Canada Subsidiary.

Expanding into Canada offers access to a diverse, highly skilled workforce and a robust economy. Establishing a subsidiary company in Canada offers advantages such as access to a vibrant business Canada market and a stable economy. However, setting up a subsidiary company in Canada is a complex, multi-step process governed by distinct federal and provincial laws. Understanding the Canada subsidiary setup process is critical to avoiding costly delays and ensuring compliance.

How to set up a subsidiary in Canada

Many businesses see the benefit of setting up a subsidiary company in Canada to gain a foothold in the North American market. For international companies, the most common way to establish a presence in Canada is by forming a corporation. This creates a legal entity separate from the parent company, limiting liability. The setup process involves several key decisions and steps, all aligned with the legal requirements specific to Canada.

Step 1: Choose your jurisdiction — federal or provincial

Selecting a jurisdiction effectively determines where your subsidiary will operate. You can incorporate your subsidiary at either the federal or provincial level, affecting the reach and market dynamics in Canada. Your choice has significant implications for director requirements and administrative scope.

• Federal incorporation: Under the Canada Business Corporations Act (CBCA), a federal corporation has the right to operate in any province or territory. However, you must still obtain extra-provincial or extra-territorial registration in each jurisdiction where you conduct business. Federal incorporation also mandates that at least 25% of directors must be resident Canadians.

• Provincial/Territorial incorporation: This limits your company's operations to the specific province of incorporation unless you register in other provinces. The main advantage is that certain provinces, including British Columbia, Quebec, New Brunswick, and Nova Scotia, do not have director residency requirements, making them attractive options for foreign companies looking to establish a subsidiary in Canada without residency constraints.

Step 2: Fulfill incorporation requirements

Once you have chosen a jurisdiction, you need to complete several formal steps to successfully register your company in Canada. There are generally no minimum capital requirements for incorporation in Canada.

• Reserve a business name: You must select a unique name for your subsidiary. This typically requires a NUANS (Newly Updated Automated Name Search) report to ensure the name is not already in use.
• File Articles of Incorporation: This legal document formally establishes the corporation and outlines its structure, including share classes, the number of directors, and any operational restrictions.
• Appoint directors: You must formally appoint a board of directors that meets the residency requirements of your chosen jurisdiction.

Step 3: Complete post-incorporation setup

After successful incorporation, several administrative tasks are required to become fully operational. The entire subsidiary setup process can take from several weeks to a few months.

• Open a Canadian corporate bank account.
• Register with the Canada Revenue Agency (CRA) for a Business Number (BN), Goods and Services Tax/Harmonized Sales Tax (GST/HST) account, and payroll accounts.
• Register with provincial authorities for workers' compensation and any applicable provincial sales taxes (PST).
• Obtain necessary industry-specific licenses and permits.

Ongoing compliance for your Canadian subsidiary

Establishing a subsidiary is not a one-time event. It creates ongoing administrative and financial obligations, including:

• Annual corporate filings: Both federal and provincial corporations must file an annual return to keep their registration in good standing.
• Tax filings: Companies must file annual federal and provincial corporate income tax returns.
• Maintaining corporate records: Canadian law requires that all corporate records, such as director resolutions and meeting minutes, be diligently maintained at the registered office address.

These responsibilities require significant resources and the ongoing assistance of local legal and accounting experts to ensure compliance with Canadian subsidiary laws.

A faster path to hire the Canadian market

While a subsidiary offers the benefits of a permanent establishment and limited liability, the process is time-consuming, expensive, and administratively burdensome. If your goal is to quickly and compliantly hire talent in Canada, there is a simpler alternative. G-P EOR allows you to hire talent in minutes without the hassle and complications of a subsidiary.

There are several reasons why using an Employer of Record (EOR) in Canada can be advantageous compared to setting up your own subsidiary:

• Speed of market entry: An EOR allows you to onboard talent in Canada almost immediately, as you do not need to go through the lengthy process of establishing a legal entity. Setting up a subsidiary can take months due to regulatory, banking, and administrative requirements.
• Compliance assurance: Employment laws in Canada are complex and vary by province. An EOR ensures compliance with all local labor laws, payroll regulations, tax withholdings, and statutory benefits, reducing your risk of non-compliance and potential penalties.
• Cost efficiency: Establishing and maintaining a subsidiary involves significant upfront and ongoing costs, including legal fees, accounting, local management, and administrative overhead. An EOR model is typically more cost-effective, especially if you are hiring a small team or testing the Canadian market.
• Administrative simplicity: With an EOR, you avoid the administrative burden of managing payroll, benefits, tax filings, and HR compliance in a foreign jurisdiction. The EOR handles these responsibilities, allowing you to focus on your core business.
• Flexibility: If your business needs change, an EOR arrangement is easier to scale up or down compared to winding down a subsidiary, which can be a complex and costly process.
• Risk mitigation: An EOR assumes many of the legal risks associated with employment, such as wrongful termination claims or misclassification issues, providing an additional layer of protection for your company.

If you are considering expanding into Canada but want to avoid the complexities and risks of entity setup, an EOR like G-P offers a streamlined, compliant, and cost-effective solution.

Request a proposal today to learn more about how we can streamline your global growth.