While international expansion can be an exciting time for a company, it also involves a lot of work. Operating across borders brings various compliance challenges that you need to be aware of — or you risk fines, reputational damage, and even legal consequences.
In this article, we’ll discuss five of the most common global compliance challenges that businesses run into when they expand their operations overseas — plus some steps you can take to overcome them.
Table of Contents
- What is global compliance?
- 5 common global compliance challenges
- The effects of non-compliance on an organisation
- Tips to stay compliant in a global organisation
What is global compliance?
Global compliance is when an international organisation abides by all of the rules, laws, regulations and standards that apply to it across the globe. It’s a broad term that covers all of the different regulations that dictate how a company can operate, including tax law, data protection, and employee rights.
To be globally compliant, a company must:
- Follow all of the local rules that govern how it operates in the countries where it has a presence or does business. This might include anti-corruption or anti-money laundering laws, labour laws and local tax legislation.
- Comply with international laws, regulations or standards that apply across the globe. This includes data protection and financial payment rules, which often apply across borders.
5 common global compliance challenges
Are you ready to expand your business overseas? Here are five of the most common global compliance challenges you’re likely to face if you do:
1. Hiring and paying employees compliantly
One of the biggest global compliance challenges that international businesses face is paying their international employees. When you operate internationally, you need to abide by local labour laws and payroll customs in each country that you operate in. Each jurisdiction has its own laws and regulations that govern things like how much employees get paid and the rights and benefits they’re entitled to.
In most countries, this includes provisions for the minimum wages, breaks, annual leave, and sick leave that every employer must grant its employees. Some countries also require employers to provide additional benefits like paid parental leave, pension contributions, and protections against unfair dismissal. You need to be aware of all of the laws that apply to your business.
In addition to the actual laws at play, each country also has its own set of cultural expectations when it comes to work and pay. For example, in many countries, including France, Belgium, and the Netherlands, it’s customary for employees to receive an extra month’s pay at the end of the year — even though this isn’t written into law.
While you’re under no legal obligation to abide by these customs, your local employees will probably expect you to — which means that your employer brand could suffer if you don’t. Understanding the customs and expectations in various countries is a big part of global workforce management, so it’s a good idea to consult with local experts who understand the culture of any country you’re planning on expanding into.
2. Understanding local and international tax compliance
In most countries, employers must withhold tax from their employees’ salaries and forward it to the tax authorities on their behalf. You’ll need to be aware of how this works in each country you plan to pay employees in — or work with a local payroll partner who can handle this for you.
There are also corporate taxes to consider. These usually apply to any business that has a permanent establishment in a country — though figuring out if that applies to you isn’t always easy. It’s always a good idea to work with an expert in global tax compliance who can help you to understand your obligations.
Some jurisdictions are even beginning to roll out ‘digital services taxes’, which apply to online businesses that make a significant revenue in a particular country, even if they have no physical presence there.
3. Abiding by data protection requirements
Data protection laws govern the way companies handle their customers’ data. They often operate across borders, which means they could affect your organisation even if you don’t have a physical presence in the jurisdiction in question.
Many countries and regions have specific regulations for data protection in place, but the largest and most well-known is the European Union’s General Data Protection Regulation (GDPR), which came into force in 2018.
The GDPR requires that businesses adhere to a range of data security standards. For example, companies must:
- Only process data for specified lawful purposes
- Collect as little data as possible
- Tell customers what their data is being used for
- Erase customer data if requested (in some circumstances)
Crucially, these laws apply to any company that serves customers who are located in the EU, even if the company itself is not. Failure to comply with data protection regulations like the GDPR can result in sizeable fines.
4. Following requirements for financial reporting
Each country also has its own standards when it comes to how companies prepare their financial statements. There are international standards, such as the International Financial Reporting Standards (IFRS), which have been created with the aim of providing consistency and transparency across jurisdictions.
However, there are differences in the way these standards are used in different countries, and some countries don’t use them at all. For example, the US uses something called the Generally Accepted Accounting Principles (GAAP) instead.
You need to be familiar with the accounting standards that apply in each country your company has a presence in, so you can ensure you’re compliant.
5. Complying with protections against discrimination
Most countries also have laws in place to prohibit the discrimination of employees based on protected characteristics such as race, gender, age or disability. These are often referred to as ‘equal opportunity laws’, and they differ from country to country.
It’s important that you’re aware of the laws that apply in every country you employ people in so that you can be sure you’re meeting legal compliance requirements. This can also help you to build a diverse and inclusive workplace, which can have many additional benefits for an organisation.
The effects of non-compliance on an organisation
Not taking compliance seriously can have some significant effects on a global business. Here are some of the ways non-compliance could negatively impact your organisation:
- Fines and penalties: Certain regulations in particular come with huge penalties if you’re found to be non-compliant. For example, non-compliance with the GDPR can result in fines of up to 10 million euros, or 2% of your global turnover (whichever is higher).
- Criminal charges: Failure to comply with local criminal law in areas like money laundering, fraud and bribery can result in criminal charges and even imprisonment for those involved.
- Breach of contract: Compliance is often a requirement of contracts between businesses. If you’re found to be non-compliant, this may be considered a breach of contract and you could be liable for damages.
- Reputational damage: Lastly, non-compliance with local and international rules and regulations can result in negative PR — which could be costly for your company.
Tips to stay compliant in a global organisation
Here are some of the ways you can work to ensure you’re operating compliantly and legally as an international organisation:
Appoint a global compliance officer
Keeping up with compliance requirements is an important job that can take up a lot of time. Consider appointing a compliance manager to take charge of developing internal controls, monitoring compliance, and keeping ahead of any changes to the law.
Work with local experts to understand requirements
Regulatory requirements differ from one jurisdiction to another, and it’s vital that you understand exactly what you need to do to meet them in each country you operate in. Often, this involves working with local experts who can help you to understand what’s required.
Conduct regular global compliance audits
With so many different compliance requirements to keep up with, even well-meaning companies can slip up. It’s important to develop processes to help you regularly assess whether or not you’re meeting your compliance obligations — and take corrective action when needed.
Build compliance into your processes
Provide regular compliance training to employees
Hire and pay employees compliantly with CXC
There’s a lot to think about when you’re operating a global business, from the processes you’ll need for handling customer data to how you’ll manage payroll for your employees around the world.
Our global payroll solution lets you compliantly and conveniently manage your payroll in over 65 countries. We’ll also handle compliance risk mitigation and tax reporting on your behalf — so you can focus on growing your business.
Need personalised help?
Our friendly team is more than happy to help you clarify any questions you may have, even if it is unique or you are at an early stage of implementation.
Contact us today to find out how we can help you.
Need personalised help?
Our friendly team is more than happy to help you clarify any questions you may have, even if it is unique or you are at an early stage of implementation.
Contact us today to find out how we can help you.
