Indonesia is Asia Pacific’s most complex jurisdiction for corporate compliance, according to a new report by TMF Group. 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.
These insights emerge from the Global Business Complexity Index 2020 featured in Rules and regulations: Managing the evolving compliance landscape facing multinationals, which ranks 77 jurisdictions by the complexity of legislation, regulations, rules and the penalties they prescribe.
While Indonesia’s regulatory environment was found to be APAC's most complex, it was followed by Taiwan, Japan, South Korea and Malaysia. By contrast, Hong Kong, Australia, Vietnam, Philippines and New Zealand were seen as the least complex, with all of them having legislative environments that encourage foreign direct investments (FDI).
Here's a list of how selected APAC jurisdictions appear in descending order of business complexity:
- Indonesia (1st globally)
- Taiwan (12th globally)
- Japan (18th globally)
- South Korea (29th globally)
- Malaysia (31st globally)
- China | India (33rd globally)
- Singapore (42nd globally)
- Thailand (43rd globally)
- New Zealand (51st globally)
- The Philippines (52nd globally)
Top trends in business complexity across the world (with examples)
#1 The growing power of international legislation
- Some incentives are aimed both at attracting talent and FDI. In Taiwan, 50% of income above three million New Taiwan dollars (US$100,000) is exempt from tax for qualifying individuals. Such practices reflect governmental openness to international trade and workers. It will be interesting to see whether similar incentives will become more commonplace in order to stimulate FDI and rebuild the global economy following the COVID-19 crisis.
- The most complex jurisdiction in the GBCI, Indonesia, has denied foreign investors access to industries on its Negative Investment List. However, Indonesia is changing its stance, renaming the above as the Positive List of Investments, while 16 of the 20 sectors which are currently closed to foreign ownership are due to be opened.
- The process of dissolving a business in APAC is particularly complex, taking around nine months on average and over a year in five jurisdictions (not only Indonesia, but also China, Malaysia, the Philippines and Thailand) within the region.It takes more than six months on average at a global level. The prospective difficulty of pulling out of a market may influence a company’s decision to set up in any given location in the first place.
#2 Modernisation vs tradition
Given the increased focus on international compliance legislation and ownership and transparency requirements, the responsibility of managing it all falls traditionally to the Company Secretary. However, the research shows that only around a quarter of jurisdictions worldwide require a Company Secretary as a legal position within the corporate structure – unchanged since 2019.
- There is an increased requirement for companies to notify multiple bodies during the process of incorporation through to full entity activation. In South America, for example becoming a legally recognised entity requires notifying at least four bodies, while in North American jurisdictions it is a requirement to deal with an average of three bodies to obtain operating permits.
- Automatic notification of bodies is helping to combat this complexity. In 71% of jurisdictions worldwide, when a company contacts the authorities to incorporate, at least some are notified automatically as part of that process. However, in only five jurisdictions are all the necessary bodies informed: Bolivia, Brazil, Bulgaria, Portugal and Ukraine. The process was accelerated in Bolivia because of the COVID-19 crisis.
- In some jurisdictions, when incorporating or registering a change in company structure, an apostille is needed – a kind of official stamp to legitimise the documents. In Luxembourg, authorities have altered the rules making it still a requirement but only at a later date, reducing the short-term barriers to setting up.
#3 Simplifying processes through technology
- While technological changes can be difficult and slow to implement, the COVID-19 crisis has shown that adoption can be made quickly when under pressure. On 1 February, the Chinese government brought in an online visa renewal system, allowing employers to keep staff working without having to visit the authorities in person. This process has benefited many foreign employees living in cities under lockdown rules.
- Technology allows processes to be streamlined by connecting multiple facets of operational compliance into a reduced number of online contact points. Denmark has recently consolidated many aspects of the registration process into just two portals, available in both Danish and English. Information requests from relevant authorities are streamlined through the portals’ mailbox system, enabling companies to more easily communicate with relevant bodies.
- Singapore’s system is held up as the gold standard for straightforward online incorporation. The Singapore Standard Industrial Classification (SSIC) code categorises businesses according to their activities – and then points to which industry-specific bodies or licensing agencies should be contacted within a total entity activation process. If the SSIC is entered incorrectly, the relevant authorities won’t be notified.
Predrag Maletic, Head of Strategic Growth and Development, 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 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.”
Photo / TMF