TMF Group’s Global Business Complexity Index 2022 (GBCI)
explores 292 different indicators relating to business complexity,
to provide in-depth analysis of the global and local challenges
that impact on the ease of doing business across the
world.
Insights from the GBCI can help investors pick and manage their
target markets with greater confidence. Those jurisdictions that
are perceived to be the most complex are often among the most
attractive for talent and customer opportunities. Local knowledge
will help when it comes to navigating this complexity, allowing you
to managing exposure to compliance risk and find your path to
growth.
In this article, we take a deep dive into the APAC region, to
examine the drivers of business complexity in each jurisdiction, or
conversely, what makes them simpler environments for investment or
setting up operations.
11. Indonesia
Indonesia just misses out on spot in the top 10 in the GBCI
2022. It has gradually simplified since 2020, when it was ranked
number as the most complex jurisdiction for business. A key driver
to the move towards simplicity is the introduction of the Omnibus
Law and the ‘positive investment list’, a series of laws
and legislation that aim to simplify business incorporation and
operation and drive the jurisdiction’s attractiveness to
businesses.
Under the Omnibus Law, the jurisdiction has seen a reduction in
the number of permits and licences needed to commence business
operation. Previously more than 10 permits were required; now it is
fewer than five, simplifying the incorporation process for
organisations.
The ‘positive investment list’ has opened up 245 areas
of business to 100% foreign ownership. Previously, under the
‘negative investment list’ partial local ownership was
mandated in 350 business fields. So, we can see that there has been
a clear and active shift towards being more welcoming to foreign
direct investment.
However, despite such changes, there are still issues causing
complexity in Indonesia. For instance, the tax regime is
particularly punitive, with penalties including fines of up to 75%
of the amount due in the case of misdemeanours.
“With Covid-19 largely behind us and the Omnibus Law
implementation ongoing, 2022 is without a doubt the perfect time to
launch the plan to invest and take advantage of the country’s
positive momentum. It is important nonetheless, to have a good
sense of the latest development and future trajectory of the
different sectors of the economy.” – Alvin Christian, Managing
Director, TMF Indonesia
14. China
Typically one of the more complex jurisdictions for business
incorporation and operation, China ranks 14th in our GBCI 2022. One
particular aspect that creates greater complexity for foreign
businesses is that legislation, laws and requirements differ
between provinces, municipalities and cities, meaning that
up-to-date local knowledge is a must. Furthermore, the use of
Chinese as the principal language of commerce in the jurisdiction
can add to complexity, not only adding to the administrative burden
for multinationals, but also meaning that navigating certain
documents is made all the more challenging.
Another area that impacts complexity in China are changes to
regulation. The government frequently amends and updates
regulation, for example, the Chinese government reversed a decision
to end certain tax-exemption policies for ex-pats living in the
jurisdiction, at the end of 2021. This was a last-minute change,
driving complexity as human resources departments had already
started putting systems in place to meet the requirements of new
legislation.
However, despite these challenges, the Chinese government is
taking an approach to encourage foreign direct investment by
simplifying processes. For example, there have been changes to move
towards a more digitalised and transparent way of operating.
Regulators have been working systematically to open up and simplify
industries that can yield the greatest positive impact on the
Chinese economy, such as financial services.
“China can be complex as a large geography (provinces,
municipalities, cities) which means that there is variation when it
comes to local compliance practices, interpretation and
requirements by specific local regulators. All regulatory
compliance and administration is still conducted with Chinese as
the official reporting language, making it more complex for
international companies.” – Thun Li, Head of TMF China and
Taiwan
16. South Korea
Ranking 16th, South Korea is one of the more complex
jurisdictions in our GBCI. In principle, it is an open market for
foreigners to do business within. However, complex compliance
requirements, coupled with language barriers, create practical
hurdles for companies to overcome.
In South Korea, companies are subject to frequent regulatory
changes. For example, the new liaison office reporting requirements
have become effective in 2022, impacting the tax legislation that
companies must comply with. The insistence on local language
reporting further increases the complexity of the business
environment.
