In a region housing some of the most financially-complex countries in the world, is it any wonder that non-compliance with local regulation was named the most concerning compliance trend in Asia Pacific?
This is, of course, according to TMF Group’s inaugural Financial Complexity Index. The ranking of 94 jurisdictions across the world resulted in three top-10 spots for Asia Pacific: Vietnam ranked 5th most complex for compliance, followed by China at 7 and India at 10.
The Index also saw Hong Kong come in at 91 as the easiest place in APAC for compliance from an accounting and tax perspective; only the Cayman Islands, BVI and UAE were ranked less complex for business across the world.
In determining the rankings with its in-house accounting and tax experts, TMF Group used four weighted complexity parameters, considering the accounting and tax rules and regulations in different jurisdictions, and risks associated with non-compliance.
But it’s not all about the top 10 and the numbers; the survey also asked in-house experts for the local view on emerging compliance trends, and how these are seen in Asia. These results show the traditional worries of regulatory and tax compliance are still top of mind for accounting professionals around APAC: non-compliance with local regulation, the possibility of tax audits, and accounting complexity cause the most worry for Asia Pacific’s accounting and tax professionals.
The issues affecting Europe - namely, BEPS and transfer pricing - are less feared in APAC, as is the impact of technology and cyber security on the profession.
So why are these specific issues so weighty in the region?
Complex regulation can confuse the uninitiated
It’s the myriad differences both in-country and between-countries that adds to the complexity. For example, businesses need to understand and navigate India not as one single market, but as a web of inter-related state markets where legislation and compliance requirements differ vastly. From set-up, companies need to interact with multiple authorities for registrations and ongoing compliance. The web of regulations stretch from payroll-related compliance like the Provident Fund (i.e. social security) or labour welfare fund (state-regulated), to withholding tax submissions which range from quarterly to annual. Even the Goods and Service tax, hailed as the biggest tax reform in India and applicable from 1 July, requires the company to register separately in each state of operation with multiple filings every month.
Elsewhere, many foreign nationals find Vietnam’s regulations on business unnecessary and overly burdensome. For example, regular filings are required alongside various monthly, quarterly and semi-annual statistics reports, foreign contractor tax and VAT returns, and numerous annual reports. Plus, all documentation must be stored for a decade, leaving the filing cabinets at any large multinational positively overflowing with old records.
Over the border in China, there’s a requirement for all statutory accounting reporting to be undertaken in both the Chinese language and Chinese renminbi (RMB). On top of that, any accounting system used for a Chinese entity’s booking and reporting must be pre-approved by the Finance Bureau, and foreign exchange transactions in and out of the country are strictly controlled by the State Administration of Foreign Exchange (SAFE). In short: don’t go expecting to use your native admin processes once you’re in China.
The authorities are tough out here
Vietnam’s General Department of Tax has set higher goals for tax auditing, resulting in a higher frequency of audits and investigations - and more pressure to be compliant and file on time.
In India, the authorities are leveraging digital records and data analyses to get deeper into filings and question any potential non-compliance or misstatements. The country has made an aggressive move by demonetising old currency to crack down on unreported income with an aim of expanding the tax net and ensuring compliance. While implementation by authorities is a welcome step, it’s challenging for businesses to focus on their day-to-day objectives given the environment is still a minefield of regulations.
But there’s hope for the future
The good news is, Asian countries are taking steps to make the regulatory environment less complex, and more in line with other regions. Take India for example: The Companies Act 2013, revised after 57 years, puts governance at the centre of the legislation. Multiple irrelevant laws have been scrapped, and a Goods and Service tax (GST) will certainly reduce the complexity as it introduces a single comprehensive indirect tax on the manufacture, sale and consumption of goods and services.
Then there’s the Common Reporting Standard (CRS), which will be in place by the end of 2018 – though some countries, such as India, are early-adopters. Based on an OECD ruling, the CRS is the legal basis for the exchange of tax data among participating jurisdictions, requiring financial institutions to perform specific due diligence to collect and transmit customer financial data.
Yes, Asia still holds the keys to the future of the economy; ASEAN’s Economic Community is set to rival the EU, and China’s dominance is far from over. Don’t let the complexity put you off; opportunity is very much on offer. It’s just best to work with a trusted partner for compliance in the region, and ensure you don’t fall victim to one of those worrisome compliance trends.
Want to read more about the Financial Complexity Index? Download it here.