Investment Canada Act - Guide For Foreign Investors In Canada: 2026

Introduction

Any non-Canadian who proposes establishing a new Canadian business, or acquiring or investing in an existing business in Canada should be aware of the provisions of the federal Investment Canada Act (ICA).1

Under the ICA, the federal government reviews investments in Canada by non-Canadians to protect national security and, for certain significant investments, encourage investment, economic growth and employment opportunities in Canada. The review and notification provisions can apply not only to investments in Canadian-owned entities or businesses, but also to investments in businesses or entities that are currently controlled by non- Canadians. They can also apply to a Canadian business that is acquired (or to be acquired) indirectly through the acquisition of a foreign entity that has a Canadian subsidiary

The Foreign Investment Review and Economic Security (FIRES) branch of Innovation, Science and Economic Development Canada is responsible for administering the ICA and reviewing non- cultural investments in Canada by non-Canadians. The Department of Canadian Heritage reviews investments in cultural businesses.

This guide provides a high level overview of the ICA. However, many provisions of the ICA are highly technical and counsel should be consulted to confirm the ICA’s application to particular investments.

Overview: National Security Review and Net Benefit Review

The ICA establishes two frameworks: national security review (NSR) and net benefit review (NBR).

Under the NSR framework, the Canadian government has broad discretion to review an investment by a non-Canadian on grounds that it could be injurious to Canadian national security. The NSR process may be invoked with respect to either: (i) a controlling or a minority investment in, or an acquisition of assets of, a Canadian business, or (ii) the acquisition of any portion of an entity that has a place of operations in Canada, employees in Canada or assets in Canada used in carrying on its Canadian operations.

No minimum financial threshold applies for an investment to be subject to an NSR. The Canadian government has prescribed time periods (described below) within which it must initiate an NSR process. These time periods may be initiated with the filing of a notification or the implementation of the investment, permitting the government to undertake an NSR on a post-closing basis. Pending regulations will implement a new mandatory preclosing notification regime for certain types of investments in specified sensitive sectors that may raise national security concerns.

Under the NBR framework, an acquisition of control of a Canadian business by a non-Canadian is either notifiable or reviewable. This will depend on the value of the Canadian business being acquired, who owns the non-Canadian investor prior to the acquisition, and whether the Canadian business is a “cultural business.” As monetary thresholds for NBRs of most types of transactions have substantially increased over time, relatively few transactions have been subject to preclosing NBRs in recent years.

An NBR notification, when required, may be made either prior to closing or within 30 days of closing. It requires basic information concerning the acquisition, the investor and the acquired Canadian business. Notification does not itself represent an impediment to closing an acquisition and, apart from cultural businesses, the government does not currently have the ability to “call in” notifiable investments for review under the NBR framework.

However, except in very limited circumstances, an acquisition that is subject to preclosing review under the NBR framework may not be completed until and unless the Minister of Industry or, in the case of an acquisition of a cultural business, the Minister of Canadian Identity and Culture (the Minister, as applicable), is satisfied that the acquisition is likely to be of net benefit to Canada.

The ICA also requires non-Canadians to file a notification of an investment to establish a new Canadian business. Any such establishment may be subjected to an NSR and, in certain limited circumstances, the establishment of a new Canadian cultural business (or an acquisition of a Canadian cultural business below the applicable NBR threshold) may also be subject to an NBR.

Who is a “Non-Canadian”?

A “non-Canadian” is an individual, government, government agency or entity that is not a “Canadian.” An individual is a “Canadian” for the purposes of the ICA if the person is a Canadian citizen or a permanent resident of Canada who has been ordinarily resident in Canada for not more than one year after first becoming eligible to apply for Canadian citizenship. (A permanent resident may apply for Canadian citizenship after three years in Canada.)

The rules for determining whether a corporation is a Canadian under the ICA are complex but essentially require a determination of whether the individuals who are the ultimate controlling shareholders of the corporation are “Canadians.” When shares in a corporation are owned by a partnership, joint venture or certain trusts, the ICA may deem such shares to be owned by the partners, joint venture members or beneficiaries, respectively. This “look through” principle does not apply to shares owned by corporations.

