New Thresholds for Foreign Direct Investment Review

In recent weeks, Industry Canada has announced important developments that affect the regulatory review process for Canadian mergers and acquisitions. Below, we give a brief introduction to the foreign direct investment review process and highlight some of these important changes.

Under the Investment Canada Act, Industry Canada is empowered to receive notice and often conduct a regulatory review whenever a non-Canadian makes an investment to establish a new Canadian business or to acquire control of an existing Canadian business. In this context a “non-Canadian” is defined to include foreign entities, as well as an entity incorporated in Canada that is ultimately controlled outside of the country. This regime has been engineered to encourage investment in Canada, but also to ensure that Canada receives a “net benefit” from the major investments made by non-Canadians.

Under the foreign direct investment rules, a transaction that involves the acquisition of control of a Canadian business by a non-Canadian will require notice and/or regulatory review where it meets certain legislated “value thresholds.”

In recent weeks, Industry Canada has announced a new threshold of C$330 million applicable to most direct acquisitions of control of Canadian businesses by non-Canadians. This is an increase from the 2011 threshold of $312 million.  The lower threshold of $5 million will continue to apply to transactions that relate to “cultural businesses,” or where the parties are from non-WTO member countries.

Stay tuned for our next post discussing the Competition Bureau's new merger review guidelines.

"net benefit" test foreign investment Investment Canada Act regulatory review



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