If you have considered expanding into foreign markets, you already know it is a complicated proposition with requirements that vary by location. But digging into the specifics, you may still be surprised by the endless list of local wrinkles. It is hard to overstate how intricate these local variations can get. So much so that in 2023, risk and compliance professionals spent more time trying to identify and assess risk (56%) than actually monitoring compliance (52%), according to a study by Thomson Reuters.

Expanding operations overseas involves considering differences in culture, customs, labor market practices, and infrastructure availability, among other factors, which evolve over time. Regulations and taxes, however, change frequently and create the risk of big penalties. Compliance officers need to keep a constant eye on these rapid developments.

The four steps to getting this right are:

• Creating an interdisciplinary teams guided by a rigorous process
• Engaging the help of a partner that has broad expertise in the regulatory environment of each country or vetting multiple local partnerships to supply missing local knowledge and connections to help navigate labor laws, licensing, taxes, and enforcement procedures
• Learning from other organizations that have already set up business in the new region – and doing so by tapping into business communities that focus on specific localized business processes, such as e-invoicing or tax laws
• Accessing technology – including enterprise resource planning (ERP) and financial software – that provides automation in financial compliance processes to save time, prevent errors, and help you keep up with the constant flow of regulatory changes in every market in which you do business

Read on to learn how to navigate these steps.

What’s the problem, in brief?

Kudos to the European Union (EU) for working to streamline regulations in its VAT in the digital age (ViDA) proposal, which would let a company register once for all EU countries. Elsewhere, though, new regulations, requirements, and taxes create challenging thickets to navigate. Consider:

• India’s Goods and Services Tax (GST) law requires suppliers to obtain a separate GST identification number (subject to certain conditions) in each of the 28 states and eight union territories from which it makes a taxable supply of goods and/or services. A business operating in multiple states or union territories will obtain a unique ID number for its commercial activities in each area, Forbes India reports.
• Companies entering the U.S. market confront a maze of rules. The United States has 13,000 different tax jurisdictions – federal, state, and local – which gets complex very quickly. In addition to paying a single federal tax, a company doing business in 50 states would have to keep track of the tax rules in all 50 states and make unique payments to Oregon, Rhode Island, New York, Texas, or any other relevant states. (The Internal Revenue Service has a list of state government websites for tax guidance.)
• Electronic business processes represent another adjustment. France, for instance, plans to mandate e-invoicing for all goods and services sold in the country by late 2024.

These are just a few examples. Organizations that set up new businesses in these and other countries have to build those new compliance layers on top of the business processes they’ve already established.

But wait! Don’t forget developing environmental, social, and governance policies

Many countries are also imposing new environmental, social, and governance requirements.

• In 2023, new laws in Canada and Germany require that companies report on the emissions and targets for their supply chains. Some countries may ban source materials from a particular country, while others have sustainability requirements.
• Spain has implemented a plastics tax that requires companies to pay not only for the plastics used on their products but also the plastics their shippers use – plastic pallets and shrink wrap – to get products to their destination. Companies need to figure out how to account for plastics the same way they account for all other taxable items on the balance sheet.

What could possibly go wrong?

Companies can get derailed if they’re not paying close attention to these regulatory requirements before making the move to a new region.

Missteps in compliance can be costly – from lost business to significant fines. If the company doesn’t have systems tied into the local government for electronic invoicing or if the company’s imports and exports can’t be vetted through systems set up by customs authorities or without sharing logistics through interfaces with a government’s freight and transportation system, the business could be shut down in an instant, sometimes before it even gets started. It could negatively affect the timeline for introducing products. It can also affect the go-live dates of ERP systems that are supporting the business in those regions.

What’s more, many countries are constantly upgrading and changing their requirements. That makes investing in monitoring those legal and regulatory changes an important consideration for ongoing compliance and business management.

Managing the regulatory environment

You can get ahead of regulatory compliance requirements in new locations by learning the most common compliance variances and building partnerships in advance. Use technologies that keep up with regulatory and tax changes, and tap into the local business community for regulatory, tax, and even cultural expertise.

Common compliance differences in business processes

Business regulators around the world have varied approaches to issues like invoicing, payroll processing, human resources, and, more recently, green business rules. Here is a rundown.

Electronic invoicing

E-invoicing is the most common compliance requirement for businesses in more than 100 countries – and that number continues to grow. In January 2024 alone, 10 more countries were set to introduce these requirements, including Romania, the Philippines, Austria, Israel, and Poland, according to Innovate Tax.

E-invoicing places tax authorities in the middle of every transaction. If a company purchases raw materials from a supplier, the supplier invoices the company – but that invoice is routed through the tax authority. This tells the authority the nature of the transaction and the full amount of tax that is collected and remitted. There’s no need to report the taxes collected. The tax authority collects that amount. This is referred to as a continuous compliance pivot.

