Business complexity in APAC: jurisdiction deep dives
TMF Group’s Global Business Complexity Index 2023 (GBCI) 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.
Insights from the GBCI can help investors pick and manage their target markets with greater confidence. Those jurisdictions that are perceived to be the most complex are often among the most attractive for talent and customer opportunities. Local knowledge will help when it comes to navigating this complexity, allowing you to managing exposure to compliance risk and find your path to growth.
In this article, we take a deep dive into the APAC region, to examine the drivers of business complexity in each jurisdiction, or conversely, what makes them simpler environments for investment or setting up operations.
GBCI 2023 ranking: 60th
Ranking 60th out of 78 jurisdictions in this year’s GBCI, Australia is one of the simplest jurisdictions worldwide to do business in. Drivers of this simplicity include its transparent regulatory landscape, strong institutions and good governance that make it a secure, relatively safe, stable and prosperous destination for foreign businesses.
However, as with almost all jurisdictions, there are some aspects of the incorporation and operation process that can cause complexity for foreign businesses. For example, there has been a recent introduction of a requirement for directors to verify their identity by applying for a director ID prior to appointment. Complexity comes particularly in the case for foreign-based directors who are unlikely to have access to the online platform and therefore need to rely on the paper-based application.
Despite this, the Australian Government is working to simplify processes of doing business. As part of its Digital Business Plan, the Australian Government recently commenced its implementation of the Modernising Business Registers programme to establish Australian business registry services and streamline how business information is registered, viewed, and maintained. The rollout includes the recent introduction of the director identification number and a phased consolidation of existing business registers over the next few years. Therefore, although businesses can face complexity in Australia, the government is making concerted efforts to streamline processes and attract foreign investment.
Australia has strong institutions, a transparent regulatory environment and good governance which makes it a secure, relatively safe, stable and prosperous destination for foreign business and direct investment.
GBCI 2023 ranking: 15th
China is a relatively complex jurisdiction to do business, but has become simpler in recent years. This is in part driven by the attitude of the Chinese government to become more welcoming towards international investment, as well as the acceleration of digital transformation for incorporation and operation processes.
Typical challenges that businesses face when operating in China includes understanding the differences between cities and regions, given the geographical size of the country. It can be difficult for international businesses to navigate rules and regulations, as some laws are up for interpretation based on personnel or region of the country.
Despite this, the Chinese Government continues to make efforts to make laws more transparent and to slow down the pace of policy changes. These efforts include consultations which collect feedback on new legislation via an industry forum. For example, the government planned to harmonise the tax rates for both foreign and local businesses. However, after the paper was released, foreign businesses argued that it would impact on foreign direct investment and for foreigners living in China, and thus the legislation has been postponed for two years.
The government has also started to encourage certain industries, such as those in chemical production, to apply ways of working that consider ESG factors. Although it is not yet legislation, the encouragement to do business in more sustainable ways is being mirrored by businesses and consumers alike, meaning businesses operating in China may be better prepared for any new or upcoming ESG legislation.
In general, I'm very confident that you will see a more transparent business environment in China.
GBCI 2023 ranking: 74th
Hong Kong prioritises international alignment and a general ease of doing business, making it one of the simplest jurisdictions in 2023. Accounting and tax processes are highly simplified: salary tax, for example, operates on a tier system and there are no VAT or social security measures in place.
Due to Hong Kong’s relationship with China, more advanced KYC regulations have been introduced, aligning both jurisdictions. Although this can cause initial complexity, it does simplify entry into the Chinese market, which is highly desirable for many international businesses.
Despite its simplicity, Hong Kong still relies on paper for certain transactions and processes. While there are online platforms available manual ways of working tend to be preferred, which can slow down some aspects of business operation. However, digitalisation is expected to be embraced in future.
Another expected change is an increased focus on ESG. The government in Hong Kong has recently started bringing the topic into political discussions and there’s an expectation that ESG legislation may be on the horizon. Increased legislation around cryptocurrency is also expected which will impact businesses in that industry.
Hong Kong remains as a jurisdiction with strengths which are favourable for doing business. Its infrastructure enables free flow of goods, capital, talent and information. Hong Kong is well known for its simple tax regime with low tax rates.
GBCI 2023 ranking: 33rd
India, which ranks 33rd in this the GBCI 2023, has become a simpler jurisdiction over recent years, moving down from 25th in 2022. This drop is in part driven by the business-friendly attitude of the government, and the various initiatives undertaken which aim to encourage foreign investment and operation in India. For example, over the past year, production-linked incentives were introduced to encourage manufacturers to produce in India. The government recognised the potential to grow the economy as an alternative market to China for manufacturing.
An increase in centralisation and digitalisation are further examples of steps towards making operation simpler in India. For instance, centralised and online government portals for taxation have made processes simpler for businesses. Furthermore, the Provident Funds Portal was introduced recently, which manages social security requirements for employees.
