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20 June 2023
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13 minutes

Business complexity in South America: jurisdiction deep dives

A collection of flags from countries in the Americas

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 South America 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: 3rd

Brazil drops down two places from its place at the top of the ranking last year, but it continues to be a challenging place to do business. A key driver to its complexity lies in accounting and tax processes in the jurisdiction. The Brazilian tax system is made up of three layers – city, state and federal – and these make for a densely regulated environment. On top of this, there are frequent tax regulation changes. For a business to enter the Brazilian market, they need to understand the demanding structure and seek expertise to navigate the market.

Despite this, steps have been taken in Brazil to make operation simpler for businesses. Over the past 12 months, there has been a simplification of foreign exchange control rules and other requirements that are specifically applicable to foreign investors. Additionally, for funds services there has been a revision of the regulatory environment, which is expected to make processes simpler in the future. With Brazil moving towards the global regulatory framework for compliance, consistent processes and legislation should make things easier for businesses that are already familiar with global regulation.

Although the challenging geopolitical environment is causing difficulties for businesses globally, some jurisdictions like Brazil have become more attractive to investors. For example, many businesses that are now unable to operate in Russia have moved to Brazil.

Brazil is full of opportunities for long term investments. Short-term initiatives will be further impacted due to Brazilian complexity and bureaucracy.

TMF Brazil expert

Dive into the data for Brazil on the Complexity Insights dashboard.

GBCI 2023 ranking: 5th

When foreign businesses enter Colombia, there can be some initial struggle to understand how certain laws and regulations work. Colombia is a highly regulated jurisdiction, so adhering to its many laws is an essential aspect of operation. For instance, when transferring funds between jurisdictions, specific requirements need to be met, such as filing an exchange market form. Once businesses understand and are familiar with this process it doesn’t create too much complexity, but it’s an example of how adapting to doing business within Colombia can initially prove challenging.

In the past 12 months, Gustavo Petro has been elected as the new president of Colombia. Petro is left wing, which has created some tension as, prior to his election, the government was more right wing. Furthermore, tax reform that was approved in December 2022 will bring complexity for organisations operating within the jurisdiction, as they adapt to the changes.

Colombia has also seen a devaluation of the Colombian peso, related to wider issues linked to inflation. This meant some organisations halted incorporation plans in 2022. In early 2023, the financial climate has become more stable, so businesses appear to be resuming plans to enter the jurisdiction.

Colombia is a country open to investment. Regulation and processes may be difficult to understand at first, but after a couple of months investors seems comfortable with the complexity of the country and can navigate it properly.

TMF Colombia expert

Dive into the data for Colombia on the Complexity Insights dashboard.

GBCI 2023 ranking: 7th

Peru retains its place among the most complex jurisdictions in the GBCI due to the bureaucracy of certain processes, such as the need for face-to-face interactions and multiple registrations with public notaries in order to incorporate. This cumbersome process means that establishing an entity typically takes around 20 days in Peru, whereas in jurisdictions at the other end of our ranking, incorporation can happen in a matter of hours.

Political unrest in Peru, including widespread protests, has caused uncertainty. Despite the great opportunities and natural resources Peru boasts to drive its economy, confidence can be shaky for organisations entering the country. More time may be needed to rebuild a sense of stability to attract FDI.

Due to the abundant natural resources in Peru, sustainability is a key topic and ESG is increasingly becoming a focus. For instance, within the mining industry large mines employ state of the art technology to drive green ways of doing business. However, Peru has many illegal mines that do not follow green ways of working and that also provide funding that drive political unrest.

Peru, like many other South American jurisdictions, has faced issues with inflation, compounded by the war in Ukraine. Peru was unable to import as much urea as before the war, driving up prices within the jurisdiction. This demonstrates the wide reach of a war that impacts jurisdictions across continents.

Peru is a country with a focus on industries like farming, mining, fishing and infrastructure services. You need to keep in mind the political situation, but there are many opportunities, the economy is strong and business continues.

TMF Peru expert

Dive into the data for Peru on the Complexity Insights dashboard.

GBCI 2023 ranking: 9th

Bolivia is considered a complex place to do business due to the focus on localisation. The authorities mandate that certain processes must be completed in Spanish, which can serve as a barrier for foreign businesses as they may need to find a local partner or translator to support.

There are also residency requirements. A public limited company operating in the country must have a Bolivian national or a legal resident on the board of directors and as a legal representative of the company. This increases complexity for foreign businesses seeking to enter the jurisdiction who do not have local ties in place during the incorporation process, needing to appoint new senior team members to satisfy this requirement.

