The TMF Group Financial Complexity Index looks at the world’s nations by complexity of financial compliance, by which we mean the ease with which companies can deal with taxes, adhere to reporting requirements, maintain company accounts, and deal with cross-border transactions.
Financial complexity is crucial for company executives. While it will never be the sole factor determining what country they will invest in – some of the world’s most popular nations for business are also very complex – it is an important variable to consider when making decisions. More complex nations require firms to spend more time, money and effort on compliance, and this can affect performance and profitability.
For companies who have already made the decision to invest in a certain country, financial complexity is an important factor they must manage – failure to do so can sometimes result in damaging penalties.
When operating in a diverse global market, knowing and understanding the local requirements for financial compliance could make the difference between the success or failure of your cross-border activities and investments.
Based on the survey responses, the 94 jurisdictions were ranked in order of financial complexity: 1 being most complex, through to 94 the least complex.
India: #13 – Is the GAT making things less complex?
This year India leaves the global top 10, buoyed by the success of its Goods and Services Tax (GST) introduction in mid-2017, and the Insolvency and Bankruptcy code (IBC).
The GST implementation has had a far-reaching impact on almost all aspects of business operations in India. The GST is a value-added tax levied at all points in the supply chain and is applied to both goods and services in a comprehensive manner, with few exceptions. It replaces a complex ecosystem of local, regional and national taxes that often artificially inflated the cost of goods and services in India.
However, the GST hasn’t removed all complexity in the country. It is levied concurrently by the central (CGST) and state (SGST) governments, while inter-state supplies attract an integrated GST, the aggregate of CGST and SGST.
The IBC provides an overarching framework to help companies either wind up or set themselves on course for revival, and investors to exit. It has also allowed for a simplified and much swifter process, as multiple acts and authorities are now consolidated; the previous 4-5 year timeframe for insolvency and recovery proceedings has been reduced to one year. Debt recovery rates and the Indian corporate bond markets are also set to improve under the IBC.
Additional transfer pricing documentation and CbCR rules in line with BEPS actions are now in place, and the process of starting a business is now faster thanks to the merging of applications for Permanent and Tax Account Numbers, and improving the online system.
APAC’s largest economy is now the world’s most complex for accounting and tax. China takes over from Turkey at the top of our complexity index, largely driven by the continued embedding of the Golden Tax System, which aims to introduce stricter monitoring and enhanced data sorting and transparency. There are, however, efforts in place to further open the Chinese economy to foreign investors.
Turkey drops out of the top spot this year, as government efforts to simplify regulation begin to kick in. Meanwhile, the UAE’s introduction of a VAT - in line with gulf-wide treaty obligations - sees this once-easy jurisdiction jump the rankings.
With France, Italy and Russia in the top 10 most complex, Europe is a less simple place to do business than some might imagine. France’s increase in complexity comes just as a new government, led by Emmanuel Macron, begins a business-friendly simplification process. Meantime Germany ranks just outside the top 20, but alongside South Africa, is most complex globally for compliance.
SOUTH AND NORTH AMERICA
Just as in our 2017 index, South and North America together comprise half of the world’s 10 most complex jurisdictions for accounting and tax compliance. While previously we pointed to the common practice of levying three layers of taxation - at federal, state and municipal levels – the reason for complexity has changed. The last 12 months have seen several countries beginning the process of introducing digitised filing for company accounts. That has created a short-term complexity spike – but, if roll-outs are successful, complexity should reduce in the long-term.
TMF Group helps its clients operate internationally and ‘belong’ wherever they are in the world. We do this by making sure they are properly set up to do business in any country and compliant with local and international regulations.