The 2019 Easiest & Most Complex Countries to do Business
(The Hague, 17.06.2019) TMF Group, MCI CLT’s associated partners in Asian Offshore Association (AOA), published in the beginning of June its 2019 Global Business Complexity Index with some surprising findings.
TMF analyzed a total of 76 jurisdictions with a transparent explained methodology, focusing on three essential areas which influence the complexity, when operating a business:
Rules, Regulations and Penalties
Accounting and Tax
Hiring, firing and paying Employees
The Top and Bottom 10 lists are for us interesting especially with view to our own geographical footprints:
Source: TMF Group
Focusing on the jurisdictions where MCI CLT is operating itself, we found the “Reason Summaries” by TMF interesting.
United Arab Emirates – Top Complexity, Rank 4
Much legislation is being introduced in the United Arab Emirates (UAE). Over the long term, this should make it operationally easier for businesses but in the short term, the new rules and regulations add complexity.
UAE comprises many internal jurisdictions, each with its own set of regulations and requirements governing company establishment, compliance and filing. Navigating this environment requires accountancy professionals with specific expertise. The relatively business-friendly jurisdictions are pushing ahead with automation and digitization of processes.
However, operating in other jurisdictions requires in-depth local knowledge and may entail translating official documents into Arabic. Businesses investing in a detailed understanding of their jurisdictions will reap rewards.
Maintaining a business in the UAE can involve time-consuming processes, encompassing annual trade license renewal, payroll compliance and ongoing maintenance of residency visas and labor cards.
Local tax and payroll knowledge is essential
Last year, as part of a drive to ensure companies file their VAT correctly, authorities introduced a system of fines for mis- or incorrect filing. Some companies failed to understand the new requirements and having missed strict deadlines are now facing penalties. The UAE’s Wage Protection Scheme varies between jurisdictions. Ensuring salaries are paid correctly each month is a significant responsibility for all employers.
“Once you are in the UAE, and you understand the market, or have good advisers that will work through the complexity, it’s fine and doing business is much more straightforward.”
Germany – Top Complexity, Rank 7
Germany earns a high complexity ranking as one of the most challenging jurisdictions for accounting and tax legislation.
The country adheres strictly to European and global regulations, which can wrongfoot foreign investors unfamiliar with requirements. Federal Office of Justice fines for missing deadlines start at 2,500 euros and escalate quickly.
German requirements
As elsewhere in the European Union, KYC (Know Your Customer) requirements are very strict in Germany and banks demand a wealth of information from applicants wishing to open an account. The process often takes six weeks or longer.
Meeting the terms of legal formalities is essential. For example, when establishing a German corporation or making notable changes to its structure, a German notary and all company shareholders must be present or represented. All official documents must be submitted in German.
Although conforming to these rules can be challenging, the well-organized German system helps to create predictability and security for businesses.
“Germany is heavily regulated, with rules becoming stricter all the time. There is a desire for companies to become more transparent.”
China (Mainland) – Top Complexity, Rank 9
China’s complexity is driven by variation in legislation across different regions, coupled with legislative changes. Although these changes pose challenges in the short term, they are likely to bring huge benefits to international businesses investing in China in the future.
Government legislation is set nationally but implementation of the laws differs at the provincial level and even between different cities. While China is developing rapidly, there is still a significant disparity between the ‘first tier’ cities which are open to foreign investment, and lower tier cities which are less internationally aligned.
Opening up and automating
While China is working to level the playing field, some processes are still more complex for international firms than their local counterparts. However, as the government gradually dismantles this legislation as part of its drive to open up China to the global economy, the situation should improve.
Digitization will also ease the path for companies setting up in China.
The government has launched the third phase of its ‘Golden Tax’ project, simplifying the submission process for electronic tax returns.
“President Xi Jinping is keen to further strengthen China’s position as a key player in the world economy. Legislation should become more straightforward, streamlined and transparent.”
Netherlands – Bottom Complexity, Rank 67
The Netherlands is making compliance straightforward. Many regulatory processes have been digitized, improving efficiency and security of data exchange between taxpayers and tax revenue services.
The Dutch government is responsive and often willing to provide guidance to help businesses gain a clear understanding of new legislation. It conducts consultations with business groups before new measures are introduced, aiming to ensure their application is practical and user-friendly.
It can be hard to secure employees in the Netherlands. In a strong economy, employers need to offer competitive benefits if they want to attract the most skilled workers to facilitate growth.
The banking challenges
As in much of Europe, opening a bank account in the Netherlands involves enhanced KYC (Know Your Customer) requirements. A high level of due diligence is required, and companies will need to provide detailed information about their operations in other jurisdictions.
“Dutch culture focuses on getting things done and builds towards harmony rather than towards power. I think that’s the best reason to go to the Netherlands.”
Thailand – Bottom Complexity, Rank 73
While Thailand’s tax and accounting system is quite complex, it scored highly for simplicity because its regulatory landscape and employment rules are business friendly.
Despite frequent changes in government, the country’s leadership is consistently pro-business and keen to attract foreign investment. The National Competitive Enhancement Act waives the need for work permits for highly skilled overseas workers and investors. Incorporation is relatively simple. Once all documentation has been prepared, establishing a company can take less than a day. A local company secretary or director is not required, so incorporation can be carried out from anywhere in the world.
Staffing is straightforward
Hiring and maintaining a local workforce is a relatively straightforward process in Thailand. Employee rights are enshrined in law, but few benefits are mandatory and they are easy to administer. The Labor Department sets the health and safety requirements for companies in each industry, but the requirements are not complex or overly onerous.
“The government is committed to reducing complexity. Authorities are trying to make the business environment easier for both Thai and foreign investors.”
Furthermore, the ranking positions of our jurisdictions Hong Kong (Rank 56) and Vietnam (Rank 27) show as well: MCI CLT is as Intelligent Service Provider globally well positioned in the interest of their clients.
“It is important to be present in such complex jurisdictions, as it enables us to provide specialized advice and services for our clients. This eases their setup and operation processes immensely. However, presence in less complex jurisdictions is, in our vision, just as important – being able to operate with and for our clients managed companies and SPVs. Hence, we can ensure that no matter which jurisdiction a client falls under, we are able to provide a service tailored to their needs at the time. Should this change, our broad coverage allows us to assure flexibility and apply existing procedures and networks to the client’s benefit.”