TMF Group's Global Business Complexity Index 2022 explores 292 different indicators relating to business complexity, to provide in-depth analysis of the global and local challenges that impact on the ease of doing business across the world.
In this article, we take a closer look at the jurisdictions that top this year's index, exploring the reasons behind their rankings. While business complexity is high in these locations, opportunity often awaits those who can navigate it successfully.
We hope that the insights from the GBCI will help investors pick and manage their target markets 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 be ready to manage the rules that might otherwise put your operations at risk.
Brazil once again tops the ranking as the most complex jurisdiction after being at number one in 2021. The 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.
Last year Brazil's complexity was driven by short-term changes made in response to the Covid-19 pandemic. This included temporary government incentives to help businesses reduce their payroll costs, and tax reductions to help companies retain their workforce. These adaptive changes came with a heavy administrative burden. Now, in this year's GBCI, the cessation of these incentives comes with a similar administrative workload as businesses revert to normality.
On the plus side, Covid-19 accelerated Brazil's already high levels of digitalisation. For example, prior to the pandemic, all notarial services required a physical presence, and the face-to-face signing of documents. This has been replaced by solutions such as digital formatting and video calls, and these changes look set to stay.
One of the most complex processes in Brazil remains the incorporation of new companies, taking a very long 45 days as businesses deal with three layers of regulation. At the federal level, businesses must set up a tax ID, and select their tax code based on the specific sector of their company. Companies pay VAT and service tax at the state level, and revenue tax at the municipal level. Revenue taxes vary from city to city. While this lengthy process is now mostly digital, companies must have an appointed locally residing representative. Foreign shareholders must appoint a resident legal representative and the local entity must have a locally residing officer.
Our experts in Brazil anticipate the year ahead to be 'business as usual'. They predict that no major reforms will occur in advance of the presidential elections in October 2022. From 2023 onwards, tax reform and simplification will likely become an active discussion on the political agenda.
While regulations in Brazil are complex, the jurisdiction presents opportunity, with a large consumer market of 213 million inhabitants. Assets under administration in Brazil are at an all-time high, with growth in the energy, infrastructure, and services sectors.
"The dynamic of doing business in Brazil is one where you need to actively monitor for regulatory updates. Brazil is one of the jurisdictions with the highest number of legal or tax changes each year." – Rodrigo Zambon, Sub-Regional Director, TMF Brazil
France remains in second place in our 2022 rankings. Historically employee centric, the French government's approach during Covid-19 emphasised that approach with economic schemes to help absorb some of the impact of the pandemic, supporting companies and, in turn, their staff. Although this support was attractive to businesses, benefitting from the schemes added administrative complexity. France also continues to be particularly challenging for business due to the number or labour laws that protect the employee.
Accounting and tax can be particularly complex in France due to local language requirements and the number of taxes and tax reports that need to be filed. These factors are challenging for foreign businesses which must adapt to local ways of working.
France is considered a leading jurisdiction for ESG, especially environmental and social legislation, and was an early adopter of EU rules, developing ESG regulations before the EU. Examples include gender equality legislation and rules for the employment of people with disabilities, which apply for companies with as few as 20 employees.
Although France is positioned as a complex jurisdiction, the current French government is business-oriented and is attempting to make the jurisdiction a more attractive destination. Therefore, complexity here lies in traditional and structural barriers.
"You have so many different taxes and taxes for everything. You can have taxes on jewellery, you can have taxes on publicity, you can have taxes on water. You have taxes on many things, depending on your activity. A basic subsidiary will have to pay and fill out documents for around ten different things, even for a small company. It surprises foreign investors because they are not used to having so many different taxes to prepare." – TMF France expert
Complexity increased significantly in Peru since 2021, moving up from 24th to 3rd position in the ranking. This follows political unrest over the past six years, with corruption leading to caretaker governments. The inauguration of new president Pedro Castillo is contributing to uncertainty due to a perceived lack of political experience.
