How accounting firms can help companies overcome the unique challenges of operating in Latin America
Despite increased stability in recent years, business in Latin America is not for the faint-hearted. Crises are common, bureaucracy is widespread and there are vast differences between cultures, economies, political situations and administrative procedures.
Yet for many multinationals, Latin America continues to provide exciting opportunities for growth. The region boasts fast-emerging economies, highly educated people and an abundance of natural resources, from copper in Chile to oil reserves in Argentina and Venezuela.
Fortunately, help is at hand from independent accounting firms with first-hand experience of helping international companies do business in Latin America.
Experienced partners in independent firms provide support and advice on anything from starting a business in Mexico to filing tax returns in Brazil, or understanding the ever-changing business regulations in Argentina.
“The most important thing is to get advice,” says Bernardo Del Rio, managing partner at independent accounting firm J.A Del Rio, which operates in Mexico and Colombia. He adds: “It is stressful operating in a country that you do not understand. Organisations need to jump through barriers to open bank accounts, find lawyers, complete business registrations and other activities.”
Luis Martinez, president of the Latin American Board of global accounting firm Mazars, adds: “Doing business in Latin America is very different. You need advice from the very first moment.” Commenting on the growing range of business services provided by independent accounting firms, he says: “It’s not just about accounting, it’s about how each country works. For cultural and historical reasons, the way these countries work is very different so you need specialist advice and support.”
The business challenges in Latin America vary enormously from country to country. The two largest countries in terms of geography – Brazil and Argentina – have been plagued by widescale corruption, political upheaval and economic crisis in recent times, making the business environment highly unstable. In contrast, countries such as Mexico, Colombia, Chile and Peru are currently experiencing a period of stability and are regarded by many analysts as the region’s most attractive emerging economies.
Despite these disparities, and the IMF’s forecast of 0.6% growth in Latin America in 2019 (downgraded from 1.4%), there remains huge potential for investment throughout the continent. Many multinationals are looking to develop or expand operations in the region, and successful domestic enterprises are looking to expand into other jurisdictions.
One of the biggest challenges these companies face is red tape. Brazil, by far the largest jurisdiction in Latin America, holds the unenviable position as third most complex place in the world to do business and the second most complicated place for accounting and tax compliance, according to research from global business services provider TMF.
Over half of the world’s ten most complex jurisdictions for accounting and tax compliance are found in Latin America although TMF says this can be partly blamed on a “complexity spike” caused by the introduction of digitised filing for company accounts in several jurisdictions.
Wesley Montechari Figueira, managing director of independent accounting firm VBR Brasil, says: “Navigating the business environment in Brazil is very difficult. You must be very careful to hire accountants, lawyers and other experts for buyouts, mergers or other business activities.”
Brazil’s recently elected President Jair Bolsonaro’s biggest challenge is to boost growth. GDP grew at just 1.1% in 2017 and 2018 and latest IMF figures predict growth of 0.87% in 2019. In terms of the economy, he is doing “surprisingly well”, Wesley says, but the business environment remains difficult.
Mastering business in Brazil
To help organisations get to grips with doing business in Brazil, and the changes being introduced by Bolsonaro, VBR provides consultancy services on every aspect of setting up a business in the country, from identifying a suitable location to assistance with obtaining work visas and finding property for company executives.
“Our business advisors facilitate everything, from finding bookkeepers to lawyers, and we consolidate knowledge in an orderly fashion so that the client does not have to talk to ten different guys.”
VBR has also produced a guide entitled Brazil Made As Simple As Possible to help companies understand the challenges of doing business in the country. The guide outlines the characteristics of the business environment and how to master accounting and other aspects of setting up and operating a business in Brazil.
The tax system is particularly challenging. Wesley says: “Everything must be written down; there is a myriad of bureaucrats and we have high taxation, but on the upside the federal government has been investing in technology for more than 20 years.”
Investment in digitisation and the standardisation of various different types of tax returns make it easier for companies to file returns in Brazil, and indeed other Latin American countries, although there is still a wealth of documents to upload.
Setting up in Mexico and Colombia
Bernardo Del Rio says Latin America is particularly challenging for ‘greenfield’ operations, where foreign companies construct new facilities from the ground up.
“We provide a soft landing for them so they feel as little stress as possible. For some companies, the most important thing is to find a general manager, so we introduce them to headhunters. We also work with companies to help them identify the most important things they need to operate their business, and to create the right structure for it,” he says.
Nearly 100% of J.A. Del Rio’s clients are international companies, reflecting the growing interest in Mexico and Colombia among foreign investors. This is partly down to the countries’ successful strategies to promote investment and their macro-economic stability.
Most of the firm’s clients are from the USA, although there is significant interest from China and Japan, as well as Europe. Much of the interest from the USA is from software engineering firms. “There is an engineering deficit in the USA and it’s a whole lot easier to grab a direct flight from San Jose to Guadalajara than travel to India,” Bernardo explains. Software companies are also attracted to cities like Guadalajara because of the available talent pool.
