The Global Business Complexity Index 2019 from TMF Group looks at the complexity of operating businesses in countries around the world. It ranks jurisdictions in terms of how difficult they are to operate in, highlighting what to expect from different countries across a range of business requirements including legal, compliance, accounting, tax and employment rules.
The report identifies four key drivers causing increased complexity:
- Local rules, regulations and penalty systems can be hard to navigate. Companies in over a third of jurisdictions find this very or extremely complex.
- Many jurisdictions change their legislation frequently, either to bolster the economy or make their market more attractive for investment. In the United States, for example, tax reform is making it easier for foreign businesses to repatriate profits, which encourages foreign investment.
- Managing accounting and tax is very or extremely complex for 17% of jurisdictions — often because local authorities prescribe their own reporting formats for accounting. Strict deadlines for tax reporting requirements, and harsh fines and penalties for noncompliance, can ramp up the pressure.
- Setting up processes to manage hiring, firing and paying employees is very or extremely complex in 42% of jurisdictions because of complex local labour laws, specific reporting requirements and the difficulty of hiring staff before a business has been incorporated as a legal entity. The mean complexity score across all jurisdictions for hiring before legal incorporation is high at 7.5 out of 10.
Focusing specifically on accounting issues, the report notes that reporting formats are not standardised around the world. The research reveals that in 70% of jurisdictions, local authorities prescribe the format of accounting reports.
Rigid tax reporting timeframes also add pressure: in 63% of jurisdictions it is not possible to postpone a tax audit and in 67%, deadlines for tax or statutory filings cannot be extended. Global efforts to stamp out tax fraud can give rise to harsh penalties for businesses which are not tax registered or do not comply with regulations. Companies that are not tax registered risk significant fines in 85% of jurisdictions and long-term suspensions of activity in 40%. In 45% of jurisdictions, company directors can be given prison sentences.
Accuracy of tax reporting is essential. Non-compliance can lead to significant fines in 83% of jurisdictions and possible imprisonment in 48%. However, in many jurisdictions, modernisation is starting to make life easier for foreign firms. For example, 63% of jurisdictions allow accounting records to be maintained abroad and 52% accept tax payments from an overseas bank account. Authorities in many jurisdictions are providing businesses with useful advice. Two thirds of the jurisdictions surveyed provide written guidance on how to apply local rules and regulations.
Companies need to submit accounting records to state authorities electronically in 51% of jurisdictions, while 39% require tax invoices to be issued in an electronic format. In Brazil, for example, digitisation of these processes began in 2000 with the development of SPED, which includes digital signature technology.
The report identifies Greece as the most complex jurisdiction in which to do business, saying: “Greece’s existing legislation can be complicated and new measures are continually being introduced. Sometimes, multiple laws conflict and it can be hard for businesses to know which one to comply with. For example, in some cases, VAT refunds are subject to different treatment depending on the tax office dealt with. On occasion, individuals declaring identical dividends have been taxed at rates varying by more than 10%.
“The Greek government does not always provide enough guidance, making this a tough jurisdiction for foreign firms to navigate. Some Greek islands operate as independent provinces for compliance and tax. This scenario is relatively unusual since compliance requirements vary between provinces in only 22% of jurisdictions and tax requirements vary between provinces in only 33%.”