Investment Canada Act threshold exemption for European Union companies directly acquiring Canadian businesses increases to $1.5 billion effective September 21, 2017

Effective September 21, 2017, most of the provisions contained in the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act (Act), including those provisions amending the Investment Canada Act, will come into force.

Currently, most direct acquisitions of Canadian businesses by foreign investors are exempt from the pre-merger review and approval process under the Investment Canada Act if the enterprise value of the target Canadian business is under $1 billion.  However, with the Act’s implementation of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU), the $1 billion threshold will on September 21 increase to $1.5 billion (adjusted annually to reflect increases in Canada’s GDP) for direct investments made by citizens and permanent residents of any of the current 28 EU member countries and for the business entities controlled by them.  Nationals of the U.S.A., Mexico, Chile, Peru, Colombia, Panama, Honduras and South Korea will also benefit from the higher $1.5 billion threshold due to the terms of their current trade agreements with Canada.

As was the case previously, Canada has reserved the right under CETA to apply different thresholds for direct acquisitions of Canadian cultural businesses ($5 million of asset book value) and for direct acquisitions of Canadian businesses by foreign state-owned enterprises (currently $379 million of asset book value).  Foreign investors who will not benefit directly or indirectly from the CETA-based threshold increase will remain subject to the current $1 billion threshold.