Brazil is the most complex country to do business in, according to the Global Business Complexity Index (GBCI) — a ranking published by the TMF Group, a global professional services firm — as the country’s push towards international cooperation does little to remove local complexities.
The annual report analyses rules, regulations, tax rates, accounting procedures, penalties and compliance issues across 77 jurisdictions to shed light on the difficulties businesses face when entering new markets. France and Mexico came in second and third, respectively, according to the report.
Complex but attractive
Mark Weil, chief executive of TMF Group, tells fDi that “Brazil suffers from rules at local, state and federal level, in part reflecting its size versus smaller jurisdictions”.
“We’re not [saying] don’t invest in Brazil,” Mr Weil explains. “What we are saying is that businesses going into markets [like Brazil] should be prepared to deal with local requirements and have knowledge of local procedures.”
Despite its red tape, the report highlights that Brazil country is an attractive investment destination. Of late, there has been a concerted effort on the part of the national government to boost foreign investment in various sectors, in particular energy.
In the 2020 iteration of the report, Brazil ranked second to Indonesia, which in turn has fallen to number six this year. Indonesia is the only country in Asia-Pacific listed in the top ten.
France is deemed the second most complex jurisdiction, owing to “complexities in accounting and tax processes, and heavily employee-centric HR regulations”.
Despite looking at just 32% of the globe’s total country count, the report aims to capture 92% of world gross domestic product and 95% of net FDI inflows.
The report finds the least complex countries to be Denmark, Hong Kong and the Cayman Islands. The UK fell to 58th place from 44th in 2019, thanks mainly to reduced uncertainty around Brexit.
In the case of Hong Kong, its methodology does not account for the impact of the National Security Law — a piece of legislation passed by the Chinese government last year criminalising acts of “secession”, “subversion”, “terrorist activities”, and “collusion with foreign forces”, which may prove testing for overseas businesses.
By contrast, China is ranked the 12th most complex out of the 77 jurisdictions listed.
The GBCI nonetheless adds: “It is a rapidly changing political landscape, and there is a risk that Hong Kong may be required to align more closely with China’s regulations, which could add significant complexity to the jurisdiction in the future, potentially deterring foreign investment.”
Global tax: simplification or complication?
Aside from the country complexity ranking, the report looks at the growth of global responsible governance, as illustrated by the G7’s deal on a global minimum corporate tax rate, and at the way digitalisation may well be a means of removing complexities.
This year, it has become compulsory for tax invoices to be uploaded via an online system in 27% of the 77 jurisdictions monitored by TMF — up from 24% in 2020, the report says.
Mr Weil believes that such a unified move as the G7 deal might lead to simplifications further down the line, helped along by digitalisation, but stresses that global cooperation does not eradicate country-specific challenges.
“We understand that global standards make a lot of sense if you can simplify [them], but what you tend to get is a patchwork quilt of the local and the partially adopted global. So, it’s an additional consideration rather than a replacement,” he says.
Set against increased geopolitical tensions, such as those between the US and China and Russia, country-specific complexities will remain entrenched and are unlikely to change, Mr Weil says.
“The reality is that Brazil, India and China are large, almost continental jurisdictions with commensurately complex rules, and that’s what you pick up on when you do business there. That’s not likely to change anytime soon.”