Canada continues to attract global businesses thanks to its stable economy, multicultural society, and proximity to the United States. Cities like Toronto, Montreal, and Vancouver offer a dynamic commercial landscape supported by a highly skilled workforce and business-friendly immigration policies. However, expanding into Canada requires thoughtful strategic planning; particularly around how to establish your legal presence.
Two common methods international companies consider are:
- Creating a Canadian subsidiary, or
- Using a Professional Employer Organization (PEO).
While both options are viable, incorporating a subsidiary often provides greater long-term advantages in terms of control, compliance, and credibility.
Why Incorporating a Subsidiary Makes Strategic Sense
Establishing a subsidiary means setting up a separate legal entity under Canadian law. This entity operates independently but remains fully owned and controlled by the parent company. A subsidiary allows you to:
- Hire employees directly
- Open a Canadian bank account
- Sign contracts in Canada
- Participate in local Requests for Proposal (RFPs)
- Qualify for government programs and tax incentives
- Support work permit and permanent residency applications under Canadian immigration law
Unlike a PEO, a subsidiary signals permanence and seriousness to Canadian partners, investors, and government agencies.
Quick and Remote Incorporation Process
Contrary to what many expect, incorporating in Canada is quick, efficient, and can be done entirely online. At Hadri Law, we guide our clients through a streamlined incorporation process that typically includes:
- A short checklist of business information
- No in-person presence required
- E-signatures accepted via DocuSign
- No notarization needed
- Incorporation completed within 24 hours (in most cases)
And importantly, most provinces (like Ontario, BC, Alberta, Quebec, and Nova Scotia) no longer require a resident Canadian director.
Immigration Advantage: Only Canadian Employers Can Sponsor Work Permits
A key limitation of using a PEO is that it cannot effectively support immigration goals. Canadian immigration law requires that an employer have a genuine operational presence in Canada and direct control over the employee. Only an incorporated Canadian entity qualifies to sponsor:
- Intra-company transfers
- Global Talent Stream work permits
- Employer-driven permanent residency programs
This makes a subsidiary the only reliable path for companies that plan to hire or relocate international talent to Canada.
Access to Canadian Tax Incentives
Federal and provincial governments offer significant tax credits and funding programs to incorporated Canadian businesses such as:
- SR&ED (Scientific Research and Experimental Development) tax credits
- Innovation grants
- Export development funding
These programs are not available to foreign companies using PEOs or other temporary arrangements.
Risks and Drawbacks of Using a PEO
While PEOs can help you hire staff without a local entity, they come with several limitations:
- You lose control over employment terms, benefits, and HR policies
- PEOs often use generic employment agreements that may not fully protect your business
- Costs can add up quickly with monthly fees per employee
- Immigration sponsorship is usually not permitted
- PEOs often assign employer liabilities to the foreign company in service contracts
- Quality and compliance support varies greatly between providers
In short, while a PEO might appear convenient at the outset, it’s rarely the best long-term solution for companies seeking to grow and hire in Canada.
Final Thoughts
Setting up a subsidiary in Canada offers numerous advantages:
- Full operational control
- Legal compliance under Canadian corporate and employment law
- Access to tax and funding programs
- Support for immigration and global talent strategies
- A strong, credible presence in the Canadian market
At Hadri Law, we provide end-to-end legal support for foreign companies expanding into Canada from incorporation to corporate structure. For trusted legal guidance, call us at 437‑397‑2374, email contact@hadrilaw.com, or book your free consultation today.