BDO LLP | INTERNATIONAL TECH HUBS
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WHAT’S THE AVAILABILITY OF CAPITAL AND INVESTMENT? Emerging tech companies are especially hungry for capital as a rule, and in Canada there is a corresponding appetite to invest in technology. In particular, we are seeing more and more foreign investment. Primarily, there is a lot of private equity coming from the US to invest in technology, whether that’s a tack-on acquisition to add to a company portfolio or a brand-new acquisition. Canada currently stands at #6 in Forbes’ annual look at the Best Countries for Business (2019), which measures countries that are most hospitable to capital investment. That’s 11 spots above the US. For emerging companies, there is a good range of angel investors at the early stage and the pool of venture capital continues to develop and is becoming more available to draw on as they start to scale. WHICH COUNTRIES ARE INVESTING IN CANADA? Along with the US, other key countries that are investing in tech in Canada would include China (Hong Kong enjoys long-standing links with the West Coast and Toronto) and the UK, followed by a selection of some of the other bigger European economies. WHAT ABOUT RESEARCH FUNDING? Canada offers in excess of 200 types of incentive credit for businesses engaged in what we call SR&ED, or scientific research and experimental development. Most are available to companies regardless of whether they are Canadian-owned, foreign or foreign-owned. Often, they are aimed at different categories, such as clean tech, pure tech or the manufacturing sector. In addition, each province has its own set of incentives to offer as well. The thrust behind all of these benefits is to incentivise businesses to conduct R&D in Canada. It’s a more robust incentive system than many other countries, including the US, and often very lucrative. In some cases, depending on the province you’re operating in, you could end up recovering at least half of your spend on R&D activity, whether that’s developing IP, or developing the next generation of some type of a service offering that you have. And a lot of that is actual cash in hand, with no tax payable on it in Canada. Some countries take a more retrospective approach to R&D credits, but in Canada the approach is very much around incentivising the development of ideas from the outset, with the aim of encouraging more great tech companies to want to do business in this jurisdiction.
WHAT ARE THE SOFTER BENEFITS OF DOING BUSINESS IN CANADA? With its progressive politics and famously relaxed, welcoming culture, Canada is one of the world’s most admired countries. History, geography and culture all come together to offer a quality of life that is among the best in the world, making it a country that’s very agreeable to live and work in. Canada has a stable economy, with minimal red tape and corruption, which withstood the 2008 financial crisis better than many other countries because of early intervention and strong governance. For decades, Canada has been consciously working to make itself more attractive to foreign investors, and – just as it takes years to shape an outward-facing economic and business environment – so many other aspects of its appeal have been hard-won over generations: low crime rates, high literacy, a high standard of living, a diverse culture that is very accepting of overseas cultures. Canada has a very open stance towards immigration, as a result of which there are populations from countries and ethnic groups the world over. It’s wonderful during the football World Cup, for example – whichever team wins a game, there’s always a celebration somewhere! ARE THERE ANY SPECIFIC TAX OR ACCOUNTING PARTICULARITIES TO BE AWARE OF? One point to make here – and which often comes as a surprise to European countries – is that we have no statutory audit requirements in Canada. So you don’t need to file your financial statements with any organisation and you don’t need to have a statutory audit, all of which is very similar to the regime in the US. Canada’s corporate tax rate is also one of the lowest among international business destinations. From an accounting perspective, you can use local GAAP if you’re a private company, but everyone here is also very familiar with US GAAP and IFRS as well. If you’re looking to move business into Canada, the conversation always needs to start with a clear understanding of your goals, and then the focus of advice and regulatory efforts follows from that. Some tech companies just want to set up an R&D centre, for example, so the area of incentives becomes really important. In other cases, you might have SaaS-based operation, with people on the ground floor who are helping to sell the service, so tax on profits is more in play. We may also need to look at the structure of the entity, with a view to scaling the structure in line with the business’ growth and perhaps a planned path to exit. As always, it’s a matter of seeking bespoke advice in light of your plans for the future operations of the entity.
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