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Unless otherwise specified, all currency is in Canadian dollars.
For the past decade, successive federal governments have based investment policies on the fundamental principle of being "open for business." This principle is enshrined in the 1985 Investment Canada Act, the purpose of which is to encourage and facilitate investment from domestic and international sources.
The Canadian government is committed to stimulating and attracting business investment from both domestic and international sources. More than merely focussing on capital, it also seeks to encourage the transfer of ideas and technology. In addition, it works to foster a climate supportive of entrepreneurial initiative as the most effective way of stimulating economic activity and creating employment. In shaping and implementing its investment-related policies, Canada's federal government consults continuously with the private sector as well as with the provincial and territorial governments.
As part of its international trade and investment mandate, the Department of Foreign Affairs and International Trade (DFAIT) takes a lead role to encourage and facilitate the growth of foreign direct business investment, including the transfer of know-how and technology. One of the primary roles of DFAIT is to respond to the aims and needs of both Canadian and non-Canadian investors. This is done in conjunction with Canada's trade services at home and abroad, as well as with other government departments, notably Industry Canada (IC) which administers the Investment Canada Act. DFAIT also works closely with the provinces and the banking and business communities, as well as various public and private agencies, to stimulate investment in Canada.
Federal and provincial governments offer a number of investment
development programs and services. DFAIT's trade and investment
counsellors at Canadian missions abroad and at International Trade
Centres in Canada, along with IC and provincial-government sector
specialists, provide information on a range of topics, including
energy costs, regional centres of advanced technology, technological
infrastructure, industry sector profiles, federal and provincial
industrial incentives, joint ventures and licensing arrangements,
identifying contacts in the public and private sectors, defining
investment proposals, locating potential investment opportunities
and partners, and accessing sources of capital and technology.
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In June 1985, the Investment Canada Act became law, replacing
the Foreign Investment Review Act. The fundamental purpose of
the Investment Canada Act is to encourage and facilitate investment
from domestic and international sources. While recognizing that
Canada must compete internationally for capital and technology,
the Canadian government reserves the right to ensure that foreign
control of major economic concerns and activities in some regulated
sectors is in the Canadian interest. Thus, the main thrust of
the act gives the federal government a mandate to encourage investment
in Canada by Canadians and non-Canadians, while retaining its
authority to require notification and approval of takeovers of
important Canadian businesses by non-Canadian investors, as well
as the establishment of new businesses by non-Canadians, to ensure
net benefit to Canada.
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In keeping with its open-for-business philosophy, the threshold for the review of foreign investments has been raised and the range of transactions exempted from review has been increased. Portfolio investments, the acquisition of assets that do not constitute a business, and investments in related businesses are neither reviewable nor notifiable. Most investments to establish new Canadian businesses are not subject to review.
For acquisitions of Canadian businesses, thresholds have been established to determine whether a transaction has to be reviewed. For an acquisition below these thresholds, non-Canadian investors need only notify IC, Investment Review Division, of the investment within 30 days of the transaction.
For the direct, controlling acquisition of a Canadian business whose assets are less than $5 million, there is no review. In cases of an indirect, controlling acquisition of a Canadian business - obtained through the acquisition of its foreign parent company, which also operates a Canadian subsidiary business - there is no review provided that the assets do not exceed $50 million or 50 percent of the global value of the assets of the transaction.
Transactions that fall above these thresholds are reviewable, unless the investor comes from a World Trade Organization (WTO) signatory country. (For a list of WTO member-countries and recent applicants, see Tables 2 and 3 at the end of this document.) For a WTO investor, the thresholds have been raised considerably to match the levels accorded North American Free Trade Agreement (NAFTA) member-countries. In these instances, the 1996 review threshold for a direct acquisition was $168 million. There is no review for an indirect acquisition; the company need only notify IC. These changes were made by amendment to the Investment Canada Act as part of Canada's commitments under the WTO.
For WTO investors, the review threshold is adjusted annually to reflect economic growth and inflation in Canada. For non-WTO investors, the review thresholds are fixed.
There are, however, four sectors that for all investors continue to be subject to review at the lower thresholds. Acquisitions of businesses engaged in the financial services, transportation, uranium and cultural industries are subject to the $5 million threshold for direct acquisitions and $50 million for indirect acquisitions. Acquisitions in the cultural industries such as book publishing and distribution, sound recording, and film production and distribution are the most sensitive. Transactions below these thresholds, and the establishment of new businesses in this sector, may be reviewable if the government so decides. Normally, all acquisitions and investments to establish new businesses in cultural industries are subject to review regardless of the value.
In cases requiring a review process, the investment is judged on the basis of its "net benefit" to Canada. The minister of IC makes the final decision after receiving a recommendation from IC department officials. The act provides for an initial review period of 45 days, but may be extended a further 30 days after notification has been made to the investor.
The Investment Canada Act contains very rigid confidentiality
provisions. All information received by IC and its officials is
treated as privileged and confidential and will not be disclosed
except in relation to the administration of the act or with the
consent of the parties to whom the information applies. The confidentiality
provisions are meant to encourage investors to share information
to make the review process more efficient.
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The Agreement on Trade-Related Investment Measures (TRIMS) deals
with investment measures that have an adverse effect on trade.
This agreement reaffirms that foreign governments cannot require
enterprises to operate in a way that restricts or distorts trade
as a condition of investment (for example, requiring them to use
products of domestic origin in their production). Such measures
must be eliminated within a defined timeframe.
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The level of foreign ownership for certain activities is limited
by federal legislation. These restrictions do not apply to nationals
of NAFTA countries. Table 1 provides a summary of the main
sectoral limitations.
