10 top tips for expanding your business in Latin America

By Carlos Gerhard, RSM Brazil Managing Partner and Damian Batt, Regional Business Development Manager for Latin America

The International Monetary Fund (IMF) recently increased Latin America´s (LATAM) growth forecast by 4.1%, building optimism about the region’s opportunities for business development. In the post-COVID era, LATAM can offer a wealth of hidden gems when it comes to investment prospects, particularly for those with a calculated risk appetite and absorption capacity. Here, Carlos Gerhard and Damian Batt provide some top tips on expanding your company in this dynamic region.

Latin America has long been an attractive, globalised economy with an abundance of opportunity. According to the Comisión Económica para América Latina y el Caribe (CEPAL), the United Nations regional organisation committed to economic and social development, Brazil remains the key recipient of foreign investment in the region. Meanwhile Chile, Colombia, Peru and Paraguay have steadily increased their levels of Foreign Direct Investment (FDI). In Mexico, the European Union surpassed the United States for the very first time as the country’s main foreign investor. In addition, Costa Rica and Panama are the main recipients of FDI in Central America and the Dominican Republic is the core foreign investment market within the Caribbean.

CEPAL indicates that LATAM’s recovery from the pandemic will focus on prioritising investment into economic and social reactivation and transformation by promoting the financing of employment and key strategic sectors such as health and education. It will also focus on financing start-ups and SMEs, providing incentives for development.

What should I consider when expanding my business into Latin America?

Have an optimal tax plan in place - Your tax obligations relating to expanding into LATAM may vary due to many different factors. These include the way you structure your business, your funding method, the tax regime of the countries you select to operate in, location, modes of transportation, and many others. Often, minor details can result in significant savings or costs in terms of tax so it is important to be sure that you have searched for the best, compliant tax structure for your business as that can be the difference between success or failure.

Do your research - The size of the market is naturally a key consideration, but so should be many other factors that will affect viability and profitability in each country. These should include the availability of quality professionals in the field and infrastructure/ease of logistics, among others. In the early planning stage, think beyond how you can set up and fund local operations, to how you will eventually withdraw the profits you hope to make. Good planning, including the type of legal entity to incorporate, employment contract type and contract terms with local distributors, can all save you time and money long into the future.

Assess all existing contracts and other documentation – A common mistake some international companies make is to simply replicate contracts and documents they have used in other markets. That may be a problem, since such documents will not only need to be translated, but also adapted to comply with various aspects of local standards and legislation. Some jurisdictions establish that clauses of contracts which conflict with local laws are automatically void. Therefore, it is important to make sure you have good legal advice to adapt the documents you plan to use.

Prioritise compliance  – In most Latin American countries, compliance activities, including tax, labour, audit, and other declarations often require significantly more resource than in other regions. Tax compliance and labour filings can cause liabilities if not given due attention, carrying significant penalties. Many countries require the completion of an audit, the scope of which can even extend beyond the annual financial statements to other tax and regulatory filings. Also, most LATAM jurisdictions require a local certified bookkeeper to be put in place.

Find a local trusted partner – Your own research can provide a sound base of knowledge about local fiscal, financial and labour obligations but an experienced local partner will ensure that all necessities are identified and complied with whilst avoiding any hidden risks.

Be realistic – Avoid overly optimistic timetables for entry that do not adequately factor in the time required for bureaucratic tasks, such as opening a local bank account and transferring initial capitalisation funds. Latin America requires several bureaucratic steps to have an entity fully incorporated. Registrations may take a while, sworn translations and stamps on documents are usually required and anti-money laundering compliance procedures may create obstacles.

Understand local labour legislation – In many countries within Latin America, labour legislation is usually considered as highly employee protective. That means that total employee expenses are often higher than you may have experienced elsewhere. In addition to labour legislation, other enforceable rules may apply depending on your business and union agreements. In the event of litigation, such rules are likely to take precedence over company labour agreement terms.

Be sure that you are ready to import – Some jurisdictions may demand importer registrations, which are likely to require minimum capital, additional filings, and further documentation. Having a customs agent or broker is critical. Not observing these rules, before shipping products, may lead to goods being held at the harbour, the accumulation of penalties and further consequences on your future ability to import.

Be mindful that quoted prices often include taxes – Making the wrong decision on pricing your product or service may have further consequences on your commercial relationships. Researching rates on the internet and trying to guesstimate the tax charge will often lead to problems, so seeking professional advice is key. There are many situations where taxes can be exempted, reduced or vary depending on the fiscal classification.

Avoid making assumptions – Although there are many similarities within the region, there are also many differences. Cultural origins of Latin America are very diverse and so is the idiosyncrasy, legislative and tax system. In some countries, compliance might be easier than others. For example, Brazil is known for having one of the most complex tax systems in the world.

Selecting an established expansion partner can help you to navigate the challenges business in Latin America, including regulatory compliance, tax, payroll, accounting, and more. In addition, they can help you to understand the market potential in your chosen area.

If you would like more information regarding any information within this article, please do get in touch.

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