France and Canada have always had a special relationship. This stems largely from their shared history, language, and trade. In the modern era, the economic relations between France and Canada have become both dynamic and diverse. Each considers the other a privileged partner.
In fact, France is Canada’s third European partner and second foreign investor. In 2003, the total amount of bilateral trading between France and Canada totaled $56.5 billion CAD.
On one hand, Canada is France’s major supplier of high-tech and high-value added finished products, especially professional goods which represent 40% of French imports. Additionally, critical trade items include uranium, aluminum, wood pulp, aircraft launching gears, and engines.
On the other hand, France is a major supplier of Canada’s wines, aircraft, air navigation equipment, industrial lifting gears, perfumes, cosmetics, and books.
Why invest in Canada?
Canada boasts numerous advantages for French investors.
Because of its critical geographical location and trade agreements such as NAFTA (North American Free Trade Agreement) or FTAA (Free Trade Area of the Americas), it offers many opportunities to access American and Asian markets. Investment remains a rapidly expanding field in the political and economic spheres of Canadian society. Since 1990 direct foreign investment has doubled, and in 2002, imports accounted for nearly 31% of the Canadian GDP. In 2003, French stock in Canada was worth roughly $31.6 billion CAD. Consequently, Canada is France’s sixth most highly invested in country. It is also the most open country of the G7.
It has been ranked first in the G7 and the OECD for ease and rapidity of firm creation. It has also been recognized as the safest country of the G7 for business because of the efficiency of its justice system.
Moreover the costs of creating a firm are much lower in large Canadian cities such as Toronto or Montreal than in other North American towns, due in large part to numerous tax advantages and low labor costs.
Canada’s reputation as a country where business taxes are high is antiquated and invalid; recent reforms to its tax regime have made Canada a very attractive place for creating and growing a business.
Moreover, the Canadian government has created many programs and incentives to encourage foreign investment.
How to Approach the Canadian Market?
The biggest weakness of the Canadian market is its lack of uniformity. In fact, because of its federal organization and the vastness of its territory, there is no single Canadian market but many smaller regional markets.
Each of them is distinct from the others depending on the type of goods and provincial legislation. It is also important to remember that a high proportion of trade is concentrated in a very small part of the country. Surprisingly, nearly 80% of the market is located in Quebec and Ontario.
The most important sector of both imports and exports is the aeronautic sector, representing 19% of all Canadian trade.
This figure drastically declined in 2003 after the termination of Airbus delivery systems. Nevertheless, this is the only sector that has showed any significant signs of decline.
Other markets have been very successful; experiencing constant growth (+12% in 2003). The most successful of them are wine (+16%), drugs (+50%), integrated circuits (+100%), and cosmetics and perfumes (+12%).
Finally it is important to note the increase in the service trades of Canada, particularly in the field of company services, transport, and travel. Canada is a large importer in these domains seeing as expenses in these French services totals roughly $2.1 billion CAD.
Practical matters
Canada is mainly a Common Law country yet each province has its specificities concerning implementation, the most obvious one being of course Quebec, which is governed by Civil Law.
Because of this, it is quite easy for a French investor to establish a successful business in Canada.
The similarities between Canadian and French law is a real advantage for French investors. Canada offers five different ways of creating or implementing a business on its territory, including:
- The commercial agent: ensures a sale of one or more goods in a specific region for one or more supplier
- The wholesale importer: buys the good and stores it, thus insuring the financial risk.
He usually has provincial and not national competence.
- The franchise: this system is constantly expanding in Canada
- The local manufacturer: to increase the range of products on their market they often choose to import goods not manufactured themselves.
- Direct marketing: this system is also rapidly expanding, catalyzed by the satellite television network.
- E-commerce: Canadian citizens are among the most technologically connected in the world.
Nearly 70% of Canadians have internet access. This trading method is particularly efficient for clothes, jewelry and accessories.
Moreover, a person or company wishing to run a business in Canada has a choice of several different business structures.
The appropriate structure depends on several factors including the nature and location of the business, liability and general issues of exposure, the entity’s financing requirements, and tax considerations.
There are three basic structures available:
- Sole Proprietorship: the business is owned and operated by the individual responsible for the business and its liabilities. This structure is extremely simple and can avoid many legal complications.
- Partnership: a partnership exists when two or more individuals or corporations carry on business together with a view to profit. In Canada, the provinces maintain exclusive jurisdiction over partnerships and thus each province has enacted specific partnership legislation.
- Corporation: it is a separate legal entity, which offers limited liability, an easy way to transfer assets and perpetual existence. Since a corporation is a distinct legal entity it must pay tax on its income. The corporation is, by far, the most common business structure employed in Canada.
- Subsidiary Corporation: a foreign corporation may incorporate a separate subsidiary corporation under the federal statute or any of the provincial statutes governing corporations. However, as with branch operations, license or registration may be required from any province where the company carries on business.
- Joint Venture: any arrangement whereby two or more persons agree to contribute goods, services or capital to a common commercial enterprise. Currently there is no statute governing joint ventures in Canada. Joint ventures are governed by the contracts entered into by the private parties of those ventures.
What can we do for you?
Because of the various methods of investment and the bounty of legal complexities it is important to seek advice from an attorney.
In order to ensure success in your investment in Canada, we suggest you contact a business law firm such as ours.
In fact, as we are the official partner of the Canadian embassy in France you can benefit from many advantages including a thorough understanding and knowledge of commercial law, international tax law and Canadian law supplemented by a network of local partners chosen for their abilities and broad range of expertise.
We can help you in entering the local market with the partnership of local correspondents, choosing the most effective structure for your project, and by producing at a low cost by expanding the partnership with the local firms.
Low costs, a great business environment, access to North American markets, a superior work force and exceptional legal advice; all culminate in the ideal environment necessary for your business to flourish.