Table 1: Sectoral Limitations on Foreign Investment
| Sector/Activity | Description of Limitations |
| Banking | No single entity can own more than 10 percent of shares in a Schedule 1 bank. |
| Broadcasting | Foreign ownership in broadcasting facilities, including television stations, radio stations, cable systems and networks, is limited to 20 percent. |
| Fishing | Canadian fish-processing companies with more than 49 percent foreign ownership are not permitted to hold commercial fishing licences. |
| Uranium | Foreign ownership of uranium mining and processing projects is limited to 49 percent. Exceptions are permitted if effective control is Canadian. |
| Telecommunications | Direct foreign ownership is limited to 33 1/3 percent for holding companies which control subsidiaries that are common carriers. For common carriers - firms that provide telecommunication services on facilities they own (e.g., a firm that provides basic telecommunications such as local telephone service on its own facilities) - the limit is 20 percent. There are no restrictions on foreign ownership for firms providing "value-added" or "enhanced" services on leased facilities (e.g., electronic data transfer or long distance telephone services by a firm leasing facilities). |
| Transportation | Foreign ownership is limited to 25 percent in air transportation. Maritime cabotage is restricted to Canadian flag vessels, although there is no foreign ownership restriction on such vessels. Cabotage for bus and truck transport is reserved for Canadian drivers. However, foreign-owned companies can and do operate in Canada by hiring such drivers. |
Like the federal government, all provincial governments welcome foreign investment, but they too have some limitations: a special tax, for example, on the acquisition of agricultural land, or specific legislation in areas such as book publishing in Ontario and Quebec.
The NAFTA provides for national treatment of investors from the US and Mexico. NAFTA coverage extends to investments made by any company incorporated in a NAFTA country, regardless of its country of origin.
There are no restrictions on the foreign investor's ability to repatriate investment or profits. Canada has no exchange controls and the Canadian currency is freely convertible to US or other currencies. There are, however, withholding taxes on the payment to non-residents of certain dividends, interest, salaries, bonuses, commissions or other amounts for services rendered. The statutory rate of Canadian withholding taxes to non-residents is 25 percent. This rate is generally reduced to 15, 10, 5 or 0 percent under bilateral tax treaties. Certain types of income, such as interest on government bonds and certain corporate bonds, are exempt from the withholding tax on a unilateral (statutory) basis. (For more information on the latter, see FaxLink document 60210, "Taxation in Canada.")
Further information on the interpretation and application of the Investment Canada Act may be obtained by contacting:
Industry Canada, Investment Review Division
(613) 954-1887
or Legal Services
(613) 952-2391
Or by writing to:
P.O. Box 2800, Station "D"
Ottawa, Ontario
K1P 6A5
Fax: (613) 996-2515
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The following 129 governments have accepted the Marrakesh
Agreement Establishing the World Trade Organization, as of 8 January
1997.
Table 2: World Trade Organization (WTO) Countries (as of 8 January, 1997)
| Angola | Antigua and Barbuda | Argentina | Australia |
| Austria | Bahrain | Bangladesh | Barbados |
| Belgium | Belize | Benin | Bolivia |
| Botswana | Brazil | Brunei Darussalam | Bulgaria |
| Burkina Faso | Burundi | Cameroon | Canada |
| Central African Republic | Chad | Chile | Colombia |
| Costa Rica | Côte-d'Ivoire | Cuba | Cyprus |
| Czech Republic | Denmark | Djibouti | Dominica |
| Dominican Republic | Ecuador | Egypt | El Salvador |
| European Community | Fiji | Finland | France |
| Gabon | Gambia | Germany | Ghana |
| Greece | Grenada | Guatemala | Guinea |
| Guinea Bissau | Guyana | Haiti | Honduras |
| Hong Kong | Hungary | Iceland | India |
| Indonesia | Ireland | Israel | Italy |
| Jamaica | Japan | Kenya | Korea |
| Kuwait | Lesotho | Liechtenstein | Luxembourg |
| Macau | Madagascar | Malawi | Malaysia |
| Maldives | Mali | Malta | Mauritania |
| Mauritius | Mexico | Morocco | Mozambique |
| Myanmar | Namibia | Netherlands | New Zealand |
| Nicaragua | Niger | Nigeria | Norway |
| Pakistan | Papua New Guinea | Paraguay | Peru |
| Philippines | Poland | Portugal | Qatar |
| Romania | Rwanda | Saint Lucia | Saint Vincent & the Grenadines |
| Senegal | Sierra Leone | Singapore | Slovak Republic |
| Slovenia | Solomon Islands | South Africa | Spain |
| Sri Lanka | St. Kitts and Nevis | Suriname | Swaziland |
| Sweden | Switzerland | Tanzania | Thailand |
| Togo | Trinidad and Tobago | Tunisia | Turkey |
| Uganda | United Arab Emirates | United Kingdom | United States |
| Uruguay | Venezuela | Zaire | Zambia |
| Zimbabwe |
The following 31 governments have requested to join the WTO. Their applications are currently being considered by accession working parties.
Table 3: World Trade Organization (WTO) Accessions
| Albania | Algeria | Armenia | Belarus |
| Cambodia | China | Croatia | Estonia |
| Former Yugoslav Republic of Macedonia | Georgia | Jordan | Kazakhstan |
| Kirgyz Republic | Laos | Latvia | Lithuania |
| Moldova | Mongolia | Nepal | Oman |
| Panama | Russian Federation | Saudi Arabia | Seychelles |
| Sudan | Taipei | Tonga | Ukraine |
| Uzbekistan | Vanuatu | Vietnam |
| © Department of Foreign Affairs and International Trade, December 1996 |
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