Vietnam, Singapore, Thailand and the Philippines have risen in complexity, while doing business in India, Malaysia and Hong Kong has got simpler.
Turkey, Indonesia and South Korea have emerged as the top three most complex jurisdictions to do business in Asia, a new report has revealed.
According to TMF's Global Business Complexity Index 2021, released yesterday (28 June), Indonesia has dropped from being the most complex jurisdiction in Asia and globally, giving way to Turkey (rising up six spots) and Brazil (rising up one spot) respectively.
The report analysed 77 jurisdictions around the world on 292 indicators - including incorporation timelines, payroll and benefits, and staying compliant.
Overall, the top 20 most complex jurisdictions globally for business complexity were revealed as follows:
- Brazil (2020: #2)
- France (2020: #12)
- Mexico (2020: #13)
- Colombia (2020: #8)
- Turkey (#1 in Asia; 2020: #11)
- Indonesia (#2 in Asia; 2020: #1)
- Argentina (2020: #3)
- Bolivia (2020: #4)
- Costa Rica (2020: #26)
- Poland (2020: #34)
- South Korea (#3 in Asia; 2020: #17)
- China (#4 in Asia; 2020: #6)
- Greece (2020: #5)
- Nicaragua (2020: #7)
- Italy (2020: #36)
- Kazakhstan (#5 in Asia; 2020: #25)
- Belgium (2020: #19)
- Ecuador (2020: #10)
- Portugal (2020: #31)
- India (#6 in Asia; 2020: #18)
At the same time, the report noted the following about key Southeast Asian economies:
- Vietnam has risen three spots from 24th in 2020 to 21st place in 2021;
- Malaysia has dropped from 9th place to 22nd place;
- Taiwan has moved down from 16th to 32nd;
- The Philippines is now in 37th place, rising 20 spots up from 2020 (57th);
- Thailand has moved up two spots (44th in 2020, 42nd in 2021);
- Hong Kong stands in 76th place, down from 66th in 2020; and
- Singapore has risen 10 places, from 60th in 2020 to 50th in 2021.
The report also showcased the top 20 simplest jurisdictions to do business in:
[Note: 1 represents 77th place, 2 represents 76th place, and so on. 20 represents 58th place.]
- Denmark (2020: #74)
- Hong Kong (2020: #66)
- Cayman Islands (2020: #69)
- Republic of Ireland (2020: #70)
- Curaçao (2020: #77)
- British Virgin Islands (2020: #73)
- United States (2020: #76)
- The Netherlands (2020: #73)
- El Salvador (2020: #71)
- Mauritius (2020: #68)
- New Zealand (2020: #59)
- Qatar (2020: #49)
- Luxembourg (2020: #50)
- Malta (2020: #61)
- Israel (2020: #63)
- Australia (2020: #58)
- Czech Republic (2020: #48)
- United Arab Emirates (2020: #53)
- Japan (2020: #46)
- Paraguay (2020: #33)
Apart from the above, the report detailed key aspects that contribute to these overall rankings. Two key HR aspects are shared below:
Top three mandated benefits globally: Minimum wage, paid time off and paid sick days
The requirements for the provision of employee benefits have largely remained consistent since 2020, particularly more standardised benefits such as minimum wage, paid sick days, and paid maternity leave. There has been an increase in the requirement for paid time off, which is now mandated in almost all jurisdictions.
Looking at more progressive benefits such as childcare assistance and housing or social care contributions, there have been increases to the legal requirement of these benefits for permanent employees since 2020.
This shift, the report noted, has been driven by jurisdictions in APAC and EMEA, demonstrating some regional changes since last year, and represents a trend towards a more employee-driven and supportive working culture.
It also revealed a few regional differences when it comes to certain benefits. For example, South American jurisdictions lead the way in mandating 13-month salaries and paid paternity leave or shared maternity and paternity leave.
Further, in Bulgaria, for instance, maternity leave is 12 months long for all employees; while in Mexico, the process of applying for maternity leave is digitalised, with employers and legal representatives able to submit approval for maternity leave online.