In the next 12 months, there are upcoming initiatives which aim to further centralise and digitalise existing processes. For example, the Labour Code will centralise 18 different acts, per state, into four acts altogether. As a result, there will be a significant reduction in the amount of work needed to navigate labour rules and regulations.
Although recent and upcoming steps towards centralised and more digitalised processes are expected to ease the process of doing business in the future, TMF experts in India expect there to be a slightly challenging adjustment period while navigating new requirements. However, once businesses are comfortable and have experience with the new processes, it is expected and intended to make things easier for businesses.
Ease of business is something that the Indian government is really looking at. It’s trying to put all efforts into bringing about ease of business. In various sectors, various places, we find that change is coming in, in the right direction. There's a lot of simplification that's coming in.
GBCI 2023 ranking: 11th
Indonesia ranks just outside the top 10 most complex jurisdictions in this year’s GBCI. Complexity in the jurisdiction is driven by the time it takes to enter the market and incorporate legislation, as it has high capital requirements and foreign ownership restrictions for certain industry sectors. Stringent labour policies also contribute to its complexity due to the frequent changes in legislation. Indonesia is also implementing a new tax administration system which is expected to add complexity until 2024 as businesses navigate the new procedures.
The Omnibus Law looks to improve the workforce’s productivity and competitiveness, while also protecting the rights of its workers. The law was introduced in order to match other Southeast Asian competitors’ workforces, as they were falling behind. This makes the jurisdiction a more attractive destination for foreign investors, but can also create a degree of complexity due to the increased regulations.
Most sectors in Indonesia are now open for foreign investments and there has been a simplification of business licensing and permit applications. There is an overall drive to simplify practices in both tax reporting and HR and payroll through digitalisation and the push to streamline expatriate and foreign worker permits.
The prolonged US-China economic and technology tensions, the war in Ukraine, energy driven inflation, global value chain disruption, tightening monetary policies and interest rates, and the lingering effect of the Covid-19 pandemic are examples of the geopolitical and global issues that have impacted Indonesia in the last 12 months. These are continuing to present unprecedented challenges for the jurisdiction and contribute towards a degree of uncertainty to the economic outlook. Additionally, a general election in February 2024 could contribute further to this instability.
It is very important for foreign investors to be familiar with the local policies and regulations. It is also paramount for foreign investors to find a trusted local provider, a partner who can help navigate through the complexity of the regulatory landscape in Indonesia.
GBCI 2023 ranking: 43rd
Japan has become slightly more complex in this year’s GBCI, due to the complex market for foreign companies. Drivers of complexity include the language barrier, ageing population and some administration that remains paper based.
The yen is weak in Japan due to the cost of living and inflation has reached 3%. However, this does represent an opportunity for foreign firms to incorporate into Japan as this can offer good value for money. China, Russia, and North Korea are constant unknowns for Japan due to historical disputes and rising tensions, which can bring apprehension for foreign investors entering the jurisdiction.
Currently, the complexity for foreign businesses to transition into the Japanese markets are due to the government recently requiring some companies to apply for preapproval from the Bank of Japan, which can cause up to a three-month delay. Furthermore, in October 2023, Japan will enact an invoice system for the recording of consumption tax which will add a greater administrative burden on new businesses. There has been speculation about more automatic and online registration processes for company incorporations, which would greatly reduce this burden, but there is no plan for this to be fully enrolled at the moment.
Processes and administration do not always move as quickly and efficiently as in other jurisdictions and relationships take time to build and grow. Patience is a virtue here but there remains a wide range of opportunities for the foreign investor in Japan.
GBCI 2023 ranking: 21st
Malaysia’s business-friendly policies, sound infrastructure, established financial sectors and supportive government facilities make it an attractive jurisdiction for foreign businesses to operate in. However, foreign businesses and investors will still need to engage specialist services for setting up a business, registration and ongoing compliance requirements to make sure that local processes are being met.
The process of incorporating a company under the new Companies Act has made things easier for businesses due to the online submission process and simplified procedures that come with this. However, companies still need to observe local director requirements and there are a number of key business segments where foreign ownership limits apply (eg oil and gas, financial services and telecommunication). Additionally, the process for obtaining business premises licences, industry specific licences and work permit applications can take longer than in other jurisdictions, which take between one and six months to complete.
The Prime Minister of Malaysia announced the minimum wage for employees with effect from 1 May 2022, meaning a higher wage structure for businesses with more than five employees. The new legislation makes the jurisdiction a more expensive place for foreign investors to do business.
Malaysia is experiencing inflation in line with what we see globally in both energy and commodity prices. They are also witnessing supply disruptions due to the war in Ukraine and US-China trade dispute. This trade dispute consists of both parties imposing steep tariffs on one another's goods, which is having an impact on Malaysia due to the importance of the US and China as trade partners. These geopolitical tensions are making the Malaysian market more volatile, which may make the jurisdiction less attractive for foreign businesses.