South Korea’s payroll and human resources regulations may
prove complex for foreign businesses to navigate. For example, all
employees who work for an employer more than one full year are
entitled to a mandatory severance payment, which is in the region
of one month’s pay. Furthermore, the last president’s term
(five years) has seen a consistent strengthening of compliance
requirements related to employee protection. This is part of a
wider focus on ESG in South Korea, designed to improve
sustainability, strengthen consumer protection, and promote a
diverse workforce.
While it is a complex market to operate within, part of South
Korea’s attractiveness to business is that it is a highly
technologically advanced nation. This means that most compliance
requirements have now transitioned to the digital realm. This is a
trend that was accelerated by the Covid-19 pandemic and is here to
stay.
“South Korea is an open economy; entry and exit to the
market can be done at will. However, companies must be aware of
complex compliance requirements with local idiosyncrasies.” -
ByungJin Lee, Managing Director, TMF South Korea
22. Malaysia
Malaysia has become gradually less complex in recent years,
ranking 9th in 0ur 2020 GBCI and dropping to 22nd this year.
Simplicity in the jurisdiction comes from having easily accessible
online guidance from regulators, and a local GAAP in line with
IFRS. This means that businesses wishing to incorporate and operate
in Malaysia can feel supported and utilise knowledge from other
jurisdictions where IFRS is in place.
However, there can still be some complexity in the jurisdiction.
Malaysia has recently introduced legislation to ensure that jobs
are protected for local workers. In January 2021, the Malaysian
government brought in a job advertisement requirement relating to
the hiring of expatriate employees. Businesses who wish to employ
expatriates need to advertise a certain number of jobs on the
MYFutureJobs online portal. This aims to ringfence a certain number
of jobs for Malaysians which benefits local workers but can add to
complexity for foreign businesses who can seek to hire foreign
workers.
Further complexity can come from the ESG space. Malaysia has
updated the Malaysian Code on Corporate Governance to strengthen
the corporate governance culture and strengthen a commitment to ESG
principles. This can add to complexity, but it also drives
attractiveness as businesses increasingly seek to operate
sustainably and ethically.
“It is easy to do business in Malaysia with the guidance of
professional service provider. The public can easily access
guidelines from each regulator’s website and regulators are
more flexible towards foreign asset management companies.” -
TMF Malaysia expert
25. India
India is gradually moving towards a simpler approach to business
incorporation and operation. This is related to ease of doing
business initiatives that the Indian government has been putting
into place.
For example, there has been an increased digital focus in recent
years. The government used the pandemic to push the digitalisation
of systems. Previously, there was a strong reliance on face-to-face
interactions for business incorporation and operation that involved
long wait times. This meant that sometimes due to long queues it
could take a day to obtain a simple signature.
Another aspect that has been driving simplicity is the move
towards becoming more centralised. For example, labour codes have
become more unified across the jurisdiction, making it simpler for
businesses to operate across multiple states within India.
Looking to the future, due to the business-minded government of
Ram Nath Kovind, we expect to see the jurisdiction becoming even
simpler. However, as our TMF Group expert points out, there is a
desire to not move towards total simplicity. Complexity can create
a more competitive environment, which allows businesses to
thrive.
“The government is aiming for minimum government
intervention and maximum governance, with digitalisation being of
utmost importance. In the last few years, India has seen a lot of
foreign direct investment flowing into the country, which was
possible only because of the conducive business environment.”
– Sapna Gulati, Executive Assistant, TMF India
30. The Philippines
Complexity in the Philippines stems from repetitive, difficult
and lengthy procedures required for government agencies to grant
business permits, licensing and even entry of approval for
non-residents. It typically takes two to three months for foreign
companies to register with different government agencies and to
operate in the Philippines legally.
A recent cause of complexity was the introduction of a new tax
law in April 2021, titled Corporate Recovery and Tax Incentives for
Enterprises (CREATE). Since coming into force, this law has caused
confusion on the VAT zero rating of local purchases by export
enterprises.
