The exit from Covid-19, the increase in foreign direct investment and the increased role of ESG will have a significant impact on the global business landscape and regulatory environment in the coming months.
Poland, mainly due to the government’s ‘Polish Deal’ programme was for the second time in a row ranked 10th in the world and is fourth in Europe among countries with the most complex regulations governing the conduct of business, according to Global Complexity Index 2022 report prepared by TMF Group, a global company providing business services for companies operating locally and internationally. The world’s most difficult country to do business in is Brazil, while in Europe it is France. The report also identifies three key issues that are expected to shape the global business landscape and regulatory environment in the coming months.
The authors of the TMF Global Complexity Index 2022 report looked at 77 jurisdictions, which account for 92% of global GDP and 95% of net FDI. They compared 292 annually monitored indicators on key aspects of doing business in terms of administrative regulations and ensuring compliance with legal regulations, which entrepreneurs planning to conduct their business in the selected market face.
For the second time in a row, Poland found itself in the group of ten countries where it is most difficult to do business, closing the pile. In Europe, it is more difficult to do business in France, Greece and Italy than in Poland.
As the authors of the report point out, over the past year the Polish government has introduced many pieces of legislation that were passed in a short period of time, while not always easy to interpret in business reality. The biggest package of them was introduced as part of the “Polish Deal”, which was of great importance as it thoroughly overhauled the tax system. It changed not only the tax rules for corporations, entrepreneurs and employees, but also the way salaries were calculated. Companies had huge problems with their calculation due to unclear guidelines provided additionally shortly before the new regulations came into force.
– Poland’s labour laws were already complicated, and the introduction of the ‘Polish Deal’ in January this year made them even more so. This is a costly challenge for foreign investors who value clarity and regulatory simplicity. This is a challenge for foreign investors who value clarity and regulatory simplicity. The interest in investing in Poland may also be influenced by the government’s clear ambition to concentrate many assets in the hands of the state,” says Joanna Romańczuk, TMF Group director for Central and Eastern Europe.
– The Polish government needs foreign investment, but would like the state to maintain its dominant position in terms of asset ownership. We already have state-controlled Polish Real Estate Holding, Polish Hotel Holding and national group of Polish food producers. These are entities set up to control assets and gain greater independence from foreign companies, or which may hinder others from operating on the Polish market. Nevertheless, due to a dramatic change in the geopolitical situation in the region of Central and Eastern Europe, Poland’s ties with the economies of Western Europe and the USA may be strengthened. – adds Joanna Romańczuk.
The Cayman Islands (a UK dependent territory), Curaçao (a Dutch dependent territory), Denmark, Hong Kong (a special administrative region of the Republic of China) and the British Virgin Islands (a British overseas territory in Central America) are the best at eliminating obstacles to doing business globally. Jersey (a UK dependent territory), the United States, New Zealand, Norway and the United Kingdom were also in the top ten jurisdictions where it is easiest to do business.
– In late 2020, Denmark created a digital ‘one-stop shop’ where setting up and running a business is paperless. This means that businesses now only need one login and portal to access various services. The tax office has also updated the homepage interface to make it more user-friendly – a success for Denmark, the most business-friendly country in Europe and one of the three friendliest in the world (last year’s leader) explains Joanna Romańczuk.
Brazil, France, Peru, Mexico and Colombia top the least business-friendly countries globally, respectively. They are followed by Greece, Turkey, Italy and Bolivia. “The top ten” is closed by Poland.
– In Brazil and France, at the other end of the list, business owners have to deal with huge bureaucracy and regulatory complexity. In Brazil they face three types of taxes – federal, state and city. In France, on the other hand, it is a challenge for company managers to keep abreast of the multitude of regulations designed to protect employees. The number of regulations in this area has increased further during the pandemic,” says Joanna Romańczuk.
Both countries maintained their last year’s positions in the ranking.
In addition to analysing business conditions in 77 jurisdictions, the authors of the TMF Global Complexity Index 2022 report identified three key issues that are expected to shape the global business landscape and regulatory environment in the coming months.
Emerging from Covid-19
At the height of the crisis, many jurisdictions introduced corporate property tax exemptions. However, in 2022, 14% of jurisdictions require some or all businesses to pay this tax at least once every three months, compared to 9% of jurisdictions in 2021.
During the pandemic, the trend towards remote working has increased to the point where it is legal or standard in most industries in 31% of jurisdictions, compared to 10% in 2020.
Some benefits associated with hiring employees, such as health insurance, for example, have increased (58%) compared to previous years. In addition, more jurisdictions require companies to report and provide equality information, covering areas such as the gender pay gap and the employment of people with disabilities – 26% in 2022 compared to 9% in 2020.
Regulatory complexity and foreign direct investment (FDI)
The report’s authors found a higher percentage of jurisdictions (34% in 2022 vs. 28% in 2021) anticipate FDI growth over the next five years, reflecting optimism in this area.
The use of modern technology solutions can effectively reduce business complexity. 16% of jurisdictions are now able to automatically notify all relevant authorities of company formation.
For companies wishing to set up a company and operate across borders, a key factor is the unification of rules, enabling them to conduct similar business in multiple jurisdictions. Adoption of international standards such as CRS (86% of jurisdictions in 2022 compared to 82% in 2020) and FATCA (82% of jurisdictions in 2022 compared to 76% in 2020) is increasing, reflecting the continuing global trend towards transparency.
ESG on an upward wave
ESG issues (E – Environment, S – Social responsibility and G – Corporate governance)
are becoming increasingly important to businesses around the world.
However, despite this increased interest, legal enforcement of ESG practices is only in place in around 50% of jurisdictions. The problem of lack of enforcement particularly affects countries outside of the EU, reflecting a lack of international alignment. The impact of ESG is therefore difficult to measure.
Although ESG is growing globally, jurisdictions such as France have been leaders in the field for many years, while some governments are in the early stages of ESG engagement – many are only just adopting ESG initiatives and guidelines.