Malaysia’s near-term growth outlook remains resilient as the government will impose various measures to uplift the country’s economic potential, so that it can remain an attractive investment destination as well as promote more sustainable and inclusive economic growth for all.
GBCI 2023 ranking: 71st
While elections loom later this year, New Zealand is experiencing a very stable period. The only key changes over the past year have been those the government put in place to support the economy after Covid-19 and due to inflation. For instance, the government continued to subsidise tax on fuel for businesses and individuals. Some taxation changes are expected to follow the elections, including the lowering of the top tax bracket for individuals.
Despite the simplicity of the jurisdiction, the process of opening a bank account can cause some issues for international businesses incorporating and operating in New Zealand. KYC legislation mandates the need for face-to-face interactions. Its geographical location can be challenging for business leaders who may need to take long flights for KYC procedures in order to get their organisation’s finances up and running.
However, the New Zealand government has been making it easier for international workers to gain permanent residency in the jurisdiction and has offered greater protection for employees entering the country. Although this can result in upfront costs and complexity to complete necessary checks, it means that the jurisdiction is becoming increasingly internationalised and open to foreign workers and more attractive for FDI.
It’s very simple to operate in New Zealand, from start up to wind up. Things are all online and government support is very good.
GBCI 2023 ranking: 59th
Singapore continues to a be a simple jurisdiction for businesses to operate in. Singapore is an attractive destination for investors due to its political and economic stability, as well as its strong reputation as a safe jurisdiction for financial institutions. At the same time, Singapore requires a high standard of regulatory compliance from businesses. However, businesses are generally welcoming of these high compliance standards, as more compliance should lead to a safe environment for businesses to operate in, particularly for financial institutions.
The geopolitical environment has impacted on the number of private wealth and family offices setting up in Singapore. Due to the multiple Covid-19 lockdowns that occurred in China, many private wealth and family offices looked for other stable jurisdictions as an alternative. As a result, over 300 private wealth and family offices were set up in Singapore in the past year. Singapore has been a historically stable jurisdiction but is also neutral in disputes between China and the US, further demonstrating its expected geopolitical stability in years to come.
In Singapore, ESG rules and regulations mainly apply to listed companies, therefore private companies are not mandated to submit reports. However, the government is looking to build on the current ESG framework, so there is an expectation that further disclosures and reporting will be required or rolled out in the future. Although additional reporting requirements for ESG would be an added cost and resource for businesses, TMF Group experts in Singapore report that investors view ESG as an important component when looking at investments. Therefore, an increase in ESG requirements in Singapore could encourage further investments in years to come.
Singapore remains a very competitive jurisdiction to operate in, not just in the region, but globally. It’s becoming more of a hub for funds to set up and invest and deploy across the region due to various tax incentives and double tax treaties already in place. Setting up businesses still remains fairly easy, so Singapore still remains competitive and easy to operate in.
GBCI 2023 ranking: 16th
Ranking 16th in this year’s GBCI, South Korea continues to be a complex jurisdiction for foreign businesses operating in the country. Although it is very welcoming of foreign investment, it also holds an array of compliance requirements that can create challenges for businesses entering the market.
Companies are required to abide by the periodical VAT/CIT filing for their taxes, which can be a complex process. However, to help with that complexity, South Korea has an electronic filing system that allows companies to process their tax and payroll digitally. Therefore, although it is a highly complex market to operate within, it is technologically advanced, which is an attractive quality for foreign investors.
As we’ve seen globally, inflation has also impacted South Korea. The government has not implemented any legislation to help or assist employees or employers to deal with price increases. However, there is an expectation that consumer and business costs, such as transportation and electronic goods, will increase over the coming year, which may require the government to introduce measures to assist businesses and individuals alike.
The South Korean Government is keen to promote ESG measures for listed companies within the country. For example, in December 2022 the Ministry of Trade, Industry and Energy unveiled the ‘K-ESG Guideline’, which will perform as an integrated guidance for companies and institutions to abide by ESG regulation. These guidelines seek to provide minimum standards for companies to abide by while also keeping up with global ESG measures.
Incorporation in Korea is forecasted to remain at its current level and there should be no change in complexity.”
GBCI 2023 ranking: 54th
Processes of doing business in Taiwan are generally straightforward, meaning it ranks as one of the simpler jurisdictions in this year’s GBCI. However, geopolitical tensions between Taiwan and China can drive complexity for foreign businesses seeking to set up within the jurisdiction. For instance, due to anti-money laundering regulations and caution around Chinese investment, foreign companies must disclose a percentage of shareholdings and the nationality of the individual ultimate beneficial owners (UBOs) within the organisation.
