Canada’s strong infrastructure and growing economy make it a smart choice for many organizations going global. The benefits of expanding into Canada are vast and include programs such as NAFTA (the North American Free Trade Agreement), and lower business costs – 5% lower than the U.S. In addition, companies gain direct access to top talent, a strategic location, stable economy, and friendly culture that encourages inclusiveness and business success. Given the incredibly positive environment, there is a clear advantage bringing a business into the country. While in the past most companies would immediately look into establishing a legal Canada subsidiary, businesses today have options available to them that enable an agile global expansion.
Before setting up a foreign subsidiary in Canada, companies need to be aware of the challenges that come with this expansion option and learn the alternatives available to companies expanding into this Northern territory.
Canada Subsidiary: The Risks
Establishing a foreign legal entity is a long, expensive process, and Canada is no different. Prior to making a full commitment to the country, companies need to be aware of the challenges involved with setting up a foreign subsidiary. These include significant time and costs to set up and manage the business, compliance management, complicated tax payments, as well as barriers to entering and exiting the country. A single employee, for instance, can cost a company as much as $40,000 per year in hard costs. That is on top of the thousands of dollars it takes to enter the market. Companies considering setting up a Canada subsidiary need to do their research to ensure it is the absolute best choice for their business goals.
Canada Subsidiary: The Alternatives
Establishing a foreign subsidiary in Canada is not always the right choice for an organization. For instance, companies with smaller budgets or short timelines may not have the ability to put their resources into setting up an entity. More and more, companies are learning that setting up an entity does not provide them with the flexibility they need to navigate global markets. Thankfully, companies today can take advantage of new, innovative options that allow them to maintain a flexible approach when going global.
During global expansion, many companies choose to utilize independent contractors as an alternative to creating a full subsidiary and as a way to save money. In Canada, like most countries, contractors pay their own Canada Pension Plan (CPP) contributions and are not entitled to receive benefits. However, working with a contractor in a foreign country is an extremely risky option. This option is known for compliance risks that often outweigh the potential cost-savings. Some of the most notable risks include the common and costly practice of misclassifying contractors and inability to protect a company’s IP.
Luckily, companies can achieve a cost-effective, compliance, and efficient expansion into Canada by discovering innovative solutions that enable them to take an agile approach. This can be done with a global employment solution, like an International PEO (Professional Employer Organization). By partnering up and working with global employment experts, companies can better navigate the requirements and expectations for doing business in the country. This type of Employer of Record service helps companies avoid having to set up an entity when expanding into foreign markets. Key benefits an International PEO solution provides to companies include:
- Reduced costs: no need to pour thousands of dollars into establishing an entity
- Quick market entry: companies gain legal presence in a country the minute they have an employee hired
- Ultimate flexibility: it is simple to leave a market quickly and compliantly, if necessary
- Compliance management: companies get direct assistance with risk mitigation
When you take your business into Canada with an agile approach, as opposed to setting up a foreign subsidiary, your company gets to experience the benefits of an agile global approach. Get in touch with the experts at Velocity Global today and discover how our International PEO solution can help your company have a compliant, efficient, and flexible expansion into Canada or any of the over 185 countries we support.