The Canadian Constitution, which includes a charter of rights and freedoms, has precedence over other Canadian legislation. In turn, Canadian legislation is the basis for administrative action.

Foreign Investment in Canada is subject to multilateral obligations (e.g. through the OECD and WTO) and, more recently, to obligations in regional and bilateral agreements (the NAFTA, and Foreign Investment Protection Agreements). If required, existing domestic legislation is amended to bring it into conformity with international obligations. Hence, examining Canadian foreign investment obligations as represented by, say, Chapter 11 of the NAFTA, will provide a clear picture of commitments on foreign investment access and protection.

The only domestic law of general application with respect to foreign investment is the Investment Canada Act. In addition to the Investment Canada Act, there are a number of federal and provincial laws applying to specific industry sectors. At the federal level, for example, there are the Bank Act, the National Transportation Act, and the Broadcasting Act. The Canada Business Corporation Act also provides for provisions related to management and equity in federally incorporated businesses.

The establishment of a new business in Canada by an investor making its first investment in Canada or the establishment of a new business by an existing investor where the new business is unrelated to any existing business is subject to a straightforward notification procedure, but is not generally subject to review under the Act. There are some exceptions to this, outlined in this section and the section on restricted sectors (3.3).

Where either the non-Canadian investor or vendor is ultimately controlled in a World Trade Organization (WTO) country, only the direct acquisition of control of a Canadian business that has assets equal to or greater than $184 million for 1999 is a reviewable transaction. This figure is adjusted annually to reflect economic growth in Canada.

Where both the non-Canadian investor and vendor are ultimately controlled in a non-WTO country, the direct acquisition of control of a Canadian business that has assets greater than $5 million is reviewable, and the indirect acquisition of control of a Canadian business with assets greater than $50 million is reviewable. These review thresholds are fixed and not adjusted.

Acquisitions in which the Canadian business is in one of four other sectors (cultural industries, financial services, transportation services and uranium production) are subject to the lower thresholds regardless of nationality of the investor or vendor. Acquisitions in cultural industries (i.e., publication and distribution of books, magazines, videos, music recordings, etc.) below these thresholds and the establishment of new businesses in these cultural industries may be reviewable, if the Government so decides.

Reviewable investments are allowed to proceed if they are likely to be of "net benefit" to Canada. Since the establishment of the review system under the Act, no reviewable investment has been disallowed.

WTO investors directly acquiring a Canadian business with assets of less than $160 million or non-WTO investors directly acquiring a Canadian business with assets of less than $5 million, must notify Industry Canada, even though these investments are not reviewable. All indirect WTO investor acquisitions are notifiable, as are indirect acquisitions by non-WTO investors where the Canadian assets to be acquired are less than $50 million.

Also notifiable is the establishment of a new business in Canada by an investor making its first investment in Canada or the establishment of a new business by an existing investor where the new business is unrelated to any existing business in Canada. In these cases, the investor must notify Industry Canada and provide some details of the investment.

There are many types of investments to which the Investment Canada Act does not apply. For example, purchases of Canadian bonds, stocks or other investment instruments that do not involve the acquisition of control are not reviewable or notifiable, nor are the acquisition of assets that do not constitute a business. Investments in related businesses, for example, if a manufacturing business expands a plant or a mining company opens a new mine, are neither reviewable no notifiable.

To endure a prompt review and decision, the Act sets certain time limits for the Minister. Within 45 days after a complete application has been received, the investor must be notified that the Minister 1) is satisfied that the investment is likely to be of net benefit to Canada; or 2) is unable to complete the review, in which case a further 30 days will be necessary; for its completion (unless the applicant agrees to a longer period); or 3) is not satisfied that the investment is likely to be of net benefit to Canada.

If 45 days have elapsed from the completion date without such a notice, or if a further 30 days (or a number of further days agreed) have elapsed after notice that the Minister is unable to complete the review and no decision has been taken, then the Minister is deemed to be satisfied that the investment is likely to be of net benefit to Canada. The average period of time in processing an investment application is about 40 days.