Furthermore, it's very difficult for a foreign company or investor to open a bank account during the incorporation process. Businesses and investors can only open a bank account for their new Taiwan entity with a Taipei branch of an international bank which they already cooperate with. Know Your Customer checks on foreign investors by government authorities have become stricter to make sure the foreign company or investor is not connected to China and Chinese businesses. Such requirements can cause challenges and delays to the incorporation and operation processes for foreign businesses, driving complexity when entering Taiwan.
However, the Taiwanese authorities work to attract foreign businesses by driving the ease of doing business in other areas. For instance, it provides a gold card to qualified expatriates that combines a work permit, visa and resident visa. This works to support foreign employees and can help to attract the best foreign talent for organisations within Taiwan.
Before setting up business in Taiwan, gather the personal information and documents for all the UBOs and group entities, and check with your bank whether it has a branch office in Taiwan and accepts to open a preparatory office bank account for the new Taiwan entity.
GBCI 2023 ranking: 52nd
Thailand is a highly attractive jurisdiction for businesses due to the opportunity for foreign businesses to establish backend operations such as accounting, compliance and payroll in a low-cost destination. The Thai government has also worked to offer tax and non-tax incentives to encourage investment in recent years, for instance with the introduction of a five-year investment promotion strategy. This strategy aims to highlight the jurisdiction’s efforts to attract investment in innovative, high tech and sustainable industries and will be in effect between 2023 and 2027.
However, despite the attraction for businesses, certain processes of incorporation and operation can create complexity. For example, every company incorporated in Thailand must be registered with the Department of Business Development of the Ministry of Commerce, and additional licensing must be applied for to allow for full foreign ownership. The additional licensing is restricted in many sectors, making it very difficult for foreign companies to enter the market.
Furthermore, businesses can experience a lack of coordination among various government departments, such as requesting the same information more than once. This can lead to delays to the overall incorporation process. Dissolving a business can also take time, as there is a need for clearance from multiple government departments and this typically triggers a tax audit on the operations of the company.
While ease of doing business in Thailand is showing year-on-year improvement, there is still a lot of ground to be covered. For instance: books and accounts must be maintained in local language and all the document submissions to the government are also required to be made in the local language.”
GBCI 2023 ranking: 31st
Doing business in the Philippines can cause complexity for businesses for several reasons. For instance, the local Bureau of Internal Revenue (BIR) has specific accounting requirements around official receipts, sales invoices and billing statements. There is often confusion surrounding the processes in place for document requirements and templates, and there can be delays in receiving the necessary paperwork from authorities.
Some laws and legislation can also be open to interpretation from government offices and officials, causing confusion for organisations and investors. This lack of standardisation can cause delays for businesses during the incorporation process. Additional delays stem from multiple document requirements, such as the Filipino authorities mandating the need for apostilles on certain documents, particularly in the case of foreign business ownership. Stalled incorporation causes unexpected challenges and costs, driving complexity for international organisations.
Despite this, the Philippines is taking steps to simplify business processes within the jurisdiction. For instance, the Ease of Doing Business Law works to streamline procedures by introducing electronic portals and processes, such as the eFPS for tax filing and eAFS for submission of documents such as audited financial statements. In addition, in 2022 the Regular Foreign Investment Negative List was amended to relax restrictions for foreign investors within industries such as telecommunications and retail.
Doing business in the Philippines is becoming less complex as government authorities promote the Ease of Doing Business Law and introduce online transactions.
GBCI 2023 ranking: 46th
Efforts to align the country with international standards and practices continue. While reforms have been introduced to improve the process of investing in Vietnam, there are regulatory obstacles and requirements that foreign investors should be aware of. This is why Vietnam sits around the middle of this year’s GBCI, ranking 46th out of 78 jurisdictions worldwide.
Vietnam has faced challenges due to the war in Ukraine, inflation, low market demand for exports, transportation of goods and payment of transactions due to sanctions.
Currently, the different and complex regulations cause obstacles for foreign businesses. Specifically, different provinces in Vietnam have precise ways to understand and interpret the same legal matters and regulations, causing challenges for businesses that operate throughout the jurisdiction. As well as this, the company must maintain an accounting system which is in compliance with local GAAP and the chief accountant must have a certificate issued by the Ministry of Finance.
The digitalisation of processes has sped up due to Covid-19. Most authorities have set up and operated via an official online system, enabling a faster and more transparent channel for foreign investors to perform necessary investment procedures. Additionally, e-invoices are permitted for tax reports which allows for authorities to use a digital signature. This process will continue to make Vietnam a simpler and more attractive destination for foreign investors.
This article is an extract from TMF Group’s latest report: The Global Business Complexity Index 2023.
Explore the GBCI rankings, analysis and global trends, to help you cut through the layers of corporate compliance complexity – download the report in full here.
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