Foreign control in the Canadian economy, 2019

Provincial incorporation of enterprises under foreign control in Canada

Provincial governments are making continuous efforts to attract multinational enterprises (MNEs) to do business in their province. Although MNEs are relatively few in number, accounting for less than 1% of all enterprises nationally, they contributed 15.3% to the Canadian gross domestic product and employed 18.2% of the total corporate sector workforce, on average, for the years 2016 to 2018 (Activities of multinational enterprises in Canada).

Corporations under foreign control can gain from an array of business advantages offered by each province. Furthermore, these corporations can choose instead to incorporate at the federal level, to benefit from business supports from the federal government.

This analysis explores data on the rate of incorporation and operation of business entities under foreign control, at the provincial level. It uses data on corporations from the Corporations Returns Act, as well as data from Statistics Canada's Business Register, which was used to identify the province of operation. The analysis covers the period from 2016 to 2018 and, unless noted otherwise, statistics presented in this analysis refer to the average of those years.

Corporations controlled by US entities have a different provincial incorporation pattern

Data from the Corporations Returns Act indicate that 29.6% of all foreign entities in Canada were incorporated at the federal level during the 2016-to-2018 period.

Corporations controlled by entities from the United Kingdom, France, and the Netherlands were observed to incorporate in provinces with strong economic activity, such as Ontario, Quebec, Alberta and British Columbia.

During the years 2016 to 2018, on average, entities from the United Kingdom were incorporated in Ontario (25.6%), British Columbia (13.4%) and Alberta (10.7%). For the same period, companies from France were incorporated in Quebec (27.8%), Ontario (18.2%) and British Columbia (4.0%). As for those from the Netherlands, the ratio of incorporation was divided between Alberta (21.2%), Ontario (16.0%) and British Columbia (9.2%). Similarly, foreign-controlled firms from the region of Asia chose to incorporate mostly in Ontario, Alberta and British Columbia for the three years indicated earlier.

On the other hand, corporations controlled by entities from the United States had a different pattern of incorporation at the provincial level. The analysis showed that corporations under US control were incorporated in Ontario (24.5%), Nova Scotia (19.9%) and British Columbia (13.3%). Unlike the other corporations under foreign control, Nova Scotia is favoured as a province to incorporate for US controlled corporations.

A small proportion of corporations from the United States designated Nova Scotia as their province of operation

The province of incorporation of a foreign multinational enterprise does not guarantee it will establish the majority of its operation activities in this province.

Detailed analysis showed a discrepancy between the rate of incorporation and the rate of operating activity of US-owned entities for the years 2016 to 2018. For the three-year period, 15.3% of US-controlled corporations that were incorporated in Nova Scotia also identified this province as their province of operation, while 84.7% of them designated another province as the place where they held their operations.

These findings indicate that most corporations under US control that chose to incorporate in Nova Scotia are in fact not operating in that province.

Possible factors that would incentivise US-owned businesses to incorporate in Nova Scotia

Nova Scotia can attract foreign entities as a result of its corporate law framework, the Nova Scotia Companies Act (NSCA), which provides one of the most flexible Canadian incorporation statutes.

The NSCA allows for no director residency requirement and no legislation ruling on companies acquiring shares in their parent company. Furthermore, the NSCA provides a legal framework that supports the establishment of Unlimited Liability Companies, which allows a different tax treatment for US-owned corporations when they file taxes in the United States.