Appeals from the review process:

When advised that the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the applicant has the right to make representations and to submit undertakings within 30 days of the date of notice (or any other period that is agreed upon between the applicant and the Minister). On the expiration of the 30-day period (or agreed extension), the applicant must be notified forthwith that the Minister, a) is satisfied that the investment is likely to be of net benefit to Canada or, b) confirms that the investment is unlikely to be of net benefit to Canada. In the latter case, the applicant may not proceed with the investment, or, if the investment has already been implemented, must relinquish control of the Canadian business.

Yes. Under the Investment Canada Act, there are a number of relevant definitions with respect to review procedures, which taken together define and conceptualize the "concepts and principles" of foreign investment.

First, the term "investor" is defined as a non-Canadian who is required either to give notice of an investment under the investment notification procedures of the Act or a non-Canadian required to file an application for review of an investment under the investment review procedures of the Act.

A "non-Canadian" is defined as being an individual, a government or one of its agencies, or an entity that is not Canadian; therefore, one must understand the definition of "Canadian" in order to identify a non-Canadian. A "Canadian" is defined as being: 1) a Canadian citizen (whether residing in Canada or not) or a permanent resident meeting certain conditions; 2) a Canadian government (federal, provincial or local) or one of its agencies, or; 3) an entity that is Canadian-controlled.

An "entity" means: 1) a corporation that is a body corporate, with or without share capital; 2) a partnership; 3) a trust; or, 4) a joint venture, which is an association of two or more persons, or entities, whose relationship cannot be considered to be a corporation, a partnership, or a trust, and where, when the Act applies, all the undivided ownership interest in the assets of the Canadian business or in the voting interest of the entity that is the subject of the investment, or will be, owned by the joint venture.

The term "business" is defined as any undertaking or enterprise capable of generating revenue and carried on in anticipation of a profit. A "Canadian business" is defined as one that is carried on in Canada and has: 1) a place of business in Canada; 2) at least one individual in Canada employed or self-employed in connection with that business; and, 3) assets in Canada that are used to carry on that business. As a result, in order to be considered a "Canadian business," an activity must first meet the conditions of both definitions (i.e. "business" and "Canadian business").

In order for the Investment Canada Act to apply with respect to the review of an investment in an existing Canadian business, various conditions must be met. Three of the most important of these are that: 1) there be an acquisition of control; 2) the acquisition of control be of a Canadian business, and 3) the acquisition of control be made by a non-Canadian, since investments made by Canadians are not subject to the act.

"Acquisition of Control" constitutes one of the most important cornerstones of the Investment Canada Act. It triggers the application of the Act. It distinguishes direct investment from portfolio investment. Definition of the concept "acquisition of control" is crucial and is obtained through a description of the methods used to acquire control and a list of rules and presumptions. A transaction that involves a non-Canadian acquiring assets or shares, or other voting interests, relating to a "Canadian business" will not be reviewable pursuant to the rules contained in the Act. "Control" of a Canadian business may only be acquired through the acquisition of voting shares, voting interests or assets as follows:

1) Through the acquisition of voting shares of a corporation incorporated in Canada carrying on the Canadian business;

2) Through the acquisition of voting interests of an entity that carries on the Canadian business or through the acquisition of voting interests of an entity that controls, either directly or indirectly, another entity that carries on the Canadian business where there is no acquisition of control of a corporation (see other rules in the Act); or,

3) Through the acquisition of all, or substantially all, of the assets used in carrying on the Canadian business.

Any other kind of acquisition that does not fall into one of the above descriptions does not constitute an acquisition of control within the meaning of the Act. The Act sets out a number of rules and presumptions that determine whether the acquisition of control of the corporation or other entity will constitute the acquisition of control of the corporation or other entity in question.

Non-Canadian individuals and corporate entities are subject to the Investment Canada Act.

The Investment Canada Act does not apply to Canadian citizens.

N/A

None.

