Should Startups Consider Doing Business in Canada?
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If you’re thinking about starting a new business or expanding your current enterprise, you might consider operating in Canada. The requirements to enter Canada have always been somewhat lax, and they’re changing to become even easier, thanks to electronic travel authorizations (eTA). However, there are multiple challenges associated with operating internationally, even in a familiar, close country like Canada. Are the benefits worth these additional potential issues?
Let’s start by reviewing some of the most important business benefits of operating in Canada:
- Decreasing corporate tax rates. If you’re starting a corporation, one of your biggest concerns is going to be tax planning. In the United States, the corporate tax rate is currently 21 percent, though local rates vary and there are multiple ways this rate can be modified. By contrast, the corporate tax rate in Canada is 15 percent, representing one of the lowest rates in the world. In addition, the corporate tax rate is on a course to decrease; in 2010, it was 18 percent. If you’re generating $1,000,000 a year, that 6 percent tax savings results in $60,000 of saved money by operating in Canada.
- Broader, international reach. If you choose to explore Canada as a way to expand your current business, you’ll enjoy the benefits of a much wider reach. Canada is home to more than 37 million people, yet has a culture that is highly familiar to any United States entrepreneur. The transition is relatively easy, yet you could instantly increase your pool of target demographics. Note that this expansion also applies to your potential talent pool; Canada is home to millions of educated, skilled people who can help you expand your business in new territories. It also represents a good tactical test to see if your business is ready for other geographies for international expansion.
- Individual tech and startup hubs. Like in the United States, Canada has many individual locations where startups and entrepreneurs particularly thrive. For example, the Toronto-Waterloo Region Corridor is sometimes referred to as the “Silicon Valley of the North,” and even has its own website to advertise its 15,000 tech companies, 200,000 tech employees and 5,200 startups. With lower operating costs and lower costs of living, this could be an amazing alternative to the expensive tech hubs of the United States, giving you access to a popular and growing community.
- A stable economy. In 2011, Canada was named number one in Forbes’s Best Countries for Business list, and continues to hover around the top spots. At the end of 2018, Canada ranked sixth, squarely above the United States, which ranked at 17. This is partially because of Canada’s steady and stable economic progression. Canada didn’t suffer much from the 2008 economic crisis (at least compared to the United States) and continues to project impressive rates of growth. If your business depends on healthy and gradually growing economic conditions all-around, this could be a massive advantage.
The Potential Weaknesses
That said, doing business in Canada isn’t always simple. You’ll need to consider:
- Currency exchange and payment processing. If you’re moving everything to Canada, you won’t have to worry about this, but if you’re planning to hire employees in Canada and keep your base of operations in the United States, processing payments and accounting for currency exchange rates can get complex. You may need to hire a team of financial and legal experts to help you plan for this, depending on the size and complexity of your company.
- Courts and contract enforcement. One of the weaknesses of doing business in Canada is the complexity of contract enforcement in the country. It can sometimes take up to 910 days to make a contract active due to poor court capacity. Court processes and contract laws are also somewhat out of date, restricting your development in some areas.
- Credit availability. Getting lines of credit, loans and investment capital in Canada is oftentimes harder than it is in the United States, as evidenced by the fact that many entrepreneurs end up turning to the United States to get funding. Again, if your business already has sufficient momentum, this may not be a problem. And if you plan on having a footprint in both the United States and Canada, you can get access to the best of both worlds.