Expanding your business globally can help you access new markets, increase profitability and drive competitive advantage. The key to success is understanding the complex rules and regulations that govern entity incorporation in each jurisdiction.
What is incorporation?
Incorporation is the legal process that must be followed to set up a new entity in a foreign jurisdiction. The journey to incorporation can be challenging – organisations are often required to navigate complex regulatory requirements, unpredictable timelines and language barriers, which can delay operational readiness and impact business expansion plans.
Incorporation involves multiple steps, ranging from choosing and registering the type of business entity, to appointing personnel and opening a business bank account. Each step requires some administrative effort, but careful planning and research can make the journey easier.
The current global outlook
The latest Global Business Complexity Index (GBCI) report presents us with an already complicated global landscape, with the majority of jurisdictions (54%) predicting that global regulatory requirements will become increasingly complex in the next five years. Many jurisdictions even identify difficulties in the regulatory environment as the predominant trend causing complexity for foreign investors. It is the combination of an ever-expanding set of rules and regulations, accompanied by more stringent penalties for non-compliance, that drives this sense of complexity.
The impact of digitalization
The movement towards digitalisation has seen a somewhat mixed trajectory over recent years. While there has been an overall increase in jurisdictions allowing online document submission since 2020 (with over 3 in 4 jurisdictions doing so in 2024), the trend has not been uniformly positive.
This mixed adoption of technology has been due to the fact that many official compliance processes still need to be completed via a paper-based system. For example, requirements for legal entity documents to bear an official stamp, chop or seal for legal effectiveness is still significant, at 33% globally. This is driven in particular by South American jurisdictions, where the requirement is as high as 70%, as well as other jurisdictions such as Romania, the Philippines and Serbia. This blended approach to traditional submission modes, alongside digitalised methods, adds to the complexity of business incorporation, particularly for multinational companies more accustomed to digital processes.
Operational readiness
There are two strands of conflicting thought when it comes to operational readiness, On the one hand, there is a rising trend in the levels of government engagement required for incorporation. Conversely, the average number of bodies required for various incorporation steps has generally decreased or remained static. From establishing a regulated fund, to incorporating the business, obtaining operating permits/ licences and recruiting employees, the need for multiple bodies has either remained the same or lessened slightly. Some TMF Group experts have also highlighted simplification of these processes in particular, potentially resulting from streamlining, and from familiarity with regulations. While this does not point to overall increasing complexity within the incorporation space, it does point to an ever-changing environment that businesses need to keep abreast of when entering new markets.
To add to this, within this year's GBCI report, just one in 10 jurisdictions highlighted the ability to hire all types of workers before incorporating as a legal entity. This is marginally higher than in 2020 and the capability to hire some types of workers before becoming a legal entity does fluctuate per jurisdiction, But while this may not initially deter an investor from entering a market, it can add to the complexity of entering said market and becoming operationally ready at the same time.
The effect on foreign investment
As such, increased regulatory compliance requirements are not always viewed in a negative light. In fact, nearly half of TMF Group experts surveyed as part of this year's GBCI reported that regulatory compliance actually facilitates foreign investment and in such scenarios, those same experts spoke of the positive benefits associated with the accountability that regulations provide.
Regulation such as UBO registration or KYC and AML requirements often boost confidence in financial markets, as investors feel more confident in the accuracy and transparency of funds.
Interestingly though, within this year's GBCI, half of the top ten most complex jurisdictions report that regulatory compliance hinders foreign investment, compared to just 10% of the bottom ten jurisdictions. Meanwhile, seven of the bottom ten least complex jurisdictions report that regulatory compliance facilitates foreign investment. This relates to what drives the complexity of adhering to regulation. For those considered more complex, lack of clarity and changeable regulation discourage investment. However, for those considered less complex, strong regulatory compliance offers both accountability of and protections for investments.
Opening a business bank account
Opening a bank account is a key and consistent complexity factor in an increasing number of jurisdictions. In 2023, 56% of jurisdictions reported that opening a bank account took more than a month. We've seen this increase to 62% of jurisdictions in 2024. Cumbersome bureaucratic processes can delay business operations and often require a significant amount of documentation and information. Additional requirements around AML and KYC can stunt incorporation for organisations who are unfamiliar with local procedures. This increase has been particularly felt in jurisdictions like Panama, Hong Kong, SAR, Mexico and Luxembourg, all of which cite slow process, the multitude of documentation and additional compliance checks.
Staying compliant in complex times
The evolving landscape of regulatory complexities and heightened compliance measures has seen many businesses leaning on local expertise to stay up to date with legislative changes. Keeping on top of thorough compliance processes - like KYC, AML, counter-terrorism regulations, UBO/PSC information disclosures and local language requirements - is crucial in maintaining smooth operations both now and for the future. And while managing entities across multiple countries looks set to become more complex - due to the increasing intensity of regulatory compliance - strategic use of both digitalisation and local expertise with a global footprint, can help ease that burden.
Thinking about beginning your own incorporation journey? Read our resources below for more practical tips and guidance - everything you need to know to set up a business in some of the world's most dynamic and promising jurisdictions.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