Determining whether shareholders are Canadian may be practically impossible in the case of a widely held corporate investor, in which case the determination may be based on the citizenship or permanent resident status of the members of the investor’s board of directors. In this case, a corporation would be “Canadian” only if it is not controlled in fact by a non-Canadian (or a voting group of non-Canadians) through ownership of its voting shares, and at least two-thirds of the members of its board of directors are Canadians. An equivalent rule applies to limited partnerships whereby a widely held limited partnership is “Canadian” if it is not controlled in fact by a non-Canadian (or a voting group of non-Canadians) through ownership of its limited partnership interests, and at least two-thirds of its general partners are Canadians.

The ICA also contains additional rules for determining whether partnerships and trusts are “Canadian.”

In the context of NSRs, investments by state-owned enterprises or acquisitions of cultural businesses, the Minister may determine an entity that otherwise qualifies as a Canadian to be a non-Canadian if it is controlled in fact by non-Canadians.

What constitutes a “Canadian Business” or a “Canadian-Linked Entity”?

The term “Canadian business” is defined in the ICA to mean a business carried on in Canada that has (i) a place of business in Canada; (ii) an individual or individuals in Canada who are employed or self-employed in connection with the business; and (iii) assets in Canada used in carrying on the business. The term “business” is, in turn, defined to include any undertaking or enterprise capable of generating revenue and carried on in anticipation of profit.

The NBR process applies only to acquisitions of control of Canadian businesses by non- Canadians. The NSR framework, on the other hand, may apply more broadly to not only an acquisition of control of a Canadian business, but also to any acquisition “in whole or in part” of an entity that carries on all or any part of its operations in Canada and has (i) a place of operations in Canada; (ii) persons in Canada employed or self-employed in connection with the entity’s operations; or (iii) assets in Canada used in carrying on the entity’s operations. For convenience of reference, this guide refers to such an entity as a “Canadian-linked entity.”

What is an Acquisition of Control?

For the purposes of the ICA, an “acquisition of control” of a Canadian business can occur only by means of the acquisition of (i) voting shares of a corporation; (ii) “voting interests” of a non-corporate entity (which for partnerships and trusts means an ownership interest in the assets of the entity that entitles the owner to receive a share of the profits and to share in the assets on dissolution); or (iii) all or substantially all of the assets of a Canadian business. The acquisition of voting interests of a non-Canadian entity that directly or indirectly controls a Canadian subsidiary carrying on a Canadian business is considered an acquisition of control of the Canadian business. However, the acquisition of shares of a non-Canadian company with a Canadian division, but no Canadian subsidiaries, is not an acquisition of control of a Canadian business within the meaning of the ICA.

The following chart summarizes the general rules for determining whether an investor has acquired control of a Canadian business:

However, in the context of NSRs, cultural businesses or investments by state-owned enterprises, the Minister may deem that an entity is or is not controlled by another entity, or that there has or has not been an acquisition of control of another entity, on the basis of an assessment of whether control in fact exists or has been acquired.

What is a State-Owned Enterprise?

The ICA broadly defines a state-owned enterprise (SOE) to include a foreign government or agency, or an entity or individual controlled or influenced, directly or indirectly, by a foreign government or agency. The ICA does not define the term “influenced,” but it may include something less than legal control.

The ICA also allows the Minister to deem an entity to be a non- Canadian if the Minister is satisfied that the entity is controlled in fact by one or more SOEs. Moreover, the Minister may determine that an investment by an SOE constitutes an acquisition of control in fact even if the investment does not otherwise meet the definition of an acquisition of control.

As discussed below, acquisitions by SOEs attract generally lower thresholds for an NBR, and the government has issued some policy statements regarding NSRs and NBRs of investments by SOEs.

What are the available exemptions?

Certain acquisitions of control that are subject to approval under specified federal legislation governing banks and some other financial institutions are exempt from both NBRs and NSRs. The ICA also contains several additional exemptions from NBR review (but not NSR review), including, most notably, mergers and corporate reorganizations following which the ultimate direct or indirect control of the Canadian business through the ownership of voting shares remains unchanged. Other NBR exemptions include acquisitions of control pursuant to (i) ordinary course provisions of venture capital under certain conditions, (ii) trading in securities in the ordinary course of a person’s business, and (iii) the facilitation of short-term financing where certain conditions are met.

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