Time to tune in

Latin American companies turn up the volume on global growth

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Insights and recommendations: Regulation

Consider opportunities arising from tax and regulatory challenges

For Latin American companies, going abroad, whether within Latin America or to a developed market, is likely to lead to significant regulatory and tax complexity. Within Latin America, this is likely to arise if the home country does not have a tax treaty with the target market.

Outside Latin America, the most common challenge is managing much higher levels of complexity, says Rafael Sayagues, Tax Leader at EY in Costa Rica. In the US, for instance, foreign companies must learn to navigate the local, regional, state and federal tax codes.

At the same time, it’s important to understand that not every jurisdiction is equal, Sayagues adds: some states are trying to encourage development of specific industries and may offer special tax incentives and grants to set up business there.

Furthermore, company executives and family shareholders also need to worry about their exposure to US operations, as it is relatively easy to accidentally become liable for US income taxes. A non-Latin global company with a strong grasp on the varying tax and regulatory rules of the developed world may have a lot to gain by partnering with a Latin company that is seeking to enter new mature markets.

The reverse holds true as well: while most non-Latin American companies consider it risky to tread in some of the countries, other Latin American companies have entered these markets and might be valuable partners.

Ernesto San Gil, Argentina Managing Partner at EY, notes that Argentina is “located in an up-and-coming neighborhood” – next to two of Latin America’s most dynamic markets:  “It is clear, particularly as Argentina and Brazil are both members of the Mercosur common market, that some enterprising Argentine companies will profit directly and indirectly from that proximity. Indeed, they already do.”