Although the region is not traditionally well known for it, financial transparency in Latin America is taking on ever more prominence. In recent years, many countries have either already instituted or started planning for an ultimate beneficiary ownership register.
As a growing number of international investors and business leaders start to move into mid-income markets, financial transparency in Latin America is an attractive reason to consider the region. Most countries have stringent rules on declarations and put a lot of work into ensuring compliance.
A key part of the drive for financial transparency in Latin America is increasing integration with tech. Digital signatures and open online records are becoming commonplace in richer countries, with others looking to follow suit. This is explicitly in order to show that everything is above board and in order.
While 3E accounting can help you in Asia, we usually recommend a dedicated local partner in other parts of the world, in this case, Biz Latin Hub in Latin America. Their comprehensive package of back-office services provides coverage across the entire region, from company formation to ongoing accounting and legal support.
What does financial transparency in Latin America look like?
Latin American countries typically require companies to prepare annual financial statements. These include a balance sheet and statements regarding changes in equity, comprehensive income, retained earnings, shareholders’ equity, cash flows, and cash position.
Each country has its own dedicated tax office, usually run by the local finance ministry or equivalent. These bodies vary in terms of the powers they hold, but penalties in many countries are severe. Kindly note that there will often be quite heavy and opaque bureaucracy to deal with, making compliance difficult for new market entrants.
However, this is easily mitigated by hiring the services of good local accountants and legal support. They will know their way around the system and be able to make sure you don’t accidentally fall foul of reporting rules.
What is Ubo Registration, and Why is It Important for Financial Transparency in Latin America?
An Ultimate Beneficiary Owner, or UBO in Latin America is someone who has a significant or controlling interest in a company, whether through share ownership, receipt of profits or voting rights on a board. This helps track the people that benefit from a company’s operation.
Not keeping the public records fully up to date incurs stiff penalties in most jurisdictions. This usually implies basic personal details such as nationality, age, and name. Countries vary in the specifics of defining a UBO, but it generally applies to any and/or all of the following:
- Shareholdings above a certain percentage (usually 5-25%)
- Anyone holding special veto powers on a board
- Anyone who can appoint or dismiss board members.
The laws were brought in to help fight against endemic corruption issues and the influence of organized crime. UBO checks are becoming increasingly standard globally, especially in Latin America and the Caribbean. This is of particular importance for international businesses that may also be doing business in other territories.
Money laundering from illegal gangs is often disguised by routing cash flows through complex bureaucratic systems, for example. Another area of interest for the government is confirming that anyone who has been barred from company ownership is not, in fact, exercising control over a business.
Companies will particularly want to avoid triggering the Patriot Act, especially for those involved in trade with the United States. However, this is also true of the UK Bribery Act, FCPA and others. It is absolutely critical to make sure that you stay on the right side of legislation like this, wherever you may be operating.
By following well-established international norms, financial transparency in Latin America offers a sense of investor confidence for foreign firms or individuals who may want to operate in the country. With clear proof that you are not connected to illegal organizations, you can rest assured that your Latin operations will not imperil other areas of your global business.
What Standards Does Accounting Follow in Latin America?
This depends on the country, but many in the region follow the internationally agreed IFRS rules either in part or fully. It’s common to have stricter and more internationalized regulations for larger and/or publicly traded companies and simply local rules for smaller businesses.
Additionally, notes relating to the financial statements and a schedule containing details of investments are often required. Navigating these financial reporting requirements can be complex and potentially problematic if not handled correctly, making it key to have a good team in your corner in order to advise you.
Who Do You Need in Your Team?
An accountant who is registered with the local charted accountant’s association will be generally required. This usually requires taking local exams, though some countries simply require official registration of details.
What’s the Most Common Tax?
VAT, or Value Added Tax (known as IVA in Spanish-speaking countries), is the main source of tax levies in most states in the region. This makes it especially interesting to authorities and many jurisdictions will require monthly reports on VAT collection for this reason.
Do You Need an Auditor to Prove Financial Transparency in Latin America?
Some companies will also require internal and/or external auditors. Financial transparency in Latin America usually mandates this for ‘large taxpayers’, the definition of which varies between countries, but is usually based on your assets, turnover and/or staff numbers.
What is the Future of Financial Transparency in Latin America?
The direction of travel is evident: things can only get better. While the region has a well-earned reputation for opaque and, at times, Byzantine bureaucracy, it is making significant progress in loosening regulations. Financial transparency in Latin America is a large part of that.
Bringing in hi-tech solutions to old problems has been a game-changer, and that will only increase. There is a drive towards getting everything online and easily accessible, with confidential registers of interest for areas such as UBO well protected.
A greater willingness to follow internationally accepted standards has also been important in setting international investors at ease. This is being gradually introduced in most countries, with smaller taxpayers not usually subjected to the same level of scrutiny – flexibility that makes the system manageable.
With foreign investment a key plank of many countries’ budgeting, it is necessary to prove probity in economic matters. Improvements in financial transparency in Latin America are going a long way to showing that the region is open for business on the global market.