The process of incorporation is another key driver of complexity for both foreign and local business. It takes around 20 days, with the need for in-person signatures and meetings with notaries contributing to this extended period.
Another complexity factor is the monthly tax reporting requirements introduced in 2021. These require any business with monthly accounts of 10,000 soles (€2,540) or more to submit tax reports, with a view to reducing tax evasion. While this can be cumbersome for businesses, it does appear to support the drive for transparency.
Peru remains a highly attractive jurisdiction thanks to its rich natural resources such as zinc, copper, iron, and lead. In order to protect these resources and drive sustainability, Peru has laws and legislation related to the treatment of land. For example, the jurisdiction mandates public consultations that can take up to a year to explore the environmental impact of businesses seeking to profit from natural resources. Although this does increase complexity, it boosts the jurisdiction's environmental credentials, making it more attractive to organisations and individuals driven by sustainability.
"I think one of the big things that needs to change to make Peru simpler for businesses is the introduction of e-signatures. At the moment, there is a need for in-person signatures, and visits to notaries. This can slow things down and make things more complex." – Geraldo Arosemena, General Manager, TMF Peru
Unlike many other jurisdictions, Mexico did not implement any incentives during the pandemic to ease the financial pressure on businesses. This was in part due to the slow-moving nature of parliament, but also the impending 2022 political elections.
Incorporating a company remains one of the most complex aspects of doing business in Mexico. All companies must have a tax ID in order to legally exist, but this can only be obtained through a physical appointment, in order to collect biometric data. Throughout the pandemic, the tax authorities reduced their operating capacity to around 40%, adding significant delays to incorporation times. Opening a bank account is also a lengthy process, typically taking two to three months.
Operating in Mexico is complex but generally relatively predictable. Yet a recent law was passed requiring all companies to pay permanent employees 10% of profits generated each financial year. New businesses can be set up with this in mind, but this change created complexity for existing companies that had to manage and accommodate it. It also led to many businesses that hired subcontractors moving towards hiring permanent staff. Some companies that provide outsourcing services are subject to heightened reporting requirements.
From 1 January 2022, a new law came into action requiring businesses to provide information on UBOs to tax authorities. The exact requirements of the new law are not clear, with new obligations lengthening the incorporation process by around three weeks.
Another recent reform concerns payroll reporting. Tax authorities must timestamp all documents, and new legislation is coming into law which requires the postal code of employees to be on the timestamp. This will create a large and idiosyncratic administrative burden. However, there is hope that Mexico will move to become simpler as it moves beyond the pandemic.
"I think the one thing that is going to ease complexity is the pandemic winding down. We expect the tax authority bottleneck to ease. With that aspect improving, all processes of establishing a business in Mexico may become simpler, a little bit less painful." – Monica Vera, Managing Director, TMF Mexico
Colombia has experienced many legislative changes over the last ten years. Taxes are very complex, having to be filed at national, regional and local level. The presence of more than 1,200 municipalities is one of the key drivers of complexity for businesses in the jurisdiction.
During election years the country is at a standstill, apprehensive until the outcome of the election is clear, and this has become more severe over the last two elections in which a viable centre-left candidate emerged.
Colombia has become a recent adopter of ESG legislation. A new law in December 2021 aims to create and preserve forests and other natural areas throughout Colombia, and the government has set out an agenda in line with the Paris Agreement to be carbon neutral by 2050. The government also introduced a new kind of employment law, whereby companies can receive incentives for hiring young people and/or women.
"This is a very important year for Colombia. Although the elections are creating some uncertainty about future government policies towards companies and investments, the country has positively managed the pandemic and, after fully recovering its 2020 losses, is expected to grow more than 5% in 2022 according to the OECD." – Jose Melendez, Accounting & Tax Market Head, TMF North Latam
Greece continues to be a complex place to do business. As in previous years, a key driver of complexity are the constant changes to legislation, with 150-200 new laws and 1,500-2,000 new decisions every year.
