Global compliance has always presented a complex challenge for finance teams in multinational organizations operating in many territories. National laws, regulations, and other specifications make compliance a dangerous headache. Nowadays many finance and compliance teams has added to the challenge of doing business in multiple jurisdictions due to the global pandemic that’s why so many companies started to create international compliance departments or outsource them to avoid fines, penalties, sanctions, or lawsuits. This article will explain the compliance process and its importance for business.
The concept of Global compliance applies to companies that have business or work activities in different countries. It refers to the alignment process between a company and the legal, legislative, and regulatory requirements it must comply with in each country to avoid legal risk (including taxes, labor, payments, anti-corruption laws, and data protection laws, among others).
Global compliance is essential because failure to manage international standards puts a business at risk of criminal and civil penalties and great damage to its reputation. When a company has good compliance management they:
Thanks to the democratization of the Internet and access to new technologies, plus the pandemic as an imperative catalyst, remote work is now a viable option for millions of people and companies around the world.
All modern governments run on taxes; companies, in particular, have to pay taxes to conduct their operations wherever they do business. So tax compliance is the obligation of companies (local or foreign) to pay taxes on their business activities. There are many ways to pay these taxes, varying depending on the business activity. Depending on the trade agreements between governments, in some parts, it will be more expensive than in others, but you must keep in mind that you always have to pay taxes in each country where you do business, the penalties for tax evasion can range from significant fines to imprisonment, conducted for each country department responsible for investigating and ensuring compliance with tax laws, in the United States is the IRS (International Revenue Services)
Money laundering and terrorist financing is one of the main concerns of countries today and is considered severe crime, which is why most countries have laws. To fully comply with these laws, companies are subjected to rigorous audits and controls on large transactions, submit financial reports to regulators, and train their employees to protect against money laundering.
Each country indeed varies in the way in which financial statements must be presented to the tax authorities, thanks to the globalization of international business, many countries have adopted a set of universal standards for this process, such as IFRS (Financial Reporting Standards) and IAS (International Accounting Standards), both internationally accepted methods for preparing and presenting financial reports.
We recommend investigating the requirements for presenting financial statements in the countries that require it. You may incur fines or penalties if financial statements are not offered on time and under the established standards. Many companies decide to hire an international accounting professional or an outsourcing company.
Civilized countries worldwide have adopted these laws to prevent discrimination in all its forms: gender, descent, sexual orientation, age, ethnicity, or disability. However, these may vary from country to country.
Employee entitlements protect workers from abuses at work and ensure their welfare in their working life and are required by law for all companies that employ people in that country. All companies must guarantee these rights, otherwise, they will be exposed to heavy lawsuits, fines, and penalties.
Some rights found globally are the right to paid vacations, rest breaks, paid maternity leave, compensation for dismissal without just cause, insurance, and pension contributions.
Here are some of those consequences that you can avoid if you manage global compliance properly
In general, companies that do not comply with global regulations are exposed to lawsuits and fines that halt the process of an international expansion entirely or, in the worst cases, can lead to the total closure of a company.
All contracts concluded between two parties in the same jurisdiction must comply with each country’s laws. When contracts between companies do not comply with regulations imposed by law, they are in direct breach of those contracts, and this breach results in contract termination, court hearings, or monetary penalties.
Future business partners, such as new investors, or even a country’s government, can avoid or make it difficult to do business with companies with a poor reputation for global compliance, with ongoing lawsuits or international scandals.
Global compliance can sometimes take a back seat to sales, new business, and the daily hustle and bustle. Still, as we have seen in this article, this process is vital for companies with a presence in different territories to avoid legal and civil risk and should therefore be a priority for management. So if your company is in this context, you should consider the following to meet global compliance.
There may be a market to serve and favorable conditions, but your business will be at permanent risk if you do not comply. That’s why instead of starting to develop a business process, consider at the same time the compliance requirements in each country and evaluate whether, given the current conditions if you can meet them, if not, refrain from moving into that territory.
Once the compliances “goals” are clear, ensure that someone within your organization is in charge of compliance and that all related activities are centralized and delegated to him/her.
For companies in the stage of internationalization, it is advisable to hire a “chief legal officer or a head risk manager, experienced people who can perform this delicate function without significant setbacks.
As a manager, you must audit critical business processes, and compliance should be one of them. To ensure everything runs smoothly, periodic audits are advisable to ensure the company is aligned with all compliance requirements and take preventive action in time if necessary.
If your company is indeed in internationalization or you are planning on it, global compliance could be a challenging task, especially if you don’t have experience or there is more than one country in which you plan to expand your business. So many companies choose to outsource this process with an experienced partner to avoid risk and waste time.
Superior Biz Solutions, as a remote staff agency, can help companies manage full compliance with new hires, enabling you to focus on the business areas that bring you the most value.
If you are in the process of hiring international employees, you can book a free consultation with one of our recruitment experts.