Foreign direct investment (FDI) plays a vital role in Canada’s economy, yet Ottawa manages a careful balance between openness and protective review. Investors need to grasp a dual reality: Canada generally embraces incoming capital, employment opportunities and technological advances, while applying focused oversight when matters of national interest, security or strategic sovereignty emerge. This article outlines the governing legal structure, highlights the strategic sectors drawing official attention, offers practical guidance for navigating the process, notes expected timelines and provides examples to assist foreign buyers in planning transactions involving 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.
Essential actionable steps for international 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: Review periods can span from several weeks to many months. Initial assessments by staff are often completed within roughly 30–90 days, while more intricate net-benefit evaluations or national security reviews may stretch well past that window. Lengthy mitigation discussions can further prolong the process. It is prudent to anticipate that regulatory scrutiny will exceed the duration of a standard commercial closing.
- Costs: Fees for legal counsel, advisors and compliance efforts can be significant. When mitigation is imposed, carrying out and supervising required measures (for example, data ring-fencing or establishing Canadian subsidiaries) introduces continuing costs.
- Outcomes: Regulatory decisions may result in unconditional clearance, conditional approval with undertakings, orders to divest, or an outright ban. National security authority has, on occasion, been exercised to stop deals entirely.
Illustrative cases and lessons
- CNOOC’s acquisition of Nexen (2013): A high-value foreign acquisition by a Chinese state-owned enterprise that was approved after a public review. The deal proceeded with commitments aimed at protecting Canadian operations and investments. The case illustrates that state-linked buyers can succeed when they offer clear economic benefits and credible undertakings.
- Blocked transaction: a proposed takeover of a major construction firm (2018): The federal government blocked a takeover of a Canadian infrastructure company by a large foreign state-owned enterprise on national security grounds. The decision shows that infrastructure and construction companies connected to critical projects can trigger enforcement even when the bidder is willing to negotiate mitigations.
- Real-estate and provincial measures: British Columbia and Ontario introduced significant non-resident property taxes and registration requirements in response to housing affordability concerns. These provincial tools demonstrate that even if federal investment rules permit a purchase, local taxes and restrictions may materially affect deal economics.
