Global Entity Management: How to Overcome Compliance Challenges
If global entity management only involved adhering to a few worldwide standards that rarely changed, it would likely be a manageable endeavor. The reality, though, is anything but straightforward. Local jurisdictions frequently add their own twists on global regulations while the world’s biggest regulatory bodies are not about to rest on their laurels.
The more a business scales, the more complex the regulatory environment gets as more jurisdictions come into play. No business can possibly know every local nuance, unwritten rule, or informal procedure in every market. Yet, all of your entities must comply to remain in good standing. Although it may seem like an impossible equation, businesses successfully cut through this jungle of red tape. The cost of not doing so is simply too great.
But what are the keys to staying compliant across a global enterprise?
Overcoming global entity management challenges
Every task of corporate entity management forms a piece of a larger puzzle. Although many governance and compliance tasks may seem insignificant, they are important to the overall picture. A missing piece, no matter how mundane, can put a business at odds with regulators, shake its legal foundation, and ultimately threaten the right to operate. Therefore, all companies must systematically complete every task required to comply with the laws, regulations, and rules that govern entities in the jurisdiction where they are registered to do business. Among the raft of corporate governance responsibilities that must be fulfilled are:
- Tracking compliance dates
- Submitting annual tax returns to the government
- Recording information about officials, directors, and stockholders
- Drafting legal paperwork for business changes, such as bylaws and resolutions
- Creating ownership diagrams
A few challenges, in particular, tend to stretch in-house legal teams thin.
Disjointed entity management in wake of rapid expansion
Businesses that go global often partner with local service providers. This may seem like a make-sense solution when the cross-border footprint is still limited. But, as the business scales, the organization can become unwieldy. In an environment where a single entity may require a corporate secretary to manage over 100 unique data fields, the volume of work can spin out of control.
The lack of a cohesive, streamlined process among the patchwork of providers also increases the risk of duplications and inconsistencies. Not only does the disjointed approach tend to turn into a headache for company management, it also threatens to attract the attention of regulators if errors start to add up.
Lack of in-house bandwidth to manage global and local nuance
It’s easy to underestimate the complexity of the global regulatory landscape and the extent of the resources you need to manage entity compliance alone. We often stress ‘you don’t know what you don’t know’ — and the price you may be forced to pay for not knowing can be high.
Contrary to what you may think, global accounting standards like IFRS and US GAAP only apply in less than half of all jurisdictions. Others, including larger jurisdictions, include localized GAAP versions. Many also feature their own interpretations of regulations established by the European Union, OECD, and the US.
Local rules and regulations also vary significantly from one country to another. For an idea of the number of details any expanding business needs to consider, take these five examples:
- Denmark: Late filing can lead to your company being dissolved within a few months.
- Colombia: A single transaction in a particular municipality requires the completion of a local tax filing. If the company maintains a national presence, the filings will add up to more than 1,000.
- Singapore: The payment to the country’s social security system, the Central Provident Fund (CPF), must be sent by the 14th of the following month.
- Brazil: Companies incorporating in Brazil must register with all three levels of government (federal, state, city), which all levy taxes at different rates.
- Taiwan: Despite its high-tech reputation, incorporation in Taiwan involves a lot of paperwork (translated into Mandarin Chinese), in-person appearance to open a bank account, and in-house know-how of how to secure stamps on official documents.
No time for an annual health check
A key feature of legal entity management best practices is the annual health check to review the entity’s good standing. This crucial undertaking can be exceptionally time-consuming and labor-intensive, especially for businesses that span jurisdictions across the globe. For some businesses, the inevitable solution is to let entity management take a backseat to more pressing support for acquisitions, litigation, restructurings, and more. But leaving global tax and corporate governance to chance incurs a potentially business-ending risk.
Lack of data accessibility
Data tracking and data distribution are important pieces of entity management. When every stakeholder, from tax and finance departments to general counsel and corporate secretary, can access a single source of truth, it facilitates secure, swift and timely transactions to ensure compliance. But data accessibility is far from a reality for many companies that operate across the globe.
Siloed systems combined with the challenges associated with a hodgepodge of local providers make data sharing difficult. Consequently, in-house legal teams may need to waste hours on finding answers to questions that would be readily available in a cloud-based system: Are we up to date? What information is current? Is this the latest version? Where can I find info on ‘X’?
Confusion, in turn, is a recipe for missed deadlines and other issues that can lead to non-compliance, fines, and reputational damage.
The way forward
If you recognize your business in any of the above, consider the benefits of outsourcing global entity management to HSP Group. We offer an expertise-driven, technology-backed solution that effectively gives you a one-stop-shop for all of your global expansion needs. The compliance of your entity should never be in question. We guarantee it.