By 2050, Latin America will be home for two of the world’s five largest economies. Brazil and Mexico will be right behind China and the United States, along with India as the world leading countries for Business Opportunities, and global investors are already looking for the local expertise required in order to take advantage of this opportunities successfully.
Doing business with other cultures has become more than just opening a local branch and learning the local language; Companies and Investors need to develop the necessary skills to view opportunities in accordance to the local legislation and compliance guidelines. Latin America has an area of approximately 7,880,000 sq mi and its population was estimated at more than 590 million with combined GDP at 5.16 trillion United States dollars, now try to imagine a company trying to develop the necessary skills to conduct business in 21 countries, with divided local incorporation requirements, tax and banking compliance, not to mention the local dialects, costumes and political views. Perhaps we can narrow the situation and just try to conduct business in the 10 major cities Mexico, Sao Paulo, Buenos Aires, Rio de Janeiro, Lima, Bogotá, Santiago, Belo Horizonte, Guadalajara and Caracas, just coordinating time zones would make a simple conference call a challenge.
TMF Group offers a local team of professionals with a unique comprehension of the local legal compliance obligations, who can translate the local cultural and language barriers in order to set up your company or bring it to good standing so you can focus on finding these opportunities.
In Latin America Corporate compliance is directly linked to the company tax and payroll compliance. Therefore Corporate Compliance services can be divided in two major groups so the company management can understand better the incorporation and annual compliance requirements: Legal Compliance and Reporting Compliance. Keeping a company in good standing is directly linked with local government reporting system, for example not celebrating an Annual Meeting for approving the Board of Directors Report does not generate penalties in most countries, but not filing the annual declaration forms with the Ultimate Beneficial Owner information and the Domicile verification with the local Tax Agency can cause a suspension for doing business.
Most Latin American countries follow the Civil law (or civilian law) system inspired by Roman law, the primary feature of which is that laws are written into a collection, codified, and not (as in common law) determined by judges based on the citizens cases raised to their attention. Mercantile Civil Law, which rules the region corporate compliance, is created by the governments, therefore it answers mostly to the Latin American countries administrative needs and not to the day to day business movements. Governments in the region through history have had a major concern: tax collection. Through time it evolved to securing foreign investment and obliging companies to pay employees severance and taxes, lately it has concentrated in preventing Money Laundry and Terrorism Finance, this has produced a new direct link for corporate compliance with banking law, which for most regimes is a tool to force companies to submit information and pay duties.
We live in an ever changing world, and ever changing legislation is required to full fill every nations needs, unfortunately in Latin America new legislation comes like the rainy season every year, but companies must not wait for the storm to pass, companies need to understand how to dance under the rain and keep up with good corporate compliance standards in order to prevent any inconveniences with the main core of their business. Consequently understanding the general guidelines per country is essential and review and defining an annual scope of corporate compliance every year is necessary.
So what are the best tools to achieve this goal?
If starting a new business, you should hire a local company secretarial services provider or a law firm with local expertise, to advice on the most appropriate type of company for your business needs. If purchasing and already existing company starting with a Healthcheck of the companies’ legal status, tax compliance and bank accounts information will give you the strategy to follow.
All the Latin-American countries offer limited liability benefits to investors, the most common type of companies used in the region are Limited Liability Companies and Corporations which have very similar company By-Laws to the companies in the European Union and the United States, although nationality requirements for stockholders and legal representatives may apply, as well as restrictions for registering a domicile.
Normally the stockholders meeting needs to review the clauses established in the local Commercial Code and the By-Laws. Following the same trend the goal of approving the Financial Statements in the meeting is for filing the Rent Tax Declaration, but meeting per se does not need to be registered with any government agency in some jurisdictions.
Company Incorporation in the region definitely does not stop with Registration at the Mercantile Registry, listing at the Tax Agency is as important, the tax agency will request registration of almost the same requirements as the Registrar of Companies, such as a tax representative, domicile (which in most cases will be physically verified) and detailed description of the company internal controls.
Listing with the Social Security authorities and any other payroll regulation offices is also part of the compliance if your company will be hiring employees.
Finally, any changes or corporate resolutions will not be valid with third parties unless registered with the appropriate government agency; this is a major compliance requirement when appointing a new legal representative, changing Board of Directors, Capital or Domicile.
Each company and manager makes its own journey, this journey can be filled with creativeness and innovation to take advantage of the region opportunities or it can be part of an old structured plan that was waiting for a change, but in both cases this article comes to life since the beginning of the journey, Corporate Compliance in Latin America should be an essential part of your project planning through out all the life of your company’s business.