GBCI 2023: Entity Management And Business Complexity – Corporate and Company Law

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.

Business incorporation and operation has remained stable in
2023

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.

More governments look to attract business through initiatives
such as digitalisation

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.

Governments pushing initiatives to increase FDI despite global
economic slowdown

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.

Case study: ease of doing business in India

In 2020, India was ranked 18th in the GBCI – this year it sits in 33rd place. The government in India has taken steps in recent years to encourage foreign businesses to invest and do business in the jurisdiction, such as the ‘Make in India’ initiative, introduced in 2014. Since then, the government has continued to strengthen the initiative, such as reforming legislation and liberalising guidelines and regulations to reduce the compliance burden. “Burdensome compliance with rules and regulations have been reduced through simplification, rationalisation, decriminalisation and digitisation, making it easier to do business in India”, TMF India expert Recent amendments to legislation focused on easing incorporation and operation in India are expected to continue to reduce complexity in the future. For example, in less than a decade, around 1,500 redundant laws have been repealed and 250,000 compliance requirements have been reduced by the government. India has witnessed an increase in FDI flowing into the jurisdiction in recent years, which was made possible by making its compliance environment more conducive to business. According to TMF Group’s experts, the Indian authorities are “aiming for minimum government and maximum governance”.

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.

Expectation that foreign investments in jurisdictions will
continue to increase

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?

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.