The pandemic has forced various government agencies to operate
on a limited capacity, as well as providing services on digital
platforms. Government agencies have accelerated the digitalisation
of their processes, which in turn should reduce the number of
procedures, as well as help in avoiding corruption and red tape.
There is a concerted effort to digitalise in the Philippines, and
the tax office has 49 projects under its 10-year digital
transformation roadmap.
The presidential elections in May 2022 saw Ferdinand Marcos Jr.,
son of the late dictator win a landslide victory. His time in
office looks set to be influenced by the nostalgia of his
father’s authoritarian regime, which will have an immense
impact on the nation and the climate for foreign businesses.
“The Philippines is a growing market with lots of
potential: that’s why it still pays to invest and set up
business in the country. The talent is here and is cost effective,
the infrastructure and interconnectivity are being improved, and
the government has been doing its job to promote foreign
investments by liberalising investment rules and regulations and
encouraging digitalisation.” – Janis Maghinay, Managing
Director, TMF Philippines
42. Vietnam
Vietnam is consistently becoming more aligned with international
standards and practices. This alignment will remain a work in
progress for the coming years, but today there are certain
regulatory obstacles and requirements that must be considered by
foreign investors.
Vietnam frequently makes changes to its legal system, and it is
important that businesses adapt to remain compliant with these
changes. While the legal framework is consistent nationwide,
different provinces have different interpretations which provide an
added complication for businesses.
When it comes to accounting, companies must comply with local
GAAP, which is quite different from the accounting practices of
other countries. In addition, Vietnamese authorities require the
use of local language, local currency for recordings, and following
a statutory template of financial statements. A qualified chief
accountant must also be appointed, and companies face punitive
fines in the case of any violation.
As of 1 January 2022, foreign workers in Vietnam are subject to
increased social insurance rates, requiring foreign employees to
pay an 8% social insurance, while employers must contribute 17.5%.
This brings foreign worker social insurance payments in line with
Vietnamese employees.
“As Vietnam’s integration with international standards
gains pace, we expect authorities to continue to enhance the
regulatory framework for foreign investors. This process will
create opportunities, but also shifts that need to be actively
monitored and managed.” – Vo Ngoc Thuy An, Managing Director,
TMF Vietnam
43. Taiwan
Taiwan ranks 43rd in this year’s GBCI, with complexity
continuing to stem from lengthy, traditional requirements, as well
as the ongoing political situation between the jurisdiction and
neighbouring China.
In Taiwan, the incorporation process is lengthy, taking around
eight weeks in total. Government officials speak very limited
English and accounting filings must be completed in local language.
Tradition remains, and company and representative chops are still
required to legalise documents, with e-signatures not yet accepted.
Tax filings are also very inflexible, with no ability to extend
deadlines.
Employees are well protected in Taiwan, with strict and complex
rules around working overtime. In addition, when a business has
more than 50 employees, it is required to set up an employee
welfare committee.
Taiwan is safe and stable, yet the political situation with
China means investments and funding from China are under strict
review. This review process should take around 6-12 months and
following this there will be a much clearer view of the future
business environment of Taiwan.
“Taiwan has plenty of talent, especially in IT and
telecommunications, and the environment is excellent for foreign
investments.” – Angela Wu, Managing Director, Taiwan
49. Thailand
Thailand has continued to make concerted efforts to improve the
efficiency of doing business as a foreign entity. However, foreign
companies or multi-nationals are unable to own a majority share of
a business in the jurisdiction, and there is a strong reliance on
local language, especially when dealing with government
agencies.
However, Thailand has many processes which make it a simple and
attractive jurisdiction for foreign entities to do business. An
entity can be incorporated with just one director, and there is no
requirement to have a resident director. Additionally,
digitalisation is increasing in the jurisdiction, with the pandemic
accelerating the use of technology. For example, many government
filings can now be made online, a change that is expected to remain
in place.
