General Challenges in Latin America

There are many great challenges which a business may face in Latin America. These may include a production standstill because an imported machine is stuck at customs, significant fines due to missing documents, or even frequent changes to the law. Below, we have summarized the biggest hurdles for your business operations in Latin America.

Frequent Amendments to Statutory Regulations

The tax systems in most Latin American countries are characterized by a high level of complexity and volatility. This is particularly true in Brazil, which is ranked at number 125 in the Ease of Doing Business Index by the World Bank due to the regulatory density and administrative burden.
Tax evasion, corruption, and a General distrust of public authorities have led the state to exact a high degree of control over economic agencies. The vast amount of regulations makes market entry diffi cult for foreign investors.
Specialist expertise is particularly important when establishing a company in Latin America. The use of a specialist consultant who understands not only the regulations and laws, but also the cultural differences, is an effective solution to undertake, restructure, or optimize business operations.

Strategic and Operational Risks Arising from Tax Systems

For the particularly challenging Brazil, the World Bank estimates that the average amount of work required to process taxes for local businesses is 1,958 hours per year. There are up to 60 different types of tax at the federal, national, and municipal levels.

Annual time expenditure to comply with the major taxes (profit taxes, labour taxes and mandatory contributions, and consumption taxes)

When transferring complicated tax calculations into the SAP system of a business, the customization impacts not only tax calculations but also tax reports to authorities as well as financial reports to the parent company.
Regulation violations and incorrect invoicing will result in signifi cant costs. For example, invalid XML invoice data incur result in fi nes based on each country’s guidelines, ranging from USD 31 (Chile) to USD 4,602 (Mexico). You will also face expenditures for ongoing business interruptions as well as costs for corrections and adjustments.
Having internal employees process the extensive tax transactions and the specific compliance requirements leads to signifi cant transaction costs and to a loss of productivity. This is why a consultant who can expertly answer questions regarding regulatory and legal frameworks on site is a crucial support.

Compliance risks
• Costs incurred by fines
• Damage to reputation and image due to inconsistencies/problems
• Lack of control options

Cost of IT Implementation and Support

Due to the high level of complexity and volatility in the tax systems and the signifi cant differences between the individual countries in Latin America, an adapted IT solution is needed for each location. Cultural differences, language barriers, and a lack of expertise for proper user training on site makes finding a company-wide solution which adheres to all regulations even more difficult.
It must also be ensured that the frequent changes to regulations are consistently updated within the SAP system. Instead of involving internal resources, which results in large expenditures for training and continuous monitoring, you can benefi t from the support of specialists. As a result, you can save hours of work in the short term and enormous fi nancial savings can be made in the medium and long term. After introducing or adapting the SAP system, we train key users on site
and in the local language so they can reach the required level of knowledge.

The regulatory challenges in Latin American countries mean that companies’ SAP systems must be adapted accordingly. An SAP roll-out in Latin America thus requires both technical expertise as well as in-depth knowledge of the country-specifi c regulations.
An effective implementation is made particularly diffi cult by matters such as connecting with banks and government authorities, the different types of tax, and the technical requirements for various e-invoicing
models. The biggest challenge here is that the current version of SAP does not cover all requirements. We therefore highly recommend having experts customize it on a country-specific basis.

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