Foreign direct investment review in Canada is regulated by the federal government under the Investment Canada Act (ICA). For the most part, the ICA provides that foreign investments fall under the jurisdiction of the Minister of Innovation, Science and Economic Development (Minister of Innovation, Science and Industry). The Minister of Canadian Heritage is charged with reviewing investments that involve a Canadian cultural business.
In general, any acquisition of control of a "Canadian business", or the creation of a new Canadian business, by a "non-Canadian" is either notifiable or reviewable under the ICA, depending on the structure of the transaction, the nature of the control exerted by the foreign investor, and the value and nature of the Canadian business being acquired. The direct acquisition of control of a Canadian business will be subject to review where applicable thresholds are exceeded, which vary based on the nature of the Canadian business being acquired, and the country from which the investor is ultimately controlled. Information on the 2021 Investment Canada Act thresholds and how they are calculated can be found here.
For transactions that are subject to "review", the responsible Minister must conduct a "net benefit" review to determine whether the transaction is likely to result in a net benefit to Canada based on a number of factors set out in the ICA. In order to satisfy the net benefit test, foreign investors are often called upon to provide undertakings evidencing continued commitment to Canada. When a transaction does not meet the financial thresholds, the investment is subject to "notification", which means foreign investor is required to file a notification of the transaction no later than 30 days after closing.
Separate and apart from the net benefit review and notification requirements, acquisitions of all or part of a "Canadian business", or the creation of a new Canadian business, by a "non-Canadian" are also subject to review to assess whether the transaction could be injurious to Canada's national security.
National security reviews can take, if all stages of the review take their maximum allotted time, 200 days or more from the date of filing an application or notification. The initial review period is 45 days from the date that an application or notification is submitted. As of August 2, 2022, the Minister can raise national security concerns in relation to minority investments not subject to review or notification up to 5 years after closing. In order to alleviate this prolonged period of uncertainty, a voluntary notification regime was introduced. Once a voluntary notification is certified as completed, the Minister has 45 days to advise if it is considering The Minister of Innovation, Science and Industry
(Minister) has the authority to review almost any investment by a non-Canadian, or any creation of a new business by a non-Canadian, regardless of the size of the interest acquired or the value of the assets, when they have reasonable grounds to believe such an investment could be injurious to national security. Remedies can include prohibition of a proposed investment or divestiture of a completed one.
National security" is not defined in the ICA, but the Canadian government first published guidelines in 2016 (Guidelines) which outlined a number factors that the government may consider when assessing a transaction's impact on national security, including the type of investments and the sectors of the economy that might be subject to additional scrutiny. On March 24, 2021 the Canadian government issued updated Guidelines that expands the types of foreign investments that may raise national security concerns under the ICA. Additionally, on October 28, 2022, the Canadian government issued a new policy on investments by foreign state-owned enterprises (SOEs) or private investors with close ties to foreign governments in Canada's critical minerals sectors and critical minerals supply chains. Under the policy, review applications for acquisitions of control by such investors of Canadian businesses involving critical minerals will only be approved in exceptional cases and any other such transactions are likely to raise national security concerns.