Although a changeable legislative climate is not new, the jurisdiction has become more complex in the last year, moving up the rankings from 13th in 2021. This has been driven by a new digital system introduced during Covid-19. Without this system, there would have been no other way for businesses to incorporate and operate due to a previous reliance on face-to-face contact between organisations and government bodies.
The introduction of digital processes typically simplifies incorporation and operations in the long term. However, it can create an initial period of increased complexity. We expect doing business in Greece will become simpler in the coming years thanks to this move, but it has produced pain points for the time being. As an example, the government has created a template for online business incorporation. However, it is only relevant for around 10% of businesses. For businesses that cannot benefit from the template, a visit to a notary is still required.
Accounting and tax digitalisation has also been problematic. The government's 'MyData' portal allows entities to upload tax records (sales) in real time, including the reporting of expenses and assets. In the long run, this aims to reduce complexity by giving the authorities a more complete and current view. However, revenues and expenses for 2021 need to be backdated. The Greek government has postponed the deadline for the submission of documents related to backdated revenues, due to the complexity of this process. MyData also requires investment: a minimum of €20,000 for medium to large businesses.
Despite the increase in complexity in the jurisdiction, Greece does remain attractive and there are hopes than in future years it will reap the benefits of its focus on digitalisation.
"During the Covid years, there was no other way because, in practice, we didn't have electronic government processes. Within six months, the government tried to implement certain things, but it turned out to be electronic bureaucracy. So, we moved from the typical bureaucracy to the digital." – Yannis Goussiakis, General Manager, TMF Greece
Turkey changes regulations regularly and continues its efforts to digitalise public services. Challenges lie in the short time period given to adapt to changes and lack of a collaborative cross-government effort, making compliance difficult. Regulatory changes are introduced with minimal information and guidance. Although it is difficult to adapt these changes within the required timeframes, they are intended to make Turkey a major player in the global economy.
Economic difficulties have also caused problems for Turkey in the past year. The Turkish lira has depreciated against foreign currencies and the country has experienced hyperinflation. The annual CPI for Turkey in 2021 was 40%, with the production index around 86%. In the first quarter of 2022, production index rates reached 100%, meaning there will be a significant impact on the price of consumer goods in the months following. Such uncertainty and flux can drive complexity for foreign businesses.
Despite the challenges, Turkey will be an affordable market and considered attractive for foreign investors. However, the propensity for consumers to decrease may deter foreign investment.
"In an environment where we offer services to multinationals and the decision-makers are outside of Turkey, you need to make all relevant parties aware of frequent changes in regulation and ask them to act quickly to adapt to the required changes as the signing authority. That is the main difficulty for all market stakeholders." – Emir Sagkan, Managing Director, TMF Turkey
Italy has become increasingly complex over recent years, moving from 15th position in 2021 to eighth in this year's GBCI.
This hike in complexity is partly due to Italy being one of the first countries in Europe to introduce e-invoicing in 2020. Cross-border invoices will be added to the existing digital business-to-business transaction requirements from July 2022. While the steps required to transition to e-invoicing are challenging and time-intensive, in the long term it should make operations far simpler by reducing manual input of accounting documentation. In the future, e-invoices could become the basis of VAT returns.
Despite the shift to digital invoices, the entity activation process in Italy remains highly manual, usually taking between 30 and 90 days. During the incorporation phase of new Italian companies, a notary needs to be involved, requiring in person company proxy holders. Also, incorporation documents must be notarised abroad, in person, and electronic signatures are not accepted. A large backlog caused by Covid-19 increased timeframes due to access restrictions at the Revenue Agency and Trade Register public offices.
After incorporation, additional complications arise from the rules around resolutions having to be passed by boards of directors and shareholders, which usually only take place twice a year.
