Foreign direct investment (FDI) is essential to Canada’s economy, but Ottawa balances openness with protective screening. Investors must understand a two-track reality: Canada broadly welcomes capital, jobs and technology, while exercising targeted scrutiny where national interest, security or strategic sovereignty are at stake. This article explains the legal framework, strategic sectors that attract attention, practical navigation steps, timelines and illustrative cases to help foreign buyers plan transactions that involve Canadian assets.
The legal and institutional structure
- Investment Canada Act (ICA): The ICA sets out the federal framework for reviewing foreign takeovers of Canadian businesses. It features a conventional net benefit assessment for qualifying deals and a distinct national security review authority that operates without monetary thresholds. Oversight is carried out by the federal department charged with economic development and industry matters.
- Net benefit test vs. national security review: The net benefit test applies when transactions exceed specific financial thresholds and considers how the deal may advance Canada’s economic interests, such as employment, R&D, or capital commitments. The national security review, by contrast, may be invoked for any investment if officials suspect the transaction could pose risks to national security.
- Provincial and sectoral regulators: Provincial frameworks and industry-focused regulators also play key roles. Illustrations include provincial rules on land and farmland ownership, telecommunications licensing and spectrum management, Fisheries and Oceans for marine-related assets, and aviation authorities overseeing airports or air transport facilities.
- State-owned enterprises and sensitive parties: Transactions involving state-owned enterprises or foreign investors closely linked to foreign governments generally undergo heightened review and may be subject to more rigorous national security scrutiny.
Which sectors draw the most scrutiny
- Critical minerals and energy: Canada is rich in minerals and hydrocarbons. Acquisitions involving rare earths, lithium, nickel, uranium or major oil and gas infrastructure trigger close attention because of supply-chain implications and strategic value.
- Telecommunications, data and digital infrastructure: Ownership of networks, data centers, and companies holding large volumes of personal or sensitive data is sensitive because of espionage and privacy risks.
- Defense and dual-use technologies: Aerospace, cybersecurity firms, advanced manufacturing and suppliers to the armed forces are high priority for national security screening.
- Transport and critical infrastructure: Ports, rail corridors, bridges and airports have clear national-security or public-safety implications.
- Real estate in sensitive locations: Residential and commercial property near military bases, major infrastructure, or critical government facilities is watched; provinces have imposed taxes or restrictions on foreign residential buyers.
- Food, agriculture and water resources: Control of farmland, processing facilities or food supply chains can be sensitive for food security and provincial policy reasons.
Key practical steps for foreign buyers
- Screen early: Once a target emerges, promptly evaluate whether the transaction meets the ICA net benefit threshold or might fall under a national security review, helping prevent unexpected issues or closing delays.
- Engage Canadian counsel and advisors: Local legal, regulatory and sector experts should guide filing requirements, industry-specific permits, stakeholder expectations and any likely conditions.
- Pre-notification consultations: Leverage confidential pre-notification discussions with the reviewing authority to resolve questions and identify possible national security concerns, which can streamline the formal review process and support mitigation planning.
- Consider deal structure: Structures such as minority stakes, joint ventures or staged acquisitions may avoid net-benefit review thresholds, though national security powers apply regardless of size.
- Prepare mitigation proposals: Be prepared to offer voluntary commitments, including Canadian board participation, pledges to sustain R&D or employment, data localization measures or limited access to specific facilities.
- Coordinate with provincial authorities: Real estate transactions, farmland acquisitions and resource licenses frequently require provincial approvals or registrations.
- Plan for timing and conditionality: Factor regulatory timelines and the possibility of conditions, remedies or divestiture orders into closing strategies and financing arrangements.
Schedules, expenses and anticipated results
- Timelines: Reviews can range from weeks to many months. Typical initial staff reviews may be measured in 30–90 days; more complex net-benefit reviews or national security inquiries can extend beyond that. Complex mitigation negotiations add time. Always assume regulatory review will be longer than an ordinary commercial closing timeline.
- Costs: Legal, advisory and compliance costs can be substantial. If mitigation is required, implementing and monitoring undertakings (e.g., ring-fencing data or creating Canadian subsidiaries) adds ongoing expense.
- Outcomes: Possible outcomes include unconditional approval, approval with conditions or undertakings, divestiture orders, or outright prohibition. The national security power has occasionally been used to block transactions outright.
Illustrative cases and lessons
- CNOOC’s acquisition of Nexen (2013): A major cross-border purchase by a Chinese state-owned enterprise that received approval following a public review process. The transaction moved forward with commitments designed to safeguard Canadian operations and investment levels. This example shows that state-affiliated buyers can prevail when they present tangible economic advantages and offer credible assurances.
- Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government halted an attempted acquisition of a Canadian infrastructure company by a prominent foreign state-owned enterprise due to national security concerns. The outcome demonstrates that firms involved in critical infrastructure work may face intervention even if the bidder expresses willingness to adopt mitigation measures.
- Real-estate and provincial measures: British Columbia and Ontario implemented substantial non-resident property taxes and registration obligations in response to mounting housing affordability issues. These provincial actions show that, despite federal investment rules allowing a transaction, regional taxes and restrictions can significantly influence overall deal economics.