Bolivian accounting standards also require businesses to keep their records in the local currency – Bolivian bolíviano. It’s not a currency that international businesses may have come across before, so this can cause issues. Financial statements must also be signed by the same accountant who keeps the accounts, which again localises the process.

This focus on localisation also extends to the workforce. No business in Bolivia can have more than 15% of foreign employees on its payroll. This prioritises Bolivian employment over foreign employees, which is positive for Bolivian residents, but can cause problems for foreign organisations who have a more international workforce.

Bolivia is in the heart of South America. Foreign companies can consider it as a strategic country to accumulate their products and distribute them to the rest of that region.

TMF Bolivia expert

Dive into the data for Bolivia on the Complexity Insights dashboard.

GBCI 2023 ranking: 10th

Doing business can be complex for foreign businesses in Argentina for a range of reasons. For instance, incorporation can be quite cumbersome and slow due to a need for multiple points of interaction with authorities.

Rules and regulations in Argentina also change regularly which can drive complexity for businesses that need to adapt to new ways of working. The jurisdiction takes a traditional approach to supporting workers, which although positively protects employees, can create difficulty for businesses who need to meet certain stringent requirements.

Further complexity has risen in recent years due to massive inflation in Argentina. The jurisdiction historically has faced hyperinflation, so the current global economic conditions have compounded this driving inflation rate to a staggering 95%. Consequently, businesses need to adjust salaries several times each year. Businesses need to adjust and readjust payroll, contracts and other employee documentation which can be timely and costly.

Despite the complexity that inflation brings, the war in Ukraine has also created opportunity for Argentina. The jurisdiction is working to become more self-sufficient for fuel and plans to become an exporter in future. Therefore, it’s likely Argentina’s economy will be boosted moving forward as it works to fill the global demand for fuel created by the conflict.

Argentina is a very complex market but it is full of great opportunities. A market of 45 million people and great potential in lithium, oil, mining, renewable energy and agrobusiness. It has a large industry market and the direct presence of many multinational companies.

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Dive into the data for Argentina on the Complexity Insights dashboard.

GBCI 2023 ranking: 14th

Chile remains one of the most complex jurisdictions in this year’s GBCI, moving up one place from 15th in 2022. One factor is that localisation of accounting and tax legislation can be challenging for businesses entering the jurisdiction, with foreign investors needing to adapt existing corporate systems. For instance, accounts must be kept in Chilean pesos unless authorisation is requested from tax authorities to work in US$ or euros. It is also necessary to have a Chilean legal representative, who is a resident of the jurisdiction, to incorporate and comply with tax obligations. Therefore, foreign businesses can struggle to adapt when entering Chile.

A tax reform is also being discussed in the Chilean congress that may bring about future changes. For instance, changes to tax for copper mining companies, increased taxation on high income individuals and a reduction of the corporate tax rate from 27% to 25% are all expected. These changes may bring about some complexity for organisations as they adapt to the new processes.

Although businesses can encounter complexity, laws and legislation are clear and consistent and businesses can undertake certain processes online, making them faster to complete. Consequently, the jurisdiction has experienced steady growth for the past 30 years and such growth is expected to continue in the future.

In the last 30 years, Chile has had a steady growth that has made it a leader in Latin America. It has multiple trade agreements and agreements to avoid double taxation that make it an appropriate place to establish and generate business both locally and abroad. It maintains clear regulations that allow safe investment.

TMF Chile expert

Dive into the data for Chile on the Complexity Insights dashboard.

GBCI 2023 ranking: 19th

Businesses incorporating and operating in Paraguay can face complexity but also find stability, with the country maintaining its ranking of 19th in this year’s GBCI.  The local currency, as well as regulations and laws, are generally stable, meaning that organisations can find certainty when incorporating and operating in the country. There have been some changes in recent years, such as adjustments to AML laws, which generate greater responsibility for accountants, lawyers and company executives.

One source of complexity is that those investing into Paraguay are subject to income and wealth tax, as well as the need to have a Paraguayan residence and ID. Businesses can also be subject to quite stringent UBO requirements, creating some complexity for individuals and organisations.

Although there can be some challenges within the jurisdiction, Paraguay has been ahead of the curve in implementing ESG regulations. The government has created agreements with public and private companies to promote sustainability, diversity and inclusion. Even though this can create complexity for businesses, it also places them in a good position as ESG principles become more and more common worldwide.

Historically, a source of complexity in Paraguay has been the reliance on paper-based processes, particularly during incorporation. Changes have been taking place within the jurisdiction to remove this. For instance, from the second half of 2023 electronic invoicing will become mandatory for all taxpayers. Although this aims to drive simplification, there may be an initial ‘hump’ of complexity as businesses adjust to this new way of working.

The laws regulating companies or commercial activities have remained stable for several years in Paraguay. The local currency also remains stable and inflation has been low in recent years.

TMF Paraguay expert

Dive into the data for Paraguay on the Complexity Insights dashboard.

GBCI 2023 ranking: 22nd

Venezuela can be a complex jurisdiction to do business due to a focus on bureaucracy, a reliance on paperwork and a lack of centralised processes. An example of bureaucracy is the fact that all changes within organisations, such as to directors or address, must be registered through a general meeting. This takes time and planning, creating additional burdens for businesses.

Taxes must be declared even when a company is not operational and bi-weekly VAT submissions are mandated, meaning that organisations are faced with high levels of paperwork to complete. Venezuela has also faced issues with inflation and the local currency – Venezuelan bolívar – has become considerably less valuable. Taxes need to be paid in bolívar, which can be challenging to access, creating complexity for organisations who need to source local currency in order to remain compliant.

The incorporation process can also be extensive, delaying the start of operations. One example is the need to have at least two shareholders for a company to be able to incorporate. Complexity is not expected to decrease within Venezuela in the coming years, with longstanding political and social issues such as corruption resulting in some businesses turning away from the jurisdiction.

Venezuela is quite complex, not only because of the legislation, but because of how bureaucratic the processes are, employee protectionism, exchange control and the lack of centralisation. The inability to consult, do much paperwork or carry out processes online, add to the challenges, as does corruption.

TMF Venezuela expert

Dive into the data for Venezuela on the Complexity Insights dashboard.

GBCI 2023 ranking: 35th

Ranking 35th in this year’s GBCI, Uruguay exhibits a mix of simple and complex factors when it comes do doing business. One aspect that drives simplicity when entering the jurisdiction is the stability it offers politically, socially and economically – something that can be challenging to find in neighbouring jurisdictions. The electoral campaign for elections in 2024 have begun and, with the current president Luis Lacalle Pou unable to run again, there are changes expected which may impact complexity in future years.

Although inflation has caused major issues worldwide, within Uruguay inflation remains at similar levels to previous years. Businesses are used to dealing with inflation in Uruguay, but the rate in March 2023 sat at 7.33%, the lowest since June 2021. Even though inflation may be familiar for businesses operating within the jurisdiction, it is still high enough to have an impact on the prices of goods, services and labour.

Looking forward, the interest in ESG is increasing among businesses operating within the country. Currently, there are no local standards in place. However, with a rising focus on greener and more equitable ways of working, laws and legislation may follow in future. This will bring initial complexity for organisations within the jurisdiction, but it also works to create greener and fairer ways of working which many businesses worldwide are already aiming for.

Uruguay continues to be an extremely stable country in all aspects, with strong promotions to attract foreign investment. The political system, regardless of its ideology, respects state laws and the agreements that are made with private parties. This is especially true for investment, development and promotion of employment.

TMF Uruguay expert

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GBCI 2023 ranking: 40th

Ecuador has both complex and simple elements for foreign businesses. On the one hand it is considered complex due to the many legislative changes that occur each year. On the other hand, it is very simple for foreign businesses to complete the incorporation process.

The current president, Guillermo Lasso, is keen to encourage investment from foreign businesses. He has introduced ambitious plans in an attempt to boost the economy and promote greater investment in key sectors such as oil, mining, and tourism. There is an expectation that the president will continue to promote and introduce legislation that aims to increase foreign investment.

In 2022 Ecuador experienced an inflation rate of 3.74% which, although lower than direct neighbours Peru and Colombia, is the highest rate witnessed in the jurisdiction for 10 years. The war in Ukraine is also having an impact on businesses that export agricultural products (one of Ecuador’s key industries), as two of the principal recipients of Ecuador’s exports are Russia and Ukraine. For example, banana exports to Russia decreased by 8%, and to Ukraine they are down a staggering 99.7%, compared to pre-invasion levels.

Despite being affected by economic and trade challenges, exacerbated by geopolitical tensions, Ecuador is an attractive jurisdiction for foreign businesses to operate due to the simple processes in place. Coupled with the president’s business-friendly attitude, there is an expectation for an increase in foreign investment in coming years.

It is easy to incorporate a company – we are waiting for good news for foreign companies this year.

TMF Ecuador expert

Dive into the data for Ecuador on the Complexity Insights dashboard.

The Global Business Complexity Index 2023

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.

To find out more about the drivers of business complexity in the jurisdictions that matter to you, why not explore our Complexity Insights Dashboard?