Looking forward, Thailand is expected to introduce the Personal
Data Protection Act (PDPA) in June 2022, which is the first local
law which governs data protection in the digital age (comparable to
Europe’s GDPR laws). This covers data processing, data
collection, data storage and data consent protocols. Although many
companies have started their preparation to comply with the new
requirements, the PDPA is expected to bring more complexities to
Thailand due to the lack of clarity, knowledge and experience of
the law.
“Opening a legal entity in Thailand is easy but obtaining a
license to operate may have its own restrictions. Under specified
circumstances, foreign investors opening a Thai limited company are
limited to a maximum of 49% ownership, while Thai nationals own the
remaining 51% of the company’s shares. Therefore, entry
barriers in Thailand need to be carefully examined.” – Achin
Malik, Managing Director, TMF Thailand
51. Japan
Japan ranks 51st in the GBCI ranking for 2022. Although placed
in the least complex third of the index, Japan has certain
processes and requirements that make it a complex jurisdiction. For
example, the need for all statutory documentation submissions such
as taxes, social insurance and immigration submissions to be made
in Japanese. There are limited existing English speakers in Japan
to support with such services, making business incorporation and
operation more challenging for foreign businesses.
Although an advanced economy, digitalisation in Japan has not
reached all areas of business. For example, when it comes to
certain banking systems, some payments for taxes and social
insurance are required to be paid physically at the bank. For
online banking systems, there are limited English interfaces and
overseas support for online banking is not typically offered. For
those that do have English interface systems, the costs are very
high.
Payroll and human resources are also more complex areas in
Japan. For example, social insurance operates on a complicated
bracket system, which requires reconciliation on a monthly rolling
basis. It’s common that social insurances deducted may not
match the employee’s salary that month, as the calculation is
reflected months later rather than at the time of calculation.
“There are plenty of opportunities that exist in Japan, but
foreign investors will need to be patient and understanding of the
business practices and statutory requirements.” – Greg
McDonald, Managing Director, TMF Japan
58. Singapore
Singapore, ranking 58th in this year’s GBCI, is an easy and
straightforward place to do business. The government has a
business-friendly attitude, with its regulation based upon a common
framework. Additionally, the jurisdiction has a competitive
corporation tax of 17%, with additional tax breaks available for
qualifying foreign banks, offshore funds and global trading
companies.
Relationships with other jurisdictions regarding tax are also
positive, with over 80 double taxation treaties with other
countries. This means that businesses in Singapore are paid only on
the income generated within the country and protects individuals
and businesses based in the jurisdiction from double taxation.
Singapore continues to be a financial centre for Southeast Asia,
which supports a large and diverse fund management sector. The
jurisdiction caters to fund managers who traditionally establish
advisory and management operations, with the aim of deploying their
investment strategies globally. Singapore is a sound environment
for fund operations, due to factors such as its strong political
and economic stability, low levels of bureaucracy, high
transparency, low corruption, predictable regulation, use of the
English language and a sound infrastructure with a skilled
workforce. Qualifying offshore funds are exempt from tax on parts
of their income, such as dividends and interest, making the
jurisdiction highly attractive.
“Singapore has a very business friendly government with
sound and predictable regulation based upon a respected common law
framework. The Singapore government has embraced advanced
digitalisation initiatives with a majority of all submissions being
done online.” – Edmund Lee, Managing Director, TMF Singapore
and Malaysia
65. Australia
As one of the simplest jurisdictions in our GBCI 2022, ranking
65th, Australia is an understandably attractive jurisdiction to do
business in. The jurisdiction is progressive in nature which makes
it appealing to international organisations, but it can also create
some complexity.
For example, in the wake of the “#metoo” movement,
there is a significant emphasis on corporate entity and corporate
directors to provide oversight and guidance to management in
relations to ethics and social equality. This can create some
complexity for businesses, however in the modern world of
operation, such focus is a key aspect of operation particularly for
larger companies.
