Press Release 3 minute read

Top five most complex places revealed for rules and regulations

08 September 2020

Indonesia is the world’s most complex jurisdiction for corporate compliance, according to a new report by global professional services firm TMF Group.

‘Rules and regulations: Managing the evolving compliance landscape facing multinationals’ ranks 77 jurisdictions by the complexity of legislation, regulations, rules and the penalties they prescribe. It found Indonesia’s regulatory environment to be the most complex, followed by Nicaragua, the United Arab Emirates, Brazil and Qatar. By contrast, Curacao, Israel, the USA, El Salvador and Jamaica were seen as the least complex, with all of them having legislative environments that encourage foreign direct investments.

Amongst the reasons for Indonesia’s ranking was the fact that it takes more than a year to dissolve a company, more than a year to incorporate a public company and, until recently, it had legislation on the statute book denying investors access to many industries. Many of the other highly-ranked countries enforce unusual rules: Nicaragua is one of just three countries surveyed which stipulates that company shareholders must reside locally; Brazil is one of just give locations where all government bodies involved in company oversight must be individually notified when that company is set up.

The report found that the burden of legislation governing transparency and ownership disclosure is steadily growing. Examples include:

  • Ultimate Beneficial Owner (UBO) registers which are now required in 68% of the jurisdictions surveyed, compared to 64% last year.
  • The Organisation for Economic Co-operation and Development’s Common Reporting Standard (CRS), which went into effect in 2017 and requires cross-sharing of financial transaction data, has been adopted by 82% of jurisdictions.
  • Know Your Customer (KYC) guidelines that require companies to conduct due diligence on their customers started off as a way to monitor transactions in the financial services industry. Now, 26% of jurisdictions require KYC across all industries.

Predrag Maletic, head of strategic growth and development at TMF Group said: “Compliance requirements are increasingly layered, often resulting from simultaneous international and local legislative demands. Businesses will need to have a strong understanding of both local practices and international frameworks to successfully navigate the complexity of rules, regulations and penalties.”

The European Union continues to flex its regulatory muscle regarding transparency and fairness in taxation by introducing the DAC6 mandate, which requires reporting of cross-border tax arrangements. The reporting obligation applies to organizations doing business in the region regardless of the location of their headquarters. Failure to comply with DAC6 could result in significant penalties and reputational risks. The reporting requirement was supposed to take effect on July 1, but the EU postponed implementation because of the Covid-19 pandemic.

While EU directives are aimed at member states, they are often used as a model for other jurisdictions around the world, according to the TMF Group report. Mexico and Australia are in the process of introducing their own versions of DAC6 aimed at reducing international tax evasion.

To ease the burden of compliance, governments are increasingly using digital tools to streamline processes and reduce complexity. TMF Group found that official submissions to authorities are now done electronically in 71% of jurisdictions. These sort of technological advances are likely to remain in place going forward.

Predrag Maletic said: “The most innovative jurisdictions are refining their processes to accommodate the rising tide of compliance requirements. A key strategy for maintaining a simple environment despite legislative change is to leverage technology in order to make interacting with authorities as simple as possible for companies.”

This latest report by TMF Group expands on the findings of its Global Business Complexity Index 2020 that ranked jurisdictions on overall business complexity.

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