Rapidly changing legislation combined with complex labour laws puts Greece at the top of the Global Business Complexity Index.
Greece’s existing legislation can be complicated and new measures are continually being introduced. Sometimes, multiple laws conflict and it can be hard for businesses to know which one to comply with. For example, in some cases, VAT refunds are subject to different treatment depending on the tax office dealt with. On occasion, individuals declaring identical dividends have been taxed at rates varying by more than 10%. The Greek government does not always provide enough guidance, making this a tough jurisdiction for foreign firms to navigate.
Some Greek islands operate as independent provinces for compliance and tax. This scenario is relatively unusual since compliance requirements vary between provinces in only 22% of jurisdictions and tax requirements vary between provinces in only 33%.
Staffing: demands and restrictions — Greece is a welfare state. Mandated benefits include Christmas and Easter bonuses, life insurance, transportation allowance and tax breaks for staff who are married or have children. Although the benefits system has been simplified over the last two years, payroll legislation changes frequently and is often applied retroactively. Many businesses require local support to help them manage their obligations. Businesses face hiring restrictions. For example, it can be extremely difficult to employ workers from outside the EU because government authorities are reluctant to provide work permits.
Indonesia ranks second place in complexity because its legislation changes frequently and regulations can be at odds with each other.
This is exemplified by the enforcement of VAT on online sales – a change announced in 2018 and scrapped in 2019. While Indonesia is gradually modernising, the existing legal infrastructure cannot always keep pace with the changes.
Incorporation and regulation are complex — The Online Single Submission (OSS) system used for incorporation – which has launched but is still under development - complicates an already complex process. Once a company has been set up, reporting requirements are stringent. Rules and standards are set by different authorities and can vary significantly. For example, companies must report to the Ministry of Finance, the Financial Services Authority and the Central Bank. However, many of these bodies have different reporting formats and timeframes, often leading to confusion and complexity. The associated bureaucracy can be challenging. For example, the tax authorities must, in principle, accept digital signatures but 'wet signatures' are often required in practice.
Despite ranking third for complexity, Brazil is likely to remain economically attractive.
It has made strong progress in stabilising interest rates and government spending is tightly controlled. Brazil has pioneered the use of technology – it recently implemented digital bookkeeping with the Sistema Público de Escrituração Digital (SPED) to standardise tax reporting and enhance foreign investment.
However, companies require local insight to navigate the legislative landscape and determine what regulators are likely to accept. Furthermore, VAT percentages and tax incentives vary from state to state, requiring an even deeper level of local knowledge.
Understanding the labour force — While 2017 labour reforms enabled more flexibility in collective agreements and union relations, complying with Brazilian labour laws remains onerous. It was rated 8 out of 10 for complexity, against a mean score of 5 across the Americas.
Employment rights remain strong and workers have a good chance of winning against employers in court disputes. Instead of firing employees for wrongdoing, companies often choose to grant severance payments. This can discourage employees from performing well during their notice period.
Labour unions wield significant influence, particularly in the more traditional manufacturing and industrial sectors where they have established industry specific protections for workers. Companies can bolster their reputations by developing good relationships with unions but compliance with union rules can prove very expensive.
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 digitisation 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 licence renewal, payroll compliance and ongoing maintenance of residency visas and labour 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.
Demanding regulations and high corporate taxation create a challenging business environment in Bolivia but there are moves to reduce complexity. For example, digital processes and e-signatures are being introduced to reduce paperwork.
The Bolivian government requires businesses to adhere to local policies. However, many domestic regulations, such as the national labour code, are not straightforward because of regional differences in interpretation. Tax structures vary. Foreign companies operating through a subsidiary pay an additional 12.5% tax on profits, on top of the standard 25% tax, due to the presumption of payment revenues to foreign shareholders.
Employee rights — Businesses need to be aware of the priority Bolivia’s government gives to workers’ rights and understand compliance requirements. For example, if employees are dismissed, they can apply to be rehired and stand a good chance of success.
Although Slovakia’s legislation is in line with that of the European Union, difficulties with technology implementation are increasing complexity in the short term.
An electronic submission system for the incorporation of companies was implemented last year. The new portal is expected to make registration much simpler once fully operational.
Understanding employee benefits and tax compliance — The Slovak Labour Code complies with European Union standards but workers are entitled to benefits that few other European countries mandate. These include dental insurance and transportation allowance, benefits legally required in only 5% and 16% of jurisdictions respectively.
Most penalties for failing to comply with the Slovak accounting and tax reporting system amount to only minor fines but company managers must operate safely within the law to avoid being personally liable.
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-organised German system helps to create predictability and security for businesses.
In Turkey, modern legislation is overlaid on traditional laws which sometimes creates conflicts. However, moves to integrate the legal system should smooth out any contradictions over the next few years, making this an easier jurisdiction in which to operate.
When setting up in Turkey, a company must register with the Tax and Social Security offices. While both departments require online registration, for now, paper documents must also be submitted.
Companies require a Turkish national with a citizen ID number to act as their representative during some application and registration processes.
New entrants to the market can be tripped up by complications involving the accounting profession. For example, unlike in many countries where accounting and tax can be separate specialisms, Turkish accountants have ‘mutual responsibility’ for the accuracy of tax filings. This means they are required to have a greater working knowledge of tax than many of their counterparts in other jurisdictions.
Managing mandatory pensions — Since June 2018, companies with ten or more employees have been required to register for a private pension scheme. However, employees can withdraw from them after two months – and frequently do. This means companies can bear the administrative burden of setting up and dismantling pension funds for new employees, contributing to a complexity score of 9 out 10, compared to the global mean of 4.
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.
Digitisation 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.
In 2018, a corruption scandal brought down Peru’s President and created political unrest. However, the country’s current President has committed to stabilising the economy to restore confidence.
As Peru looks to join the OECD, it will aim to align with global economic standards, creating a less complex environment for multinational companies to navigate.
Presently, it takes two to three months for a company to become established as a legal entity. During the registration process, multiple documents must be submitted including information about the company or business and its operational plans. Operations cannot begin until a registration number has been received. A corporation must ensure tax compliance to avoid severe penalties for the incorrect submission of taxes.