As companies become more established, they seek support with more complex requirements including tax compliance, international reporting and payroll services. “At the beginning, we help organisations with everything, but as they grow, we add accounting departments, CFOs and other elements,” Bernardo says.
It’s a similar story in Uruguay in terms of the challenges of operating in a local environment which can be markedly different from other parts of the world, or even neighbouring countries.
Luis Martinez, a partner at Mazars in Montevideo, explains: “When you arrive in Montevideo you will feel very comfortable with what you see and it looks almost European, but we are very different here. At Mazars we try to help companies and the people that work for these companies to relocate and get used to the system.”
Uruguay is still dominated by agriculture and there are almost four times as many cows as people. Explaining the country’s unique features, Luis adds: “On the positive side, foreign investors and multinationals appreciate the strong legal system in Uruguay. It is economically and politically stable, and we have low corruption. On the negative side, it is an expensive country. The exchange rate is a factor at the moment because the value of the Uruguayan peso is quite high. Also, the unions are very closely linked to the ruling government party.”
Doing business in Argentina
One of the most challenging parts of Latin America to do business in right now is Argentina, which is in the middle of an economic crisis and, at the time of writing, on the eve of new elections.
Here, the focus of accounting firms is on helping domestic clients survive the crisis. However, despite economic difficulties, there is growing interest from international companies keen to exploit the country’s resources, especially its oil reserves in northern Patagonia.
Carlos Mercero, partner at independent accounting firm Shilton, Weyers & Asociados (SWA), says: “The most important challenge is to survive the crisis. We know that when the crisis passes there is an opportunity to do well, but at this time it is not easy to get through this crisis. It’s difficult for individual companies to understand the regulations and why these regulations are changing so quickly. It’s difficult to budget and forecast the near future.”
Patricia Diaz, another partner at SWA, adds: “We are trying to work more closely with our clients and be up to date with the latest regulations to help our clients with, for example, paying off debts in instalments. We have high inflation and we try not to increase our fees as much as the rate of inflation in order to get through this situation with our clients together. The main problem is the rules and regulations relating to tax are changing all the time. We study the new tax changes and update our clients but it’s very difficult.”
Around 90% of SWA’s work is with local companies. These clients already have their own tax departments, so SWA mainly offers specific consultancy, preparing income tax returns, and transfer pricing reports.
The Argentinian firm also works with small multinational companies. Patricia explains: “These companies are trying to start up business in Argentina. Therefore, we work together with a firm which specialises in start-ups to help provide administrative, accounting and tax services.”
One of the biggest challenges, Carlos says, is the unpredictability of the economy. He adds: “We are always in fear that the government could put up barriers such as limits on the ability for both local and multinational companies to transfer money abroad. Potentially, Argentina is a very rich country but at this time it is a poor country. We need money for investment, but if the government doesn’t fix the rules to clarify what will happen in the future, it is difficult for companies to make investment decisions.”
The hope is that, following the elections, the ruling government will manage to bring an end to the instability in Argentina. This will likely see more demand for independent accounting firms to provide support for international businesses to set up new operations in the country.
Sharing expertise across borders
With business challenges varying significantly from one country to another, independent accounting firms are increasingly working together to share expertise for companies working across international borders.
VBR Brasil, J.A Del Rio, Mazars and Shilton, Weyers & Asociados are leading examples of this collaborative approach. The firms exchange knowledge and referrals through Praxity Global Alliance – the world’s largest alliance of independent accounting and consulting firms – to provide companies with a seamless service wherever they may wish to operate.
Wesley Montechari Figueira says sharing expertise with, and referring clients to, participant firms in the Alliance is “extremely important” in helping clients do business across international borders.
“Here at VBR we say we cannot leave any request for information without an answer for more than eight working hours. It doesn’t make sense for me to overlook or neglect anything. The guys count on me and that is what I expect from someone else. In an alliance like this, you have to be a team player and do more than people ask of you.”
Luis Martinez, who is a member of Praxity’s Governing Council and speaks Spanish, English, Portuguese, and some French, to help foster international business, says: “We want the client to feel they are working with the same partner or firm whether it’s Mazars or another participant firm within Praxity Global Alliance. We are the same team.”
Bernardo Del Rio, whose firm joined Praxity more recently, adds: “We have found the level of firms and practitioners in Praxity Global Alliance to be excellent. When we have a case which crosses borders, it’s really comforting to be able to reach out to a member firm in another country to see how we can work together to ensure the best for the client.”
Doing business in Latin America can be complicated and unexpected but it needn’t be overly stressful. By working with specialist advisers in independent accounting firms, and by taking advantage of international collaboration, there is huge potential for companies prepared to take the plunge.
This article was written for Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms.