GBCI 2022: Business complexity in APAC
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.
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.
hina 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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’.
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.
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.
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.
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