TMF Group, a leading provider of compliance and administrative services, has today launched the ninth edition of its Global Business Complexity Index (GBCI).
The comprehensive report analyses 77 jurisdictions, locations which account for 92% of the world's total GDP and 95% of net global FDI flows. It compares 292 annually tracked indicators, offering data on key aspects of doing business, including rules, regulations, tax rates, incorporation timelines, payroll and benefits, penalties and other compliance factors.
The study confirms that the US, Denmark and Hong Kong are still in the top 10 easiest jurisdictions when it comes to doing business. They are joined by the UK (68th position vs 53rd in 2021) and Jersey, now 72nd. The Cayman Islands (77th) and Curacao (76th) are 1st and 2nd.
The UK has ranked in the ten least complex countries for the first time. The ranking does not relate to trade barriers and any Brexit impacts that now apply. At the time of the UK's exit from the EU there was uncertainty for businesses which resulted in it going up the rankings due to increased complexity. In 2022 it seems that the dust is settling and the impacts of the UK's departure are becoming clearer so companies are able to start trading more freely again despite the negative impact for some sectors.
The UK government has been working to become more relaxed and straightforward in its approach to business in order to remain attractive, including taking a simple approach to business incorporation. There is no requirement for resident directors and setup can be achieved in as little as a day, meaning that international businesses can start full operations with ease. One aspect that can delay operation is setting up a bank account. This is driven by banks and financial institutions and can create complexity for startups from other jurisdictions, such as the US.
Following Brexit and Covid-19 the UK has been experiencing an inflation crisis and issues related to supply chains which have impacted business operation.
Furthermore, recent events in Russia and Ukraine have created some uncertainty in the UK. The government has been imposing new legislation and sanctions to impact Russia and support Ukraine. For example, the Economic Crime Bill, announced in February 2022, mandates the disclosure of foreign property ownership and aims to reduce the hiding of Russian money and assets in the jurisdiction.
The UK is set to remain attractive in the future as the government looks for more ways to compete with its European neighbours following Brexit. One advantage to operating in the jurisdiction is a highly skilled talent base that is accustomed to working internationally and for foreign businesses.
The US maintains its ranking among the simplest jurisdictions. A key driver of simplicity is that the government actively looks to make it corporate friendly: in recent years corporate tax rates were reduced in an effort to increase investment. Thanks to its skilled workforce and clear global reach, the US is set to remain one of the most attractive jurisdictions for foreign businesses.
However, operating across states in the US can add an administrative burden, with states having different tax rates, as in Delaware, so ensuring that such tax rates are honoured across state borders is a necessary aspect of business operation. This can also create additional administration when setting up as there can be a need to incorporate in multiple states when nexus is established. However, this is not typically complex, so when properly administered foreign businesses can avoid issues.
At the other end of the spectrum, Brazil once again tops the rankings as the most complex jurisdiction globally, followed by France. Mexico, Colombia, Bolivia, Turkey and Poland are still among the top 10 least business friendly jurisdictions and are joined by countries where complexity has increased over the past 12 months: Italy (8th position versus 15th in 2021), Greece (6th vs 13th) and Peru (3rd vs 24th).
Key drivers of complexity in Brazil are the volume of regulatory changes each year, as well as the three layers of tax regimes to comply with – federal, state and municipality. One of the most complex processes in Brazil remains incorporating new companies, at 45 days it takes much longer than most other countries, with businesses dealing with three layers of regulation.
TMF Group CEO Mark Weil said: "Our 2022 findings arrived at the time of Russia's invasion of Ukraine and as such, it does not take into consideration the difficulties arising from international sanctioning processes and the overall geopolitical instability. Against that backdrop, we need to do all we can to simplify the path to investing and operating around the world. Low friction trade and investment are a good way to stimulate economic growth. We hope that the report will help investors pick and manage their destinations with greater confidence. Our message isn't to avoid investing in complex jurisdictions as these are often among the most attractive for talent and customer opportunities. Rather it is to invest with eyes open and ready to manage the rules that might otherwise put your licence to trade at risk".
In addition to analysing 77 locations, the report identifies key themes shaping the global business landscape and regulatory environment.
Emerging from Covid-19
The study reveals that some of the measures put in place such as tax exemptions, increasing employee rights and the acceleration of digital reporting are in the process of being reversed to pre-pandemic status.
Property tax payments on business premises reduced in frequency during the peak of the crisis. However, in 2022, 14% of jurisdictions require some or all companies to pay the tax at least every three months, compared to 9% of jurisdictions in 2021.
On the HR (human resources) and payroll side, the trend for remote working has increased, to the point where it's legal or standard in most industries in 31% of jurisdictions, compared to 10% of 2020. The rise of remote working does have tax implications, however.
Certain HR-related benefits such health insurance (58%), childcare assistance (31%) and housing/social care contributions (27%) have increased compared to previous years. Companies are also required to submit reports and information related to equality, covering areas such as gender pay gap and disabilities, in more jurisdictions – up to 26% in 2022 from 9% in 2020. Authorities in 51% jurisdictions require employee demographic reports at least once every three months, while 36% insist on the same cadence for gender pay gap reports.
Compliance and the flow of FDI
The report highlights a simultaneous growth in both complexity and the flow of FDI. Experts in a larger percentage or jurisdictions (34% in 2022 vs 28% in 2021) are predicting an increase in FDI the next five years, reflecting post-pandemic optimism at investment opportunities.
Technology continues to play a role in both increasing and curtailing complexity. Digital literacy is an important factor, with 16% of jurisdictions now automatically notifying all the relevant authorities following incorporation.
For businesses seeking to incorporate and operate across borders alignment is key, allowing them to operate similarly across multiple jurisdictions. Adoption of international standards such as CRS (86% of jurisdictions in 2022 vs 82% in 2020) and FATCA (82% vs. 76%) has been growing, reflecting a steady global move towards transparency.
ESG on the rise
ESG is becoming more of a focus for business globally. However, despite the increase in interest, legal enforcement of ESG practices is only in place for around 50% of jurisdictions. This is especially the case outside the EU, demonstrating a lack of international alignment. The impact of ESG is therefore difficult to measure.
ESG is on the rise globally, with jurisdictions such as France leading the way for many years. However, many governments are at an early stage of their engagement by starting to look at adopting environmental initiatives and guidelines.
Top and bottom ten (1= most complex, 77= least complex)
|1. Brazil||68. United Kingdom|
|2. France||69. Norway|
|3. Peru||70. New Zealand|
|4. Mexico||71. United States|
|5. Colombia||72. Jersey|
|6. Greece||73. British Virgin Islands|
|7. Turkey||74. Hong Kong|
|8. Italy||75. Denmark|
|9. Bolivia||76. Curaçao|
|10. Poland||77. Cayman Islands|