Canada does not impose nationality requirements for employees or management personnel (i.e. there is no requirement that a certain percentage of employees in a particular company must be Canadian) However, the NAFTA does provide that a Party may impose a requirement that a majority of the Board of Directors of a company be nationals or residents if this requirement does not impair the ability of an investor to exercise control over its investment. And, also under the NAFTA, Canada has reserved the right to impose foreign ownership restrictions, as well as nationality and residency requirements, for senior management and boards of directors in cases of privatization of Crown corporations and government assets.

The Canada Business Corporations Act requires that a simple majority of the board of directors, or of a committee thereof, of a federally-incorporated corporation be resident Canadians. "Resident Canadian" means an individual who is a Canadian citizen ordinarily resident in Canada, a citizen who is member of a class set out in the Canada Business Corporations Act Regulations, or a permanent resident as defined in the Immigration Act other than one who has been ordinarily resident in Canada for more than one year after she/he became eligible to apply for Canadian citizenship.

Under the Canada Business Corporations Act, the Government of Canada may adopt or maintain measures relating to the nationality of senior management or members of the board of directors. With respect to the repatriation of earnings, there are no exchange controls in Canada. Repatriation of capital is subject to no restrictions and the transfer of profits and dividends is unrestricted in Canada, although withholding taxes do apply.

While the Canadian economy is subject to federal regulations, an organizing principle of Canadian society is economic freedom.

Recognizing that increased capital and technology would benefit Canada, the purpose of Canada's investment legislation is to encourage investment in Canada by Canadians and non-Canadians that contributes to economic growth and employment opportunities and to provide for the review of significant investments in Canada by non-Canadians in order to ensure such benefit to Canada. In addition, Canada is bound by national treatment and MFN principles pursuant to its international legal obligations.

A number of state enterprises, called Crown Corporations, operate in Canada. A number of these are "commercial" in nature and compete on equal terms within the Canadian economy. Others have regulated preferences based on public purpose.

For the purposes of review under the Investment Canada Act, "assets" includes tangible and intangible property of any value which are all or substantially all of a Canadian business. The value of assets acquired is calculated using the financial statements of the acquired Canadian business.

Under Canada's model bilateral protection agreement "investment" means any kind of asset owned or controlled wither directly, or indirectly through an investor of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party, in accordance with the latter's laws and, in particular, though not exclusively, includes:

There are no economic sectors in Canada that are reserved exclusively for the State, but there are some aspects of economic activities that are carried out by the State as part of the implementation of existing public policy. It should also be noted that most aspects of economic activity carried on by Canada can also be carried on by the private sector, and that Canada is actively reconsidering its involvement in many economic activities

Canada maintains requirements that have a bearing on foreign investment. Several of these apply across all sectors. Specific restrictions apply to foreign investment in cultural industries, financial services, fishing, transportation, telecommunications and uranium mining.

Canadian sectoral restrictions are largely consistent with sectoral restrictions that exist in other countries. Overall, Canada remains committed to an open investment policy.

General Requirements – all sectors

The Canada Business Corporations Act requires that a simple majority of the board of directors, or of a committee thereof, of a federally-incorporated corporation be resident Canadians. "Resident Canadian"means an individual who is a Canadian citizen ordinarily resident in Canada, a citizen who is a member of a class set out in the Canada Business Corporations Act Regulations, or a permanent as defined in the Immigration Act other than one who has been ordinarily resident in Canada for more than one year after he became elegible to apply for Canadian citizenship.

The Canadian Business Corporations Act permits corporations to "constrain" the issue, transfer and ownership of shares in federally incorporated corporations. The object is to permit corporations to meet Canadian ownership requirements, under certain laws set out in the Canada Business Corporations Act Regulations, in sectors where such ownership is required as a condition to operate or to receive licenses, permits, grants, payments or other benefits.

Loans by the Farm Credit Corporation may be made only to:

Citizenship/residence requirements exist for a number of business service industries.