Some countries have been trying to ramp up efforts to standardize and digitalize e-invoicing for years. In December 2022, the EU presented the ViDA proposal, which seeks to harmonize e-invoicing within EU countries and mandate how vendors and recipients electronically submit invoice data to the tax authorities. The proposal was still under review in the summer of 2024.

E-invoicing is not required in the United States yet, although there is an initiative by the Digital Business Network Alliance to introduce electronic invoicing standards that would improve operational efficiency across all industries, says Kathya Capote Peimbert, global lead of KPMG’s e-invoicing and digital reporting group.

“There are substantial efficiency gains associated with the electronic issuance of billing and related documents,” Capote Peimbert says. “It accelerates the payment cycle compared to the traditional method of issuing paper invoices and awaiting payment.”

Payroll processing

Payroll requirements vary greatly between countries. Latin American countries began moving to electronic payroll reporting requirements 20 years ago, and today it is required for all businesses operating in the region.

South America also provides some great examples of payroll oddities. In addition to traditional 12-month salaries, Peru requires employers to pay workers “13th- and 14th-month wages,” or two extra months of wages – one in July and one in December. It’s happening in the Philippines too, where there’s a 13th-month pay requirement.

Minimum wages in Central American countries also vary greatly. Costa Rica topped the list in 2024 at US$687 per month, while Honduras’ minimum wage was US$329 per month.

Hiring

On the HR side, one of the key differences between U.S. and Latin American labor laws is the concept of severance pay. In most (but not all) Latin American countries, employers are required to provide a severance package to employees who are terminated without cause. The amount of severance pay varies depending on the length of service and the salary of the employee.

Data governance, protection, and privacy

On the customer experience side, countries differ on many points when it comes to personal data protection and privacy laws. Some countries, such as the United States, have an open model for their data processing regulations, says Eugénie Coche, a PhD student at the University of Amsterdam’s Business School and coauthor of “Unravelling Cross-Country Regulatory Intricacies of Data Governance.” In the U.S., there is no comprehensive federal data privacy law in place and, unlike in the EU, personal data protection tends to be treated as a consumer right, such as with California’s Consumer Privacy Act.

The EU, on the other hand, has a conditional model, in which personal data privacy is considered a fundamental right of the people in all data instances. For instance, EU banks once had a monopoly on customer data, but consumers felt they should be able to share that data with other parties to promote competition and innovation. Now EU banks must share data with regulated third parties when consumers give their consent to it – even if that means sharing data with competitors. Australia, New Zealand, and Canada have similar data-sharing regulations.

China’s model is very limited, associating data protection with national security.

Countries also have different regulations on how firms can transfer data across borders, where data can be stored, and what data is required to be shared.

Sustainability and green taxes

Governments around the world are taking steps to reach net-zero greenhouse gas emissions by 2050. To reach this goal, they’re imposing green taxes to encourage behavioral change. The UK was the first major world economy to put net-zero goals into law, followed by France and its commitment to reach carbon neutrality by 2050 and Germany with its 2021 Climate Protection Act, which sets 2045 as its target date for greenhouse gas neutrality. Some countries are taking a regulatory approach, while others are taking a more incentive-based approach.

Japan was the first Asian country to implement a carbon tax on all fossil fuels according to their CO2 emissions. It also introduced a carbon-neutral investment promotion incentive for eligible enterprises, which provides a tax credit or special depreciation deduction for capital investments that produce products with a significant decarbonization effect, such as lithium-ion batteries, or reach decarbonization in their manufacturing process, according to a BDO report.

Germany has implemented several taxes on polluters, such as the aviation tax that imposes taxes on air travel, and environment-related charges on the disposal of waste. But it also introduced several incentive programs to reward good behavior, like incentives for construction when materials that save energy are used or systems are made more efficient or more environmentally friendly. Germany also offers subsidies and tax breaks for electric commercial vehicles.

In 2023, the EU began enforcing the Corporative Sustainability Reporting Directive, which requires firms to disclose their social and environmental sustainability efforts in order to be transparent to stakeholders. “Businesses also have to report on the sustainability efforts of business relationships across their value chain. So, it’s also about monitoring their business partners,” Coche says.

The playbook

The first step in conquering the complex regulatory compliance situation is to adopt a holistic view of compliance issues, according to Coche.

“The complexity of all these regulations has a lot to do with how much they overlap with one another,” Coche says. For example, the EU corporate sustainability reporting directive overlaps with the General Data Protection Regulation, as it requires transparency in a broad range of societal issues, including data privacy. “E-invoicing, which has to do with VAT reporting obligations, should be considered along with existing digital obligations, such as platform obligations, under the EU Digital Services Act. So, you really have to start thinking about how these laws overlap and interact. A good strategy can only be obtained if you understand those connections.”