The process of opening a bank account in Italy is also complex. Italy has aligned with the EU directive's anti-money laundering (AML) laws, but Italian regulators are applying additional restrictions to identify UBOs. This leads to additional documentation requirements, some of which must occur in person.
Alongside EU AML and UBO register alignment, Italy follows common accounting standards. Like Luxembourg, Italy's accounting standard is Local GAAP, but this has gradually become more aligned with IFRS principles.
Italy has a highly regulated labour market which can cause complications for businesses due to inflexibility. Any settlement or termination agreements with employees must be carried out in front of the labour office or trade unions. Additionally, labour law regulations frequently change along with governments, although Prime Minister Draghi looks set to lead a (rare) stable period of government ahead.
Local requirements are a key reason for Bolivia's top 10 position, such as the need for a Bolivian national or locally resident legal representative, and foreign workers must not exceed 15% of a company's total employees. Furthermore, the accounting system needs to be in Spanish and the local currency, managed by a certified accountant within Bolivian territory. These factors drive complexity for foreign businesses that are used to a more globalised approach.
The onus on paper filings also makes things more complicated. Companies have a legal obligation to keep paper records of activity for three to eight years, depending on the government entity that supervises it. This ranges from its constitution and meeting minutes to accounting records. Despite this 'old fashioned' approach the jurisdiction is gradually becoming more digitalised with declarations of management taxes, pension funds and salary now being conducted via web portals.
Bolivia is progressive when it comes to sustainability legislation. For instance, at the beginning of commercial activity every company must obtain an environmental licence to be able to operate and stay valid, with commitments depending on their line of activity. This is attractive to businesses and investors seeking to operate in a more sustainable manner. However, failure to comply with this licence can be subject to fines.
Although businesses can face complexity in Bolivia, it is still an attractive jurisdiction thanks to its wealth of natural resources. With a commitment to sustainable practices, there is hope that this attractiveness will continue, and complexity will reduce.
"The digital declaration through web portals of management taxes, declarations before the Pension Fund Administrators (AFPs) and salary lists for the Ministry of Labour do help to make things simpler for businesses in Bolivia." – Luis González, Country Leader, TMF Bolivia
Over the past year the Polish government introduced multiple pieces of legislation that were passed in a short timeframe and accompanied with little public guidance. The main change was the introduction of the 'Polish Deal', which was significant as it overhauled taxation system. It did not just change tax laws impacting corporations, entrepreneurs and employees, but also the way that salaries are calculated. With a lack of guidance from the authorities, this has caused salary calculation problems for companies.
Labour laws in Poland were already complex and the Polish Deal implementation in January 2022 led to the resignation of several government officials and two amendments to this new law with more to come later this year.
Before the Russian invasion of Ukraine, Poland was witnessing a hesitancy of foreign business activity. For example, the Polish government and judicial system challenged some principles of EU legislation, resulting in some funding being put on hold. Although Poland wants and needs foreign investment, the Polish government has prioritised state investment.
"The Polish government needs foreign investment but would like to ensure that the dominant position remains with the state. We already have the Polish real estate holding. There are plans to create further state-supported groups to control assets and achieve greater independence from foreign businesses, such as hotel holdings or a national group of Polish food producers, which can make the Polish market difficult for others to operate in. However, the geopolitical situation in the CEE region changed dramatically and might result in Poland strengthening its ties with the western European and US economies." – Joanna Romanczuk , Head of CEE Market, TMF Poland
The Global Business Complexity Index
The GBCI 2022 provides an authoritative overview of the complexity of establishing and operating businesses around the world. It explores factors driving the success or failure of international business, with a focus on operating in foreign markets, and outlines key themes emerging globally as well as local intricacies across 77 jurisdictions.
Explore the GBCI rankings, analysis and global trends to help you find your path to growth, amid the complexity of corporate compliance.
To download and read the report in full, visit the Global Business Complexity Hub today.
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