 Natural Climate Solutions Fund has three separate programs to encourage nature-based solutions including the Planting Two Billion Trees Program, Nature Smart Climate Solutions Fund, and the Agricultural Climate Solutions Program.
Canada’s Greening Government Strategy commits that the Government of Canada’s operations will be net-zero emissions by 2050 including government-owned and leased real property; government fleets, business travel, and commuting; procurement of goods and services; and national safety and security operations. The government intends to aid in the net-zero transition through green procurement that includes life-cycle assessment principles and the adoption of clean technologies and green products by including criteria that address greenhouse gas emissions reduction, sustainable plastics, and broader environmental benefits into procurements, among other efforts.
Corruption in Canada is low and similar to that found in the United States. Corruption is not an obstacle to foreign investment. Canada is a party to the UN Convention Against Corruption, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the Inter-American Convention Against Corruption.
Canada’s Criminal Code prohibits corruption, bribery, influence peddling, extortion, and abuse of office. The Corruption of Foreign Public Officials Act prohibits individuals and businesses from bribing foreign government officials to obtain influence and prohibits destruction or falsification of books and records to conceal corrupt payments. The law has extended jurisdiction that permits Canadian courts to prosecute corruption committed by Canadian companies and individuals abroad. Canada’s anti-corruption legislation is vigorously enforced, and companies and officials guilty of violating Canadian law are effectively investigated, prosecuted, and convicted of corruption-related crimes. In March 2014, Public Works and Government Services Canada (now Public Services and Procurement Canada, or PSPC) revised its Integrity Framework for government procurement to ban companies or their foreign affiliates for 10 years from winning government contracts if they have been convicted of corruption. In August 2015, the Canadian government revised the framework to allow suppliers to apply to have their ineligibility reduced to five years where the causes of conduct are addressed and no longer penalizes a supplier for the actions of an affiliate in which it was not involved. PSPC has a Code of Conduct for Procurement, which counters conflict-of-interest in awarding contracts. Canadian firms operating abroad must declare whether they or an affiliate are under charge or have been convicted under Canada’s anti-corruption laws during the past five years to receive assistance from the Trade Commissioner Service.
Resources to Report Corruption
Contact at the government agency or agencies that are responsible for combating corruption:
Conflict of Interest and Ethics Commissioner (for appointed and elected officials, House of Commons)
Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
66 Slater Street, 22nd Floor
Ottawa, Ontario (Mailing address)
Office of the Conflict of Interest and Ethics Commissioner
Parliament of Canada
Centre Block, P.O. Box 16
Office of the Senate Ethics Officer (for appointed Senators)
Thomas D’Arcy McGee Building
Parliament of Canada
90 Sparks St., Room 526
Ottawa, ON K1P 5B4
10. Political and Security Environment
Canada is politically stable with rare instances of civil disturbance. In January and February 2022, however, various groups of protestors occupied large parts of the downtown core of Ottawa and blocked commercial trade at several U.S.-Canada ports of entry. The initial protest movement of several hundred individuals claimed to be focused on the reversal of cross-border vaccine mandates. The movement attracted thousands of additional followers with a spectrum of political philosophies and grievances including far right extremist and anti-government groups. The protestors hindered hundreds of millions of dollars in daily two-way trade causing production slowdowns at several factories on both sides of the border. Many Ottawa residents complained of acts of harassment, desecration, and destruction by the protestors including deafening horn honking. The federal government invoked the never-before-used Emergencies Act to provide additional police powers to end the protests. Some commentators characterized the protests as a demonstration of growing politization within Canada.
11. Labor Policies and Practices
The federal government and provincial/territorial governments share jurisdiction for labor regulation and standards. Federal employees and those employed in federally regulated industries, including the railroad, airline, and banking sectors, are covered under the federally administered Canada Labor Code. Employees in other sectors are regulated by provincial labor codes. As the laws vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics, such as minimum wage and benefit requirements.
Although labor needs vary by province, Canada faces a national labor shortage in skilled trades professions such as carpenters, engineers, and electricians. Canada launched several initiatives such as the Global Skills Visa to address its skilled labor shortage, including through immigration reform, the inclusion of labor mobility provisions in free trade agreements, including the Canada-EU CETA agreement, the Temporary Foreign Worker Program (TFWP), and the International Mobility Program. The TFWP is jointly managed by Employment and Social Development Canada (ESDC) and Immigration, Refugees, and Citizenship Canada (IRCC). The International Mobility Program (IMP) primarily includes high skill/high wage professions and is not subject to a labor market impact assessment. The number of temporary foreign workers a business can employ is limited. For more information, see the TFWP website: https://www.canada.ca/en/employment-social-development/services/foreign-workers.html
The impact of COVID-19 on the labor force has yet to be fully realized. As of February 2022, the unemployment rate was 5.5 percent, below the pre-COVID 5.7 percent reported in February 2020. Statistics indicate women and marginalized communities were disproportionately affected by job and other economic losses during the height of the pandemic. The Canadian government administered an emergency wage benefit in response to a significant increase in unemployment caused by the pandemic. Many minority groups including women and Indigenous populations have experienced notable employment gains since the depths of the pandemic.
Canadian labor unions are independent from the government. Canada has labor dispute mechanisms in place and unions practice collective bargaining. As of 2015 (the most recent year of available data), there were 776 unions in Canada. Eight of those unions – five of which were national and three international – represented 100,000 or more workers each and comprised 45 percent of all unionized workers in Canada (https://www.canada.ca/en/employment-social-development/services/collective-bargaining-data/labour-organizations.html). Less than one third of Canadian employees belonged to a union or were covered by a collective agreement as of 2015. In June 2017, Parliament repealed legislation public service unions had claimed contravened International Labor Organization conventions by limiting the number of persons who could strike.
In March 2022, 3,000 Canadian Pacific Railway workers participated in a 2-day strike and concurrent lockout over wage, benefit, and pension concerns. The parties agreed to binding arbitration following federal government mediation.
In August 2021, 9,000 Canadian border agents went on strike over pay and work conditions. The Canadian government and border agents reached a tentative agreement on a new contract following the one-day strike.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
The DFC does not operate in Canada.
13. Foreign Direct 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
Host Country Gross Domestic Product (GDP) ($M USD)