Furthermore, the upcoming elections taking place in May 2022
have had a clear focus on environmental actions. The current
administration in Australia have been somewhat indecisive when it
comes to their energy agenda. A change in political direction could
trigger increased investment into greener energy and ways of
working. Therefore, organisations operating in the jurisdiction may
need to work to meet new environmental targets depending on the
outcome of the election. This may create some complexity, however
with environmental matters being top of mind for many international
businesses it should sit within existing efforts to work in a more
sustainable manner.
“Australia operates at a high degree of efficiency and
transparency like in many western economies. It does have its own
unique rules and nuances that can only be appreciated when you are
‘down under’.” – Tracii Soh, Managing Director, TMF
Australia
70. New Zealand
New Zealand is a new entry in the ten simplest jurisdictions,
but is often widely praised for its simplicity and attractiveness
for foreign businesses. A key driver is a straightforward
incorporation process, facilitated by a slick online set up. New
Zealand doesn’t mandate face-to-face requirements and the
jurisdiction ‘went online’ seven years ago. Now more than
95% of tasks for businesses can be done online. The jurisdiction is
also internally digitally aligned, meaning that one access code can
be used across different systems such as ID matters and PAYE
online.
Another driver of simplicity in the jurisdiction is the
stability of its laws and legislation. In the accounting and tax
space, there have been no big increases or significant changes year
on year, so businesses are better prepared than in other
jurisdictions where governments are more in flux when it comes to
lawmaking.
Covid-19 did bring big changes in New Zealand with the
government’s progressive stance globally praised. This included
generous business support to aid organisations and individuals.
Although this did ease the jurisdiction’s experience of and
emergence from the pandemic, it is now contributing to inflation as
more money has been brought into the economy.
Transparency is another area where the government has been
progressive, further driving a supportive business culture. In
2018, AML legislation was introduced for all companies. This, along
with KYC legislation, can cause some complexity when opening a bank
account with certain resident director requirements to satisfy. As
observed elsewhere in the GBCI, although the process of
incorporation is straightforward opening a bank account can stall
entity activation.
While such transparency can create complexity, it does drive
attractiveness by offering businesses certainty. It also reflects
the supportive approach of the New Zealand government, which drives
simplicity in the jurisdiction and looks set to continue to do so
in future.
“New Zealand has always been seen as very simple when it
comes to doing business. The reason for this is that the
incorporation process and compliance are relatively
straightforward. In terms of the requirements of appointing a
director, they are relatively less complex compared to other
jurisdictions. Most of the things you need to do, you could do
online.” – Vincent Gin, Country Leader, TMF New Zealand
74. Hong Kong
Historically, Hong Kong as a part of China has operated a
‘one country, two systems’ policy. However, China has taken
more control from a legal and economic perspective over the past
few years. The direct impact on foreign business enrolment may be
limited for now, as they are adopting the ‘wait and see’
approach to what lies ahead. Despite this, Hong Kong remains a
simple jurisdiction for foreign companies.
The Hong Kong government has set its sights on developing a
leading funds industry, which has been running for 18-24 months.
Hong Kong set up a new fund structure to replicate the Cayman fund
structure and provide tax exemption for asset managers, meaning
they will only need to provide one set of compliance reports to the
authorities. This should help attract more asset managers to
domicile their Cayman funds in Hong Kong.
Hong Kong policymakers have raised the bar and started to
introduce ESG regulations, specifically for listed companies,
whereby they must report their ESG status to the authorities.
“I think ESG is a global trend and Hong Kong is responding
to stakeholders’ expectations by evolving and taking some solid
steps.” – Maggie Chan, Managing Director, TMF Hong Kong
The Global Business Complexity Index
The GBCI 2022 provides an authoritative overview of the
complexity of establishing and operating businesses around the
world. It explores factors driving the success or failure of
international business, with a focus on operating in foreign
markets, and outlines key themes emerging globally as well as local
intricacies across 77 jurisdictions.
Explore the GBCI rankings, analysis and global trends to help
you find your path to growth, amid the complexity of corporate
compliance.
To download and read the report in full, visit the Global Business Complexity Hub today.
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.
