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TMF Group’s Financial Complexity Index 2018

A global world does not necessarily mean a simpler world. Thanks to improvements in technology and transport, companies are able to do business across the globe more easily than ever before. Yet, at an individual level, countries and their economies remain as unique as ever, meaning companies doing business internationally or looking to expand into new markets face a different set of challenges at every turn.

The TMF Group Financial Complexity Index looks at the world’s nations by complexity of financial compliance, by which we mean the ease with which companies can deal with taxes, adhere to reporting requirements, maintain company accounts, and deal with cross-border transactions.

Financial complexity is crucial for company executives. While it will never be the sole factor determining what country they will invest in – some of the world’s most popular nations for business are also very complex – it is an important variable to consider when making decisions. More complex nations require firms to spend more time, money and effort on compliance, and this can affect performance and profitability.

For companies who have already made the decision to invest in a certain country, financial complexity is an important factor they must manage – failure to do so can sometimes result in damaging penalties.

New trends

Following 2017’s inaugural outing, this second Index is dominated by the impact of the global move towards transparency and conformity. Many countries are working out their reaction to the OECD’s Base Erosion and Profit Shifting (BEPS) project, meaning transparency in ultimate beneficial owners (UBOs) and transfer pricing are the subject of regulation impacting on business operations. The Common Reporting Standard (CRS) – designed to allow automatic exchange of information between jurisdictions by financial institutions – has also begun to make an impact. We see many countries passing reforms to simplify their economies not only to attract investment, but to ensure the country ticks the compliance box for these global movements.

Given that countries are as unique as ever, each one is tackling these global issues in a different way, and we have seen movement at the top end of our Index. Turkey’s moves to simplify its economy see it knocked from the top spot by China – a notoriously complex country, despite efforts to comply with global needs and open up to foreign investment. One of Europe’s biggest economies, France, enters the top 10 this year – though with the new administration moving to simplify the country’s complex tax and reporting system, it may be a mere guest appearance – while the UAE’s introduction of value added tax (VAT) alters its tax-free haven status and adds a new layer of complexity for businesses.

One thing that never seems to change, though, is the complexity of Central and South America. As previously, Latin America makes up half of the top 10 most complex countries, with Brazil again ranked second. However, change is afoot; several Latin countries have begun to digitise their filing processes, causing a short-term complexity spike. If things go according to plan, though, the digital transformation should reduce complexity in the long term.

While this report deliberately avoids the political, we keep one eye on the impact of events such as US-first policies on complexity in traditionally mid-tier countries, and such as Brexit – the fallout from which will become clearer in the near future. What will the 2019 Index bring us? For now, read on for the reasons to do business – or seek support from local experts – when doing business in almost 100 countries around the world.

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Lauren McMenemy

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