The information contained in this document is marketing material and for informational purposes only. The information contained in this document is presented without any warranty or representation as to its accuracy or completeness and all implied representations or warranties of any kind are hereby disclaimed. Recipients of this document, whether clients or otherwise, should not act or refrain from acting on the basis of any information included in this document without seeking appropriate professional advice. The provision of the information contained in this document does not establish any express or implied duty or obligation between Citco and any recipient and neither Citco nor any of its shareholders, members, directors, principals or personnel shall be responsible or liable for results arising from the use or reliance of the information contained in this document including, without limitation, any loss (whether direct, indirect, in contract, tort or otherwise) arising from any decision made or action taken by any party in reliance upon the information contained in this document. © The Citco Group Limited, December 2023.
Entity Management in 2023 – A year in review
2023 witnessed another year of rapid evolution in Entity Portfolio Management (EPM), with new challenges and developments affecting in-house teams globally.
The Mercator Entity Management 2023 report analyzes how average EPM cost, time and activity levels have changed in the past year, based on proprietary data covering 180 jurisdictions and 20 different types of corporate secretarial tasks. The findings are a benchmark for multinationals’ expenditure and efficiency, paired with analysis and guiding principles from our dedicated team of jurisdictional experts on how to ensure EPM excellence.
Here are our key takeaways from this year’s report.
The Digitalization Drive
Flexible company regulations introduced to fit working-from-home arrangements during the COVID pandemic have continued to drive efficiencies in many jurisdictions around the world. We continue to see the digitalization drive revolutionizing how multinationals manage and maintain their global portfolio of entities, and this year has seen more jurisdictions embrace digital tools to streamline processes and shorten processing times. For example, there has been increased take up of authorities using e-Delivery systems. The e-Delivery system replaces traditional paper correspondence between public institutions and other commercial entities, while preserving the correspondence’s legal value.
However, in 2023, the digitalization drive has played out at different speeds worldwide with the gap widening between Global Financial Centres with streamlined, tech-driven solutions – such as Singapore, the United Kingdom and the United States (US) – and other jurisdictions still relying on traditional legalization methods, physical filings and in person meetings. This is most pronounced in Asia-Pacific (APAC), which has some of the most efficient processes for multinationals and some of the most complex. In those jurisdictions, the added complexity not only creates administrative burdens for in-house teams, but also increases time and costs for multinationals.
Rise in Ultimate Beneficial Ownership Reporting
Increased demand for transparency and growing regulatory scrutiny has seen many jurisdictions across the world introduce Ultimate Beneficial Owner (UBO) reporting requirements. There are now 120 countries around the world with some kind of UBO regulation – with India, Italy, Oman, South Africa, India and Uganda introducing requirements in 2023.
With the formal implementation of the US Corporate Transparency Act (CTA) on 1 January 2024, The Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued additional guidelines in 2023 relating to the new UBO requirements for the United States and Puerto Rico.
As with any other legislation, UBO reporting requirements remain “movable” even after being set. Jurisdictions with changes to existing UBO reporting in 2023 included Australia, Spain, Poland, Mozambique and the Czech Republic amongst others. From a company’s perspective, it is extremely important to keep an eye on these developments and comply in time.
Cost and Time Rankings
For the second year running, Europe ranked as the lowest cost region for multinationals to operate in, driven by the ongoing implementation of the EU Digitalization Directive and a highly competitive legal service market. In comparison, the Middle East and Africa (MEA) and Latin America (LATAM) are most expensive, with many jurisdictions in those regions still requiring wet-ink signatures and multiple steps for notarization, translation and legalization of foreign documents.
North America (NA) was revealed as the fastest region, benefiting from widespread adoption of e-signatures and electronic filings, with average time to complete tasks decreasing by 14% in 2023.
Overall, when weighting both cost and time to complete activities, Malaysia emerges as the most favorable location in which to base entities in 2023, followed by Australia and Singapore. Malaysia takes pole position with both competitive cost levels and relatively fast corporate processes by local authorities.
Conversely, Taiwan ranks lowest followed by Vietnam and Norway. Norway stands out from other European countries, again due to the complex processes involved for even the most common corporate actions (including additional steps for completing director changes and the process of obtaining a D-number (a temporary identification number for non-permanent resident of Norway).
Whilst these jurisdictions offer a wealth of opportunity for international businesses, multinationals should be aware of the complexity and deep local knowledge required in order to set up and maintain entities in these areas.
Ultimately, no matter the location, it is increasingly important for multinationals to ensure each entity is properly managed and compliant to minimize heightened business risks in today’s constantly evolving regulatory landscape.
Kariem Abdellatif
Head of Mercator by Citco, Citco C&T Holdings (Luxembourg) Sàrl