1.Tax registration

Before a company can operate in a market, it must register for taxes. According to our Global Business Complexity Index (GBCI) report, the need for tax registrations is increasing, with 86% of countries requiring them in 2021, up from 83% in 2020.

Businesses should consider several factors when determining tax registration needs:

Single vs. Multiple Registrations: Some countries require tax registrations at multiple levels (national, regional, local), particularly for corporate income tax, VAT, and sales taxes. Failing to identify necessary registrations can hinder business operations.

Digital Taxation: Expanding definitions of digital services require more companies to register for taxes in new jurisdictions. Staying informed about local digital tax laws is crucial, as seen in countries like Mexico, Ukraine, and the Czech Republic.

Transaction-Specific Requirements: Certain transactions, like imports and exports, may require specific tax registrations or licenses, particularly in some Latin American countries.

The number of required tax registrations can increase business costs, filing burdens, and the risk of facing multiple penalties for the same transaction.

2.Tax Fillings

Managing cross-border tax filings is complex, involving multiple deadlines, submission methods, and forms. To reduce the risk of late submissions, businesses should focus on:

Deadlines: Only 35% of tax jurisdictions globally allow filing extensions with written notice. With many pandemic-related extensions ending, maintaining accurate tax calendars is crucial to avoid penalties.

Submission Methods: While most countries require online tax filings, some in Latin America (e.g., El Salvador, Honduras) and APAC (e.g., Indonesia) still mandate paper submissions.

Cooperation with Tax Authorities: Support from tax authorities varies, with fewer countries allowing amendments without penalties. Local expertise, understanding of local languages, and communication within local time zones are vital to managing tax compliance risks effectively.

3.Tax Reporting

The demand for real-time or near-real-time tax reporting is growing, with 45% of tax authorities requiring it in 2021, up from 40% in 2020. Countries like Poland and Romania are expanding their digital reporting requirements, making it essential for companies to adapt their digital strategies.

To reduce tax risk:

Understand Local Requirements: Know how local tax authorities use reported data for audits.

Standardize Data Sources: Aim for global standards to avoid the complexity of managing multiple local solutions.

Create a Test Library: Ensure accurate data entry from the start, as real-time reporting leaves little room for corrections.

Prepare for Tax Audits: Implement strong processes to respond quickly to tax authority inquiries in a digital reporting environment.

4.Tax Payments

Tax payments are becoming more stringent, with 43% of tax authorities, including those in countries like Mexico, South Korea, and Serbia, requiring payments from local bank accounts. This adds complexity for businesses operating cross-border, as using foreign accounts can complicate tax adjustments and lead to delays. To avoid late payments and penalties, companies must account for the time and resources needed to manage local bank accounts, ensuring they meet all local tax payment requirements effectively.

Using a foreign account can complicate tax adjustments, so it’s crucial to consider the time and resources needed to open and manage local accounts. Delays can lead to late payments and serious business consequences.

As global tax enforcement strengthens, businesses must actively mitigate tax compliance risks by:

1.Implementing a risk assessment framework covering key areas like tax returns, audits, and payments.

2.Combining the right people, controls, and technology to manage tax risks.

3.Prioritizing all identified tax risks.

4.Establishing and enforcing effective tax policies, especially in handling disputes.