In Greece, there is a requirement to pay the equivalent of a 14-month salary in 15 unequal instalments, adding to complexity in this jurisdiction.
Last, non-wage compensations are also increasingly subject to taxation, particularly in APAC. In 2019, 43% of jurisdictions mandated the taxation of non-wage compensations, rising to 51% in 2021.
There is a global shift away from mandating regular pay increases
According to the report, in North America, 50% of jurisdictions mandate regular pay increases, as is the case in 70% of jurisdictions in South America.
However, no APAC jurisdictions and only a small percentage in EMEA mandate regular pay increases.
Since 2020, the frequency of jurisdictions which mandate regular pay increases has decreased by 5%. The greatest change in this respect can be found in North America and APAC, where mandated regular pay increases have dropped by 14%.
That said, a "considerable number of jurisdictions" are still mandating pay increases, in some cases to address issues caused by inflation, which the report noted has potentially worsened due to the impact of COVID-19.
Top 3 trends in business complexity around the world
#1 The growth of responsible governance
Businesses across the globe are increasingly being encouraged to behave in a responsible, transparent and more socially minded manner.
Alongside the more frequent requirement to work with third parties to ensure compliance is a global increase in the strictness of penalties for non-compliant businesses.
Fines are the most common penalty imposed for accounting and tax misdemeanors, and in the case of doing business without being tax registered, the frequency of issuing fines has increased since 2020, with 93% of jurisdictions now imposing a fine for this, compared with 84% previously.
On the employee front, there has been a shift as industrial relations are now becoming more employee focused than ever before. This is, in part, related to the COVID-19 pandemic leading to huge uncertainty for businesses and authorities. Some jurisdictions responded to meet the needs of employees and offer them protection during this challenging time.
For example, in Denmark, the government recently revised the Working Environment Act (updated May 2020) which ensures that the physical and psychological environment for employees is both safe and suitable. In line with this shift toward a more employee-focused workplace, since 2020 it has become more difficult to dismiss employees without citing a reason. It was permitted in 29% of jurisdictions in 2020, dropping to 20% in 2021.
#2 Simplification through digitalisation
Governments across the globe are turning to digitalisation as a way to simultaneously adjust to the remote working world that COVID-19 has created and remove or improve the traditional processes that have long been a source of complexity.
This year, the requirement of a physical stamp, chop or seal for legal entity documents has substantially declined, with only 38% of jurisdictions globally now necessitating this in-person officiation (vs 43% in 2020).
2021 has also seen an increase in the automatic notification of relevant state authorities when incorporating a company, rising to 14% of jurisdictions globally where all authorities are notified. EMEA and APAC lead the way in this transition. One good example is Mauritius, where an online platform has been introduced to ensure smoother coordination between various government bodies and to reduce processing downtime during incorporation.
#3 International versus local complexity
The drive towards international alignment and cooperation between jurisdictions has clashed with local, often idiosyncratic, complexities. While the push for standardisation continues, via regulation such as CRS, UBO and FATCA, uptake varies globally.
In many ways, the pandemic has made the workforce less internationally mobile, notably by closing borders as national governments have attempted to keep COVID-19 at bay. At the same time, remote working has become embedded in corporate culture, meaning workers can easily log in from any location with just a laptop and an internet connection.
However, current payroll legislation is very much set up for a pre-COVID world, meaning that any companies looking to take advantage of a more globalised workforce will also need to understand the administrative complexities of hiring overseas.
The size of a jurisdiction can also have a big impact on the hiring processes a company is likely to have to go through. In smaller jurisdictions, such as small islands, the local talent pool is often fairly limited, meaning that corporations may need to consider making foreign hires. In some cases, however, jurisdictions may recruit workers who have particular skills – despite being small, Curaçao has a highly specialised workforce made up of individuals with financial and legal backgrounds, due to the nature of business that takes place on the island.
In larger jurisdictions, cross-border difficulties may occur even within national boundaries. In the US, for example, income tax is filed state-by-state. Consequently, during the pandemic, many companies sought to hire workers from other parts of the country due to rising popularity of remote working, which led to more complex situations arising when calculating and reporting payroll.
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