Author(s):
Savvas Kotsopoulos
Nov 21, 2023
Canada’s allure as a global luxury retail destination remains unwavering. With its stable political, economic and financial system, a rapidly growing internationally diverse and educated population and a business-friendly legal landscape with minimal barriers, Canada has become a magnet for international brands looking to expand their “brick and mortar” footprints.
In the video below, Osler Real Estate Group partner Savvas Kotsopoulos outlines key considerations for retailers looking to set up a store network in Canada.
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Video Transcript
SAVVAS: Hi, I’m Savvas Kotsopoulos, a partner at Osler based in Toronto in the Real Estate group. I am also a member of Osler’s top-ranked-Retail industry group.
Canada continues to benefit from a steady pace of international luxury brands expanding their “brick and mortar” footprints into our country. Canada continues to attract international retailers because it has a stable political, economic and financial system; a rapidly growing internationally diverse and educated population, and limited legal barriers to business- set-up. In this video I will highlight some important considerations for retailers looking to set up a store network in Canada.
Canada’s most often cited cultural differentiators are its political structure that splits powers between a central federal government and smaller provincial ones, and its bilingualism. The French language predominates in Québec and English predominates elsewhere. Care will need to be taken by a retailer so that its practices are harmonized for compliance with both provincial and federal laws. Somes key legal requirements of note for retailers include:
- federal requirements that some goods sold in Canada must have both French and English labelling and packaging
- the mandatory use of French for communications and signage by businesses operating in Quebec and the application of civil law (as opposed to common law in the rest of Canada); and
- the absence of “employment at will” such that an employee cannot be terminated without notice (or pay in lieu of notice) absent just cause.
Most new fashion retailers begin their initial store rollouts with a handful of key retail node locations in Toronto, Montréal in the east and Vancouver in the west. Leasing practices are not materially different from those in the United States, although the competition for key high streets and leading shopping centre locations can be significant, leading to a more landlord-friendly negotiating environment. A landlord requirement for a binding offer to lease, for instance, is not uncommon.
The structure of a retailer’s Canadian business will be driven principally by income tax and liability considerations. For instance, Canada levies a 25% withholding tax on certain types of Canadian source income of non-residents. Typically, retailers will set up a Canadian subsidiary rather than utilizing a foreign vehicle to operate as a branch. Setting up a corporation is straight-forward, can be completed quickly and many jurisdictions have removed Canadian residency requirements for directors and officers.
Those retailers seeking to use a franchise model must be aware of and comply with robust franchise and disclosure laws which have been enacted in several provinces.
Desired store opening dates will need to factor in ample lead time for the completion of lease negotiations, obtaining building permits and construction schedules due to a very busy and competitive construction industry in Toronto and Vancouver.
Businesses in Canada may be subject to both federal and provincial income tax. The Goods and Services Tax (GST) is a value-added tax implemented federally that applies to most goods and services in Canada and in some provinces, GST is combined with a provincial sales tax component into a single Harmonized Sales Tax (HST) – 13% in Ontario for instance. Customs duties also apply to goods imported by a retailer into Canada.
Incoming retailers should look for opportunities at the planning stages to minimize liability for income taxes and duties and ensure full compliance with applicable Canadian sales tax and customs laws considering the various tax treaties with other countries that Canada is a party to.
For more information on these and other legal and practical considerations that will need to be navigated, please reach out to me or other members of Osler’s top-ranked Retail group. We have extensive and current experience working with many new entrants into Canada.