How Is the U.S.-LATAM Trade Shaping Accounting Trends Worldwide
Latin America has come onto the radar for many U.S. companies in recent years. It is ideal for innovative investors looking for opportunities in nearby markets. In fact, changes in U.S.-LATAM trade are shaping accounting trends worldwide in several ways, and a local partner can help you navigate them.
As specialists in the region with 18 dedicated local offices, Biz Latin Hub know the continent better than anyone. That means advising on topics ranging from the sectors you might target, intellectual property protection, accounting standards and which country is right for you.
Relations between the continents have been historically strong, with the United States of America seeing Latin America as natural bedfellows for trade and commerce. This has led to U.S.-Latam trade shaping accounting trends worldwide.
However, change is afoot. Until recently, the entire region counted the United States as its primary trading partner. Now, China is at the top of many countries. Many Latin countries are striking deals with other Asian economies, seeking to build cross-Pacific trade.
Europe, too, is increasingly making overtures to Latin America, with a landmark EU-MERCOSUR free trade deal being announced a the end of 2024. As the U.S. looks to impose tariffs on a range of countries, both Latin America and Europe are looking for new partners.
Latin American countries generally have much more complex accounting systems, often prone to regular changes that switch everything around. However, with an increasing number of countries opening up and seeking FDI (Foreign Direct Investment), they are trying to make their systems simpler and more stable.
That often means looking to align with international standards, either the Generally Accepted Accounting Practices (GAAP) used as the bedrock of U.S. accounting or the Europe-based IFRS. This is starting with larger companies, but the basic rules are already the foundation of most Latin national systems.
Part of this means changing local rules to come in line with those used by the U.S., but there is also a need to incorporate Latam practices that don’t really exist in the United States, such as withholding taxes.
These changes are upending the regular order and influencing international trade and accounting norms. So, while there is plenty of history across the Americas, how is today’s U.S.-Latam trade shaping accounting trends worldwide?
What is GAAP And How Does it Work?
Generally Accepted Accounting Practices are the cornerstone of financial operations in the United States and have been for years. The basic idea behind GAAP is that it should unify all companies across all parts of the USA. It has also been adapted for use in a number of countries for local purposes, including in Latam.
GAAP is a general template for the accountancy standards used in nations across the region. Although each country is different, they usually follow some variation of the four basic principles, four assumptions, and five constraints of the original idea.
As the basic standards that underpin accountancy throughout the United States and further abroad, GAAP covers a great deal of areas. These range from currency conversion to agreement and standardization on depreciation rates.
While Latin America does not always align fully with the United States in accounting terms, the region does have a great deal of internal similarity. This is not always explicit but a consequence of how the region has developed from similar roots and influences.
For example, almost all of the continent requires companies to put themselves formally on the tax registry as part of company formation in Latin America. However, there are regional differences in exactly how you do this, and they use different names for your tax identification in different countries.
A key principle in Latin America that is rather unlike the U.S. is that most countries treat companies completely differently based on size. Small businesses are often not expected to comply with the same standards as larger operations, as they are often extremely low contributors to the tax base.
In Latin America, GAAP has been a common general guide for years and forms the basis for most local regulations. In some cases, it is explicitly expected to be part of auditing requirements for larger regional companies.
Transparency and the Importance of UBO Registration
The USA is very concerned about corruption and money laundering not only on the domestic front but also for its companies who work abroad or have connections in other countries. In recent years, there has been a tighter focus on what is going on overseas, with companies looking to strictly control their exposure to fiscal and legal risk.
Part of this involves Ultimate Beneficiary Owner (UBO) registration and monitoring. This is becoming standard in Latin America, especially for larger companies. UBOs are generally defined as those who hold a significant stake (10-25%, depending on country) in the company and/or can control the board.
Audits are becoming more common in Latin America for larger companies, another way in which the continents are starting to align further. Again, this is designed to ensure that multinational operators can be safe from contamination in one part of their business empire. With a high degree of uncertainty coming in 2025, forward-thinking companies will need to get on board with UBO registration to be able to do business in the USA.
The Alternatives to US-Latam Trade Shaping Accounting Trends Worldwide
While GAAP is largely favoured in Latin America, there is a challenge from across the Atlantic. A coalition of countries in the region has been formed to bring Latin countries in line with European standards. The group has added new members and is aiming to get the entire continent on board in the long term.
One of the key goals of the Group of Latin American Accounting Standard Setters (GLASS) group is to get IFRS used in every country under their umbrella. This has been slow going, however, with the initial target focusing on using IFRS for certain companies, usually medium to large-sized enterprises. In the future, this is expected to apply across the board.
From a wider perspective, GLASS is part of a general movement in