The Influence Of Trade Agreements On Canadian Corporate Tax

Canada’s free trade agreements are an important and integral part of keeping the country’s economy strong. Free trade supports businesses and the supply chain. Designed to foster the unencumbered flow of commerce, Canada’s trade agreements serve to keep the markets open and allow for multilateral trading. These agreements are negotiated to not only benefit Canadian consumers but also to maintain Canadian businesses’ access to markets worldwide. As a G7 economy, Canada has free trade access to all of the G7 countries and the European Union. Among the top trading partners is the United States with a net value of $476.7 billion in exports and $392.9 imports in 2021 alone. Canada makes for an attractive country for investments and doing business particularly because of the low Canadian corporate tax rates. To learn more about corporate tax in Canada, consider contacting a Canadian tax attorney at Jeremy Scott Law by calling (902) 403-7201.

An Overview of the Canadian Economy

Canada’s economy rivals those of other highly developed nations. Canada’s largest industries are real estate, manufacturing, and mining, quarrying, and oil and gas extraction. Data from the World Bank indicates that the country was the ninth-largest economy in 2020. That year, Canada’s annual GDP was $1.64 trillion with one-third of the GDP coming from international trade. The country’s effective trade agreements play a role in stimulating this traffic in exports and imports. The top three trading partners include the United States, China, and the United Kingdom.

Canada’s Economic Resilience

While most countries’ economies took a hit during the global financial crisis, Canada was successful in weathering the storm far more efficiently than many others. The country’s stringent regulations on the banks have resulted in Canada having one of the most reliable and sound banking systems globally.

International Business Appeal

In addition to a wide breadth of natural resources and a highly educated workforce, there are also the advantages of the free trade pacts that country has. This is why international businesses and investments are robust. Another important thing to note is that the Canadian corporate tax rate is a prime contributor to getting the attention of small to mid-sized businesses. These companies who are interested in reducing their tax burden while also gaining access to global markets may easily look to Canada to expand.

Canadian Corporate Tax Rates

Canada offers myriad advantages and benefits for international businesses to conduct operations in the country and invest in it. Among the most appealing is the low corporate tax rates. Reducing Canadian corporate tax rates to 15% makes the country quite competitive when compared to other developed and first-world economies. By comparison, the United States’ corporate tax rate is 21%; although Canada’s next-door neighbor does offer corporations a number of tax incentives, many businesses may prefer the simplicity of a lower base tax rate. If you have other questions concerning Canadian taxes, Jeremy Scott Law may be able to provide answers.

Why Have Free Trade Agreements?

The term “free trade” generally refers to agreements between countries aimed at limiting or abolishing tariffs, quotas, and other governmental obstacles that are believed to make international trade more cumbersome and costly. As a result, a view with relatively wide acceptance among economists is that free trade has an overall net positive effect on economic welfare. By allowing each country to more efficiently produce particular goods that they specialize in making at a lower price point, all countries can achieve a higher standard of living. Transitioning to a free-trade agreement from an existing tariff structure can come by way of unilateral, multilateral, and bilateral methods of trade reform.

Canada’s Broad Trade Networks

Canadian trade pacts allow for businesses expanding into the country access to diverse, global markets. Some of the most prominent trade pacts include:

• North American Free Trade Agreement (NAFTA)
• European Union Comprehensive Economic and Trade Agreement (CETA)
• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

How Canadian Companies Benefit From NAFTA

NAFTA is a critical trade agreement between Canada, the United States, and Mexico. This agreement was signed in 1994 and established the world’s largest free trade area, which has bolstered economic growth and improved standards of living for all the countries involved since its inception. The trade pact continues to demonstrate its positive effects on Canada’s economy and the country’s future prosperity by expanding export opportunities, building competitive businesses, growing North American relationships, and attracting foreign investments.

Total trilateral merchandise trade increased over threefold in 2016 from where it stood in 1993 just prior to the signing of the trade pact. Additionally, the pact was key in expanding the North American economy which reported a combined gross domestic product (GDP) for all three countries to be $21.1 trillion that same year. Cooperation through the agreement allows for each of the participant countries to not only sell their domestic products with the other member countries freely, but also to create opportunities for businesses located in any of the three participating nations to work together to create products through effective and strategic collaborations.

How Does CETA Affect Canadian Industry?

In 2017, CETA was formed to connect Canada and the European Union through a productive trade alliance. Since its establishment, CETA has had a strong positive effect for Canadian business owners. The agreement allows as much as 98% of Canadian goods entry into the EU without costly customs and duties. Before the agreement was signed, customs and duties could be as high as 25%. Additionally, CETA also eliminated non-tariff barriers, which makes connecting with more than a half a billion new consumers a much more attainable goal for many Canadian business owners.

The significant lowering of tariffs on a wide variety of Canadian Exports to the EU by way of CETA has had an undeniably positive impact for Canadian entrepreneurs. Since CETA was signed, Canadian businesses’ exports to the EU have increased significantly. Exports soared, up 16.6% from $6.6 billion to $46.6 annually. The expansion of the export market for Canadian goods facilitated by the agreement has boosted several of Canada’s industries, including:

• Food and agricultural market
• High-tech manufacturing
• Building materials
• Industry machinery and parts
• Metal products
• Chemicals and plastics

Speak to a Canadian Tax Lawyer Today

There are several benefits to conducting business in Canada in addition to the Canadian corporate tax rate. However, working through provincial guidelines and rules and understanding the tax laws can be difficult to navigate alone. A Canadian tax attorney at Jeremy Scott Law may be able to help entrepreneurs ensure that they can keep their focus on running their operations while adhering to proper tax laws and having any tax audits managed on their behalf. For more information, call (902) 403-7201 today.