Industry Canada may review both new businesses and acquisitions of any size in areas involving cultural heritage or national identity, with the purpose of ensuring that they are of net benefit to Canada, including a contribution to Canadian cultural objectives. The following sectors are included:

No one person (Canadian or foreign) may own more than 10 per cent of any class of shares of a Schedule I bank. The Canadian government removed the limits on foreign ownership of federally-regulated financial institutions in December 1994. Foreign banks must incorporate subsidiaries in Canada to undertake the business of banking.

Fish processing companies which have more than 49 per cent foreign ownership are not permitted to hold Canadian commercial fishing licenses. There is no limit on foriegn ownership of fish processing companies that do not hold foreign licenses.

Foreign fishing vessels are prohibited from entering Canada's Exclusive Economic Zone except under authority of a license or under treaty. Foreign vessels are those which are not "Canadian" as defined in legislation. The Minister of Fisheries and Oceans has discretionary authority with respect to the issuance of licenses.

Broadcasting in Canada includes "over the air" broadcasting and cable television. Legislation (the Broadcasting Act) requires that the Canadian broadcasting system be effectively owned and controlled by Canadians. Foreign ownership of any given broadcasting licensee is limited to a maximum of 20 per cent.

The Canada Transportation Act, in Section 55, defines "Canadian" in the following manner:

Under the Canada Transportation Act and the Canadian Aviation Regulation, only "Canadians" may provide the following commercial air services:

1. "domestic services" (air services within Canadian airspace, or between points, or from and to the same point, in the territory of Canada, or between a point in the territory of Canada and a point not in the territory of another country);
2. "scheduled international services" (scheduled air services between a point in the territory of Canada and a point in the territory of another country) where those services have been reserved to Canadian carriers under existing or future government-to-government air services agreements;
3. "non-scheduled international services" (non-scheduled air services between a point in the territory of Canada and a point in the territory of another country) where those services have been reserved to Canadian carriers under existing or future government-to-government air charter arrangements;
4. "specialty air services" (aerial mapping, aerial surveying, aerial photography, forest fire management, fire-fighting, aerial advertising, glider towing, parachute jumping, aerial construction, heli-logging, aerial inspection, aerial surveillance, flight training, aerial sightseeing and aerial crop spraying), subject to exemptions for the contries enumerated below, and under the conditions therein specified.

A person from the United States, Chile and Mexico may obtain an operating certificate, subject to compliance by that person with Canadian safety requirements and other entry requirements, for the provision of those specialty air services specified above. These services are liberalized in accordance with timetables that form part of free trade agreements with the countries enumerated. However, there is no "right of establishment" in order to provide these services.

Regulations made under the Aeronautics Act incorporate by reference the definition of "Canadian" found in the Canada Transportation Act. These regulations require that a Canadian operator of commercial air services operate Canadian-registered aircraft. These regulations also require an operator to be Canadian in order to obtain an air operator certificate (other than a certificate based on a foreign-issued certificate), and in order to qualify to register aircraft as "Canadian".

No foreign individual may own a Canadian-registered aircraft for private use.

A corporation incorporated in Canada but that does not meet the Canadian ownership and control requirements may only register an aircraft for private use when the corporation is the sole owner of the aircraft. The regulations also have the effect of limiting "non-Canadian" corporations operating foreign-registered private aircraft within Canada to the carriage of their own employees.

The Coasting Trade Act restricts the transportation of cargo and passengers, along with all commercial marine activities in the territory of Canada to Canadian-flag, duty paid ships and is applicable to waters above the Continental Shelf for activities relating to exploration, exploitation and transportation of mineral and non-living natural resources. These ships do not have to be Canadian-built. Further, recent amendments to the Canada Shipping Act, (expected to enter into force on April 1, 1999) entitle any foreign corporation to own a Canadian-flag ship.

