Canada continues to experience a number of new entrants to its retail market and of retailers that are expanding their businesses throughout the country. Whether expanding into or throughout Canada by way of acquisition, e-commerce or bricks and mortar (or a combination), retailers will be faced with a number of business and legal considerations.
Tax and Corporate Structure Considerations
Consider tax and corporate law implications. Tax and corporate considerations include: (i) determining whether to operate as a branch or a subsidiary, (ii) the type of entity and jurisdiction (in the event of a subsidiary or new Canadian entity), (iii) ensuring compliance with Canadian registration requirements such as extra-provincial registrations, business number registration, goods and services tax, harmonized sales tax and provincial sales tax registrations, worker's compensation registrations and, in certain provinces, employer health tax registration, (iv) abiding by applicable transfer pricing and customs valuation requirements and (v) developing efficient inter-corporate structures for sales, provision of services and licensing of intellectual property. Some Canadian jurisdictions have corporate director residency requirements. Any tax considerations should also consider the Income Tax Act's General Anti-Avoidance Rule ("GAAR"), which prevents abusive tax avoidance transactions.
Customs and Trade
Consider administrative and regulatory issues in your supply chain design. A variety of government agencies regulate and/or enforce laws impacting the importation of goods — from product specifications to the application of customs duties and other border charges. Certain categories of goods such as apparel and accessories have relatively high duty rates, which should be considered in strategy and projections.
Labour and Employment
Ensure your employment policies and agreements comply with Canadian legislation. Employment laws in Canada can differ quite significantly from those in other jurisdictions. It is essential that employment policies, agreements and handbooks comply with applicable provincial and federal legislation. In Canada, while certain employers are regulated federally, the vast majority of the workforce is regulated by provincial governments. Each province regulates labour and employment matters in a similar though not identical manner. If your business has multiple locations in Canada, employment policies and agreements must comply with those jurisdictions' laws.
There is no "at will" employment in Canada. Unlike the United States and other countries, unless the employment agreement specifies a particular termination package or there is a legal justification for a termination, an employer must provide reasonable notice of termination or pay in lieu of notice.
E-commerce and Digital
Canadianize your terms and conditions. Issues relevant to establishing a Canadian e-commerce website include compliance with Canadian provincial e-commerce and consumer protection legislation, security, domain name acquisition and meeting "Canadian presence requirements", meeting foreign ownership restrictions on the sale of "cultural products", meeting French language requirements applicable for selling into or in Québec and legal issues relating to privacy, accessibility, marketing, advertising, contests and promotional programs (including with respect to arrangements with influencers).
Pricing, Marketing and Advertising
Develop a robust compliance program regarding advertising and pricing strategy. Canadian advertising law regulates various aspects of the advertising and pricing of retail goods, including the advertising of sale and bargain prices and claims of what constitutes "ordinary" prices. Canadian competition laws also apply to issues of price fixing and price maintenance, including Minimum Advertised Price policies. Retailers must understand these parameters when establishing their marketing and pricing strategies. Advertising and promotions law in Canada is regulated both federally by the Competition Act and by provincial consumer protection legislation. Contests and sweepstakes are governed federally by a combination of the Criminal Code and the Competition Act. In addition, there are special issues involving contests and advertising directed to minors that require careful treatment.
Labelling, marketing and advertising have different
language requirements in Québec. In the province of
Québec, generally all
language appearing on labels must be in French, and no other
language may appear with greater prominence. This can also extend
to public advertising, product documentation and websites.
Consumer Protection
Get up to speed on Canadian consumer protection legislation. Foreign retailers need to ensure that they are compliant with the various consumer protection regimes in Canada, including applicable federal and provincial laws and legislation across Canada related to consumer protection. Consider a robust compliance program that addresses issues such as disclosure, returns, claims and pricing. As with employment laws, consumer protection legislation varies from province to province and consideration should be given to ensuring a consistent yet tailored approach across Canada.
Intellectual Property
Your business can benefit from intellectual property ("IP") protection in Canada. There are four main forms of intellectual property protection in Canada, which are trademarks, patents, industrial design and copyright. Most acts regulating IP are federal legislation with the Canadian Intellectual Property Office ensuring compliance. Canada is also part of various international treaties on IP, such as the World Trade Organization agreement on Trade-Related Aspects of Intellectual Property Rights, which makes Canada robust for IP protection. Finally, provincial laws also play a role in IP protection, mostly in enforcing IP rights and in regulating other spheres of IP, such as IP contracts, business names and personality rights.
Privacy and Cybersecurity
Develop a Canadian-specific privacy and cybersecurity compliance plan (or tailor your existing plan to your Canadian operations). Canada has privacy legislation that applies to retailers from coast to coast, including unique laws in certain provinces. Your plan should start with a clear picture of how you handle personal information, alignment of your consent processes to Canadian law and a customer-facing privacy policy. You should also update your incident response plan, as Canada has mandatory breach notification for data breaches. Also, it is important not to make the mistake of thinking the European Union's General Data Protection Regulation ("GDPR") compliance means compliance in Canada.
Anti-Spam Legislation
Canadian anti-spam legislation applies to you even before you enter Canada, as the laws apply even to organizations outside of Canada to messages that are received in Canada. Further, Canada's anti-spam legislation applies to all commercial electronic messages (and not only messages that are commonly thought of as spam) and is one of the toughest in the world. As such, a carefully designed compliance program is required. Penalties can be as high as C$10 million, and the regulator does enforce the law against legitimate businesses for their email and text messaging practices.
Modern Slavery Legislation
Canada's Fighting Against Forced Labour and Child Labour in Supply Chains Act (the "Act") may impose new reporting obligations on your business. The Act came into force January 1, 2024 and takes on Canada's international commitment to contribute to the fight against forced labour and child labour. Businesses that qualify as "reporting entities" under the Act are required to meet their reporting obligations by May 31 of each year. Canada's government published guidance on the Act's requirement, which includes a guideline on who is a "reporting entity." Among others, reporting entities will have to prepare a report that meets all the requirements in the Act, answer an online questionnaire and publish their report on a prominent place on their website. Failure to comply with the Act may be punishable with fines up to C$250,000. Directors, officers or agents may also be held liable under the Act.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