1. Assemble leaders from every discipline to collaborate

Moving into a new country requires a new kind of compliance strategy with cross-functional teams, KPMG’s Peimbert says. Finance, tax, logistics, accounts payable, and accounts receivable can no longer operate in silos, she says. These form the cornerstone of the operational structure and must be integrated so that other functional groups can be easily added to the compliance strategy.

Here’s a more specific example. “Consider a U.S. company establishing a manufacturing subsidiary in Mexico for retail purposes,” Peimbert says. “Mexico mandates e-invoicing, so compliance has been fully digitalized, and we need to issue electronic invoices.” That involves the accounts receivable team. The company also needs to validate supplier invoices, so accounts payable will need to be involved. There are e-transport documents as goods are moved within the country, requiring the involvement of the logistics team. And there’s international trade, so the company needs the international trade team or customs to be involved. And all these processes have a technology component, requiring IT to be involved as well, she says.

2. Choose partners to get you up to speed on local compliance requirements

The learning curve with operating overseas can flatten out a lot faster with the help of business partners, Peimbert says. These partners could be from the company’s ERP project team, who know the region or could be outsourced to compliance partners or regional tax consultants. They are critical to getting up to speed on compliance issues and can provide guidance on how much investment in technology will be required to be compliant.

And take advantage of digital processes. A decade ago, a U.S. company operating in Rio de Janeiro would assign tax people to comb through daily copies of Diario Oficial, the Brazilian version of the U.S. Federal Register, to discover and implement federal regulatory changes. Thankfully, today there are ERP vendors to partner with to automate, monitor, implement, and translate regulatory changes – and most other localization requirements – to help organizations stay up to speed. A great ERP partner, equipped with localized versions of payroll and other systems for many countries, can provide information to help determine whether the company decides it can afford to grow in new markets.

3. Tap into local communities

Companies can also tap into communities related to specific localized business processes. For example, the E-invoicing Exchange Summit shares firsthand experiences and regulatory updates on e-invoicing, procurement and payments through conferences held around the globe. Similar communities cover tax laws and the Standard Audit File for Tax (SAF-T), the global tax standard.

4. Ready your technology

Software localization is what enables customers to get value from their core ERP and business applications across geographies, and it involves modifying business processes to reflect the local laws and regulations of the country in which they operate. ERP software is the most common area where localized versions can keep pace with local laws and regulations, but that’s just a start. There is also localized software for supply chain, financial management, procurement, human capital management, CRM, and expenditure tracking.

For instance, when it comes to e-invoicing regulations, organizations will need some type of software or process that can transmit data in a compliant way with a specific country’s requirements. These requirements can vary greatly from country to country, so each new location may have its own software or process.

This will also depend on, among other things, the volume of the company’s invoicing activity, its VAT filing profile, and the related business needs, according to RSM, a tax consultancy.

Localized software will ensure invoicing data quality, accessibility and any additional information that’s required, compliance with e-invoice filing obligations, and any known future requirements for the business.

Questions to help you evaluate new markets – and next steps

Choosing the right partners and technology will depend on the answers to the following questions.

What is my appetite for getting up and running quickly?

The strategy team should work together to decide whether to customize your ERP software with these compliance requirements as you enter each new country or use available ERP software with these capabilities already built-in for most countries.

How will we handle legal changes or new regulations?

It could be as simple as income tax going up one-half percent or tax brackets changing that will affect payroll for the next year. With a project-based approach, every time there’s a tax change, a new IT project is launched to implement that change because it touches all business processes – payroll, reporting, invoicing, and tax filings. Will the company handle these changes as they come – or does it want a vendor that provides these changes as part of a software maintenance contract?

How will we handle regional variances within a country?

Even within some countries, regulatory structures can be extremely granular. Spain’s Basque region, for instance, has different languages and approaches for conducting business than the rest of the country. How will resources be allocated to stay on top of these highly specific requirements?

Valuable information on strategic decisions

The above moves are all basic components of a strategic compliance plan, Peimbert says. Build your cross-functional team, develop a compliance strategy, and keep monitoring very active regulatory landscapes. Most important, collaborate with IT and digital teams, which will ultimately be the owners of the technology. “Be proactive rather than reactive,” she says.

Doing this work in advance – and focusing on the benefits of compliance – will set up the organization for success in the new region, Coche says.

“It’s really about shifting away from thinking of compliance as a burden and toward a more positive view,” Coche says. “There are lots of long-term benefits for your business and your customers by complying with a lot of these regulations.”

Read more