The most complex place in Asia for financial compliance? You guessed it….

China is now the most complex place for accounting and tax compliance, according to the TMF Group’s Financial Complexity Index 2018. To determine the rankings with its in-country experts, the global business services provider used a 74-question survey with weighted complexity parameters, namely: regulatory compliance, tax, statutory reporting and bookkeeping.

Surprisingly, the world’s second-largest economy is the only Asian country among the top 10 most complex globally. Vietnam, India and the Philippines ranked 11, 13 and 16 respectively.

Hong Kong continues to be one of the easiest places in Asia-Pacific to do business from a financial compliance perspective, with the global ranking of 91 out of 94.

China: Top spot for in financial complexity

Over the past decade, China has grown its economy towards a more open and sustainable one.

Although global investors are venturing into China, many are struggling to comply with the nation’s accounting and tax reporting requirements. The Golden Tax System, a nationwide VAT monitoring system developed in the 1990s, has now reached phase three, installing stricter reporting to enhance data transparency.

Despite its unenviable number one position for financial complexity, China remains among the most attractive investment destinations today, backed by its strong consumer buying power and stable economic growth.

As long as international companies can comply with China’s financial reporting requirements and regulations, they are well placed to tap into the full potential of this market.

Vietnam: no longer among the top 10 most complex

Ranked fifth last year, Vietnam dropped to 11^th for financial complexity in the 2018 Index.

However, this drop does not necessarily mean it’s a less complex place to do business. In fact, there is now a heavier compliance burden on taxpayers. Circular 41/2017/TT-BTC introduced processes for the tax management of entities which have related party transactions, and it means taxpayers needs to decide whether transfer pricing documentation is requested.

Vietnam’s government continues to simplify its reporting system and is establishing ways to grow more small and medium-sized enterprises.

India: GST helps reduce complexity

India is the third most complex jurisdiction in Asia-Pacific for accounting and tax compliance but it is no longer among the 10 most complex places in the world. The GST has successfully replaced a complex ecosystem of local, regional and national taxes.

India has also pushed for a digital tax filing system, which allows for the simplification of processes while the Insolvency and Bankruptcy Code makes it more efficient for companies to either wind up, set themselves on course for revival, or for investors to exit while also reducing the timeframe for insolvency and recovery proceedings to under one year.

These factors have contributed to India’s easing in TMF Group’s 2018 Financial Complexity Index to 13^th. They’re also catalysts of growth in investments from foreign companies in the country. 

Philippines: progress with tax filing system

Despite issues such as red tape and multiple separate filing requirements, doing business in the Philippines is still an important investment decision for many businesses looking to get a foothold into Asia-Pacific.

The Philippines government has introduced reforms to make it easier to pay taxes, and this prudent move gives investors confidence to continue expanding their ventures in the country.

The Philippines is ranked 16th most financially complex place from an accounting and tax perspective, rising nine places from 2017, but remains steady as the fourth most complex in Asia-Pacific.

Hong Kong: growing reputation as a safe haven

Hong Kong performs highly in business and banking both in the region and globally. It has a much simpler taxation system compared to other jurisdictions with three direct taxes namely, a salary tax, corporate income tax and property tax.

Interestingly, Hong Kong’s system also has some special features. Taxes are only levied on a territorial basis, which means only income arising in or derived from Hong Kong is taxable; worldwide income is not taxable, regardless of the residential status of the taxpayers.

There are key regulatory requirements when it comes to doing business in Hong Kong. For example, accounting records should be preserved for seven years and in case of non-compliance with bookkeeping requirements, directors are personally liable for a fine of HK$300,000.

Financial compliance should not be treated lightly

Given the increasing regulatory requirements for corporations in the region, and its ever-changing legal environment, business leaders should prioritise financial compliance issues when it comes to regional expansion.

About TMF Group

TMF Group’s in-depth local knowledge, global expertise and professional services help companies wishing to operate in the Asia Pacific region enter new markets and jurisdictions with confidence, guiding business clients through local compliance and regulatory requirements.

Clients services cater for companies of all sizes, from a small startup to large multinationals, providing accounting, tax, HR, payroll, corporate secretarial, global governance and other key business administrative functions, allowing companies to focus on successfully delivering their own products and services.