The Coasting Trade Act provides for the temporary importation of a foreign-flag or non duty-paid ship in cases where there is no suitable Canadian ship available to perform a specific activity. Application for the use of such a ship must be filed with Revenue Canada, Customs and Excise and reviewed by the Canadian Transportation Agency to confirm that a suitable Canadian ship is not available. Upon such confirmation, the foreign or non duty-paid ship can be granted a temporary coasting trade licence following payment of duty which is assessed at a montly rate of 1/120 of 25% of fair market value, and the ship meeting all safety and pollution prevention requirements imposed by Canadian law applicable to that ship.

The Principle of International Reciprocity is provided in accordance with international legal instruments to which Canada is a party.

Under the Investment Canada Act, where the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the Minster will advise the applicant of his right to make representations and submit undertakings to strengthen the application.

The only waivers of customs duties conditioned, explicitly or implicitly, on the fulfillment of performance requirements, that Canada may grant, are those provided to manufacturers of automotive goods under the Canada-U.S. Auto Pact, as provided for in Chapter 10 of the Canada-U.S. Free Trade Agreement, and the NAFTA.

There is no general Canadian policy on methods of privatization, including foreign participation in privatization. Canada’s most recent privatization of publicly held railways, which was massive in scale, did not have limitations on foreign ownership. Each privatization is carried out on a case-by-case basis.

When selling or disposing of its equity interests in, or the assets of, an existing state enterprise or an existing government entity, the Government of Canada may impose limitations on the ownership of such interests or assets, and on the ability of owners of such interests or assets to control any resulting enterprise, by non-resident investors. The Government of Canada also may adopt or maintain measures relating to the nationality of senior management or members of the board of directors.

Foreign investments are accorded national treatment and MFN status in accordance with international agreements signed by Canada that cover investment (e.g., WTO, the NAFTA, bilateral protection agreements). These international agreements contain some derogations from these principles, which are clearly laid out in those agreements.

Both at the federal and provincial levels, there exists legislation which gives authority to expropriate for public purpose in accordance with the rule of law, subject to compensation. In all circumstances, a fair and equitable legal process is available to the expropriated party for the determination of compensation.

Authorities first attempt to reach agreement on appropriate compensation, failing which the action is subject to the judicial process. Compensation is based on fair market value. Valuation criteria are determined by the courts and can include such things as asset value, going concern value, and other criteria.

Yes, subject to the obligation to provide compensation. (See 4.2(b)).

Yes, both corporal and incorporeal property are protected equally. Further, Canadian international investment agreements such as the NAFTA and Canada's model bilateral investment protection agreement provide protection to both tangible and intangible property.

The following federal laws relate to intellectual property protection in Canada:

There are no foreign exchange restrictions on inflows of foreign capital.

No

No

Foreign investors carrying on business in Canada are subject to the same tax rules as other enterprises. Corporations resident in Canada are subject to corporate income taxes, which are generally imposed similarly regardless of whether the corporation is owned or controlled by Canadian or foreign investors. Resident corporations are taxed on the basis of their worldwide income. Foreign investors carrying on business through Canadian branches of non-resident corporations are taxed in Canada in respect of their income earned in Canada.

A general income tax applies to corporate profits (benefit, dividends) at a rate of 29.12% (28% statutory rate, plus a 4% surtax). This rate is reduced to 22.12 % for manufacturing and processing income, and to 13.12% for small business income (i.e. taxable income not in excess of $200,000 generated by Canadian-controlled private corporations). Note that income taxes are based on residency: a Canadian resident corporation is liable for income tax on its worldwide income regardless of whether it is owned by canadian or foreign investors. Foreign investors carrying business in Canada through branches, rather than corporations, are liable for tax on income generated in Canada only.

Not applicable to the Canadian system.

A corporation can deduct dividends received from another corporation (i.e., inter-corporate dividends) on the grounds that the profits out of which dividends are paid were taxed when earned by the payer corporation. When dividends are distributed to individual shareholders, a dividend tax credit ensures integration of the corporate and personal income tax system; dividends received, grossed up by 25%, are included in taxable income and a 13 1/3% tax credit (i.e. about 25% combined federal-provincial) may be claimed against tax payable.

