Canada takes top spot in KPMG’s Focus on Tax special report
According to KPMG’s Focus on Tax special report, Canada and Greater Montréal once again lead the world as destinations of choice for businesses and foreign investment, this time thanks to their competitive business tax costs. The report compares corporate income taxes, capital taxes, sales taxes, property taxes and statutory labour costs in 111 cities and 10 countries using a Total Tax Index (TTI) for each location and taking the U.S. as a benchmark.
The 2016 edition of the report shows that Canada’s TTI stands at 52.4 for all sectors combined. In other words, total tax costs in Canada are 47.6% lower than in the U.S., which has a TTI of 100. Montréal has a TTI of 57.4, close to 43% lower than that of the U.S.
Overview of global rankings
Canada stays in the lead in 2016, well ahead of the United Kingdom, which placed second with a TTI of 64.5.
The U.S. dropped from 5th place in 2014 to 7th place in 2016 due to the impact of the strong U.S. dollar. For countries other than the U.S., the appreciation of the U.S. dollar means that costs for non-income taxes (i.e., other corporate taxes and statutory labour costs) are lower in 2016 than in 2014 when converted to U.S. dollars.
A look at Canada’s performance
The report compares total tax costs for 19 business operations across four main sectors: digital services, R&D services, corporate services, and manufacturing. Not surprisingly, Canada is the leader in each sector.
The country ranks first for digital services operations, with a very low TTI of 25.4. This means that tax costs for a company operating in the digital services sector in Canada are 74.6% lower than for the same type of company operating in the United States. Canada’s competitiveness in this sector is primarily due to significant provincial incentives that provide financial support to video game producers and other digital media industries. Companies operating in Québec, for instance, receive a refundable tax credit for the production of multimedia titles, which covers 26.25% to 37.5% of wages, in addition to the refundable tax credit for film production with combined tax credits that can cover up to 38% of eligible costs.
In the R&D services sector there is intense competition among jurisdictions, with many offering attractive R&D tax incentives. Canada’s performance this year is consistent with the 2014 rankings. Still in the lead, the country fares particularly well, reflecting the impact of significant provincial and federal incentives in this sector. In Québec, for instance, companies can qualify for the Scientific Research and Experimental Development (SR&ED) Tax Credit program and receive a 15% tax credit from the federal government in addition to a 14% refundable tax credit from the Québec government. The program is instrumental to helping Québec-based companies significantly lower their R&D costs.
Greater Montréal businesses can also benefit from other tax measures, including:
- A 30% tax credit for the development of e-business, which includes a 24% refundable tax credit and covers up to $25,000 of salaries per employee per year.
- The refundable tax credit for international financial centres, which covers 24% of wages, up to $16,000 per employee per year.
- Financial assistance for job creation and training, covering 25% of eligible costs incurred to implement a training program and 50% of costs incurred to create a human resources department.
- The ESSOR fund for major projects, which provides repayable and non-repayable contributions and loan guarantees for specific sectors.
- The Strategic Aerospace and Defence Initiative (SADI), which provides repayable contributions covering up to 30% of R&D project expenditures.
- The tax holiday for foreign researchers and experts, which provides a five-year exemption from provincial income tax.
Foreign businesses can clearly enjoy a host of tax advantages in Greater Montréal—all just steps from the U.S., in the heart of the North American market. Now, that’s something worth spreading the word about.
According to the 2016 edition of KPMG’s Competitive Alternatives report released earlier this year, Greater Montréal also boasts the lowest operating costs in North America.