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Setting up a business in Canada? Don’t forget about immigration considerations

immigration

Foreign companies and foreign nationals seeking to start business operations in Canada need to be aware of Canadian immigration and entry rules to ensure a smooth entry into the Canadian market.

Corporate and in-house counsel often initially focus on other considerations such as type of business entity, tax consequences, regulatory barriers etc. But corporate immigration expertise should be obtained at the outset to ensure that immigration considerations are taken into account, and to maximize options for the entry of foreign nationals who may need to work for or support the business in Canada. 

Corporate structure affects options

Foreign companies entering the Canadian market often do so by setting up a Canadian subsidiary or branch operation. Canadian immigration advice should be sought before the structure is finalized. Choosing the wrong structure may undermine or delay the ability to obtain work permits for key personnel.

The ownership relationship between the foreign company and the Canadian entity matters and will dictate work permit options. For example, in order to preserve the intra-company transferee (ICT) work permit option for foreign national managers and specialists to transfer to Canada, the Canadian entity must have a qualifying relationship with the foreign employer of the transferee. The transferee must be entering Canada to work in a parent, subsidiary, branch or affiliate of the foreign employer. The transferee must have worked for the related foreign company for at least 12 consecutive months in the three years prior to the filing of an ICT work permit application. 

There are special eligibility rules where a Canadian start-up is seeking an ICT work permit. These rules focus on demonstrating that the new Canadian entity will be viable and will be able to support the salary of any transferees. For the purpose of an ICT work permit a “start-up” is an entity that has been incorporated in Canada less than 12 months prior to the ICT work permit application.

Some free trade agreements, such as NAFTA (with the USA and Mexico), CETA (with the EU) and the CCPTPP (Trans-Pacific Partnership) provide “investor” work permit options. To be able to utilize these investor work permit provisions, the entity established in Canada must be owned at least 50% (directly or by stock) by individual or corporate persons from the eligible home country. The applicant must usually have the same citizenship. The category can be used to obtain work permits for executives, managers or personnel who possess essential skills needed by the operation in Canada.

Foreign companies will sometimes enter Canada via an acquisition of an existing Canadian business. The post-closing ownership structure will affect potential work permit options. Mergers and acquisitions in Canada may also create other immigration issues. Refer to this Gowling WLG article for further information: Immigration Implications of Mergers and Acquisitions.

Foreign entrepreneurs

Corporate structure also matters for foreign entrepreneurs or high net work individuals who want to set up a business in Canada and apply for a work permit and/or permanent resident status. 

For example, if the individual is hoping to apply for an owner/operator Labour Market Impact Assessment (LMIA) to obtain a work permit, the individual must own 50% or more of the Canadian entity. On an owner/operator LMIA application, the company does not have to demonstrate that it tried to recruit a qualified Canadian or permanent resident for the position. 

If the individual hopes to utilize one of the provincial nominee programs for business people, then the specific rules of that particular provincial nominee program will dictate such things as the minimum investment amount and the minimum percentage ownership that the foreign individual seeking the nomination must demonstrate.

Canada also has a Start-up Visa Program that can sometimes be used to obtain permanent resident status and a work permit while the permanent resident application is pending. The program has very specific rules regarding the ownership and shareholding structure that a qualifying start-up visa business must have to be eligible. It also requires the immigrant entrepreneur to obtain the support of a designated venture capital fund, angel investor or business incubator.

As a general rule, the options for entrepreneurs and business people require the individual to be in Canada to actively manage the Canadian business. 

Both short-term and long-term goals should be taken into consideration and reviewed by a corporate immigration lawyer to ensure that the work permit strategy does not undermine potential permanent resident options. 

Cross border sales into Canada and after-sales service

Some foreign companies enter the Canadian market by selling their products into Canada instead of having an entity in Canada. The contractual language used in sales agreements or related service agreements is critical to support the entry of after-sales service providers.

Canada’s immigration regime allows eligible after-sales service personnel to enter Canada to provide after-sales service such as installation, commissioning, servicing and training to the purchaser’s personnel where non-Canadian equipment, goods or software are sold or leased to a Canadian entity.

However, to be able to use the after-sales service category, the underlying sales or lease agreement or related service agreement entered into at the time of the sale or lease must contain clear contractual language that confirms that after-sales service is part of the sale. If the after-sales service is to be provided by a third party and not by the foreign vendor’s employees, that must be set out in the agreement.

If the sales agreement does not contain the correct content, foreign nationals seeking entry to provide after-sales service will need a work permit instead of being able to enter Canada as a business visitor.

Conclusion

Immigration law intersects with many aspects of corporate and commercial law.

By Bill MacGregor, Gowling WLG

Occasional Contributors

In addition to our regular guest bloggers, Inside Internal Controls blog published by First Reference, provides occasional guest post opportunities from various subject matter experts on the topics of risk management and best practices in finance and accounting, information technology, environmental issues, corporate governance, sales/marketing and operations, not-for-profits and business related issues in Canada. If you are a subject matter expert and would like to become an occasional blogger, please contact Yosie Saint-Cyr at editor@firstreference.com. If you liked this post and would like to subscribe to Inside Internal Controls blog click here.

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