Generally, a withholding tax of 25% applies to interest paid by Canadian residents to foreign creditors, payments on account of rents, royalties, and other similar payments. This rate is reduced for such payments made to residents of a country with which Canada has a bilateral tax treaty; the minimum rate is 10%.

Generally, a withholding tax of 15% applies to fees, commissions, or other amounts in respect of services rendered in Canada by non-residents.

Generally, the cost of investment in tangible assets may not be deductible from taxable income in the year incurred. Rather, it is deducted over several years on a declining balance basis as a "capital cost allowance." Under the CCA system, tangible assets are classified in "classes"; each class has a different depreciation rate. There are 46 different classes and the rates range from 1% to 100%; the main classes are buildings and other structures, depreciated at 5%, and machinery and equipment, depreciated at 30%.

There are no special tax rules for foreign investment.

Canada has double taxation agreements in force with the following countries: the United States, Mexico, Argentina, Brazil, Guyana, Barbados, the Dominican Republic, Jamaica and Trinidad and Tobago.

A number of federal government incentive programs are available to Canadian and non-Canadian businesses. There are no specific federal incentives provided to foreign investors.

Yes, foreign and national investors have equal access to legal procedures in Canada. In addition, under the NAFTA and a number of bilateral investment agreements, foreign investors can appeal to international arbitration mechanisms.

Canada is a party to the Convention on the Recognition and Enforcement of the Foreign Arbitral Awards (the "New York Convention") done at New York June 10, 1958. It entered into force for Canada on May 12, 1986. Canada provides for use of the ICSID Additional Facility Rules and the Arbitration Rules of UNCITRAL in its bilateral investment protection agreements and in the NAFTA.

Yes. A list of Canada's treaties in the region that deal with investment, in whole or in part, follows:

Canada-United States Free Trade Agreement

Signed: 2 January 1988 entry into force: 1 January 1989

North American Free Trade Agreement

Signed: 17 December 1992 entry into force: 1 January 1994

Agreement between the Governments of Canada and the Republic of Argentina for the Promotion and Protection of Investments

Signed: 5 November 1991 entry into force: 29 April 1993

Agreement between the Governments of Canada and the Republic of Uruguay for the Promotion and Protection of Investments

Signed: 16 May 1991; not yet in force

Agreement between the Governments of Canada and the Republic of Trinidad and Tobago for the Reciprocal Promotion and Protection of Investments

Signed: 11 September 1995; not yet in force

In considering the "supremacy or juridical hierarchy" between domestic legislation and international investment protection agreements "especially in case of normative conflicts", it is important to note that in Canada, international agreements are not self-executing. Canada implements its international obligations through domestic implementing legislation.

Respecting Canada’s trade obligations under the NAFTA and the WTO, Canadian implementing legislation requires that federal laws that implement provisions of these agreements must be interpreted in a manner consistent with these agreements. More generally, Canadian court decisions have established that legislation should be interpreted in accordance with the relevant international agreements. Thus, in domestic court proceedings, litigants wishing to assert rights that might arise out of the NAFTA, WTO or an investment protection agreement are limited to resorting to the appropriate agreement only in circumstances where the relevant domestic law is to be interpreted.

While Canadian courts have established that the clearly expressed intention of the legislature must be implemented, even though it may be in conflict with international obligations, international investor-state arbitration flowing from the NAFTA or the applicable investment protection agreement is governed by the relevant agreement and legal principles governing arbitration and exists independently of domestic law. Further, in accordance with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and with federal and provincial law, awards resulting from such international arbitration are recognized and enforced as if rendered by domestic courts.

See answer to question 5.4

The Investment Canada Act and the Canada Business Corporations Act are administered by Industry Canada, a department of the federal government, and its Minister, the Minister of Industry.

The Office of the Superintendent of Financial Institutions, a governmental agency that reports to the Minister of Finance, supervises the banks, trust and loan companies incorporated at the federal level, and federally-chartered insurance companies. This agency reviews foreign financial institutions' applications to invest in Canada.

Sectoral legislation is administered directly by the relevant sectoral department of the federal government.