Entity management and business complexity
TMF Group’s Global Business Complexity Index 2023 explores 292 different indicators relating to business complexity. Our analysis covers three core areas of business administration, and ultimately assigns an overall complexity score to each of the jurisdictions assessed.
This article focuses on the first of those key areas of business: global entity management. Here we take a closer look at some of the findings from this year’s Global Business Complexity Index (GBCI), along with commentary from our subject matter experts.
Globally, the steps a foreign business needs to take to incorporate in a jurisdiction has remained stable compared to last year. This includes the length of time to incorporate a business, the number of bodies needed to register with, and the type of professional parties required.
There have been slight increases in the number of jurisdictions that require contact with the national government during incorporation, increasing from 68% in 2020 to 73% in 2023. This has remained stable year-on-year in North America, while both South America and EMEA have seen increases. Interestingly, in APAC the number of jurisdictions that require businesses to contact the government during incorporation has decreased from 86% in 2020 to 57% in 2023.
There is evidence that entity management is becoming simpler in some places and ways, such as through increasing digitalisation, and more difficult in others, with more bureaucracy in some locations.
We see a continuing trend for jurisdictions to move incorporation processes and other operational elements online, making things easier for foreign businesses. Since 2020, there are more jurisdictions where official submissions to the authorities are done electronically or via the internet, increasing from 71% in 2020 to 78% in 2023.
In Colombia, with all necessary documentation, online registration for new entities in the Chamber of Commerce can be achieved in three days, which bucks the trend historically among South American jurisdictions. Likewise in Vietnam, most authorities have established official online systems for uploading and updating new regulations and best practice, as well as conducting licensing procedures, which has created a more convenient and transparent process for foreign businesses.
Another reason some jurisdictions are becoming simpler for entity management is government focus on attracting foreign businesses and investment. Even in jurisdictions where operating is traditionally complex, such as France, governments have undertaken initiatives to attract foreign entities.
Generally speaking, corporate law in France has become more consumer- and citizen-oriented, while still trying to improve the country’s attractiveness to business. In recent years, French corporate law has been governed by two main trends: modernisation and simplification on the one hand, and the fight against corruption and fraud on the other hand.
Our experts in Malaysia note that, given the possibilities of a global slowdown in 2023, the new government announced that restoring investors’ confidence and increasing FDI are among its top priorities. These include establishing a special investment scheme to attract more high-value-added investment that will generate higher paid employment opportunities.
Increase in global regulatory requirements can add complexity, especially when opening a bank account
Although we see some jurisdictions moving towards a simplified incorporation process for foreign businesses, approximately half (49%) of TMF Group experts predict that entity management will become more complex in the next five years.
The largest regional year-on-year increases are seen in APAC, where this has increased from 14% in 2022 to 43% in 2023. In Australia, for example, the government’s commitment to introducing a public UBO register is likely to increase the level of data required from foreign businesses operating in the country.
Increasing adoption of global compliance requirements will make entity management more complex at a local level, while simultaneously making jurisdictions more attractive places to do business thanks to their increased transparency.
In Hong Kong, the trend of tightening due diligence checks, KYC requirements and transaction monitoring has significantly added the burden on client due diligence, as well as the ongoing monitoring of activities for corporate services providers. This translates into a need for greater resources and effort for businesses to remain compliant.
The number of jurisdictions where companies are required to submit reports for the Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS) has increased year on year to nearly all (96%) jurisdictions in 2023.
Opening a bank account is a key complexity factor in an increasing number of jurisdictions. For example, in Austria opening and operating bank accounts has become more cumbersome due to enhanced KYC requirements and monitoring by banks.
In recent years, the time it takes to open a bank account from abroad has increased in many locations around the world. In 2020, the average time was under one month in 65% of jurisdictions, with only 44% saying the same in 2023.
Although there is an expectation that entity management will become more complex globally over the coming years, 80% of TMF Group experts are still positive that there will be an increase in investment in their jurisdiction in the next five years. This is a decrease compared to overall FDI increase expectations from last year’s survey (87%), but still represents a healthy dose of optimism.
Regionally, this sentiment is felt most acutely in North America (93%) and least in South America (56%). This demonstrates that despite an increase in global compliance and the complexities that come with it, they can still be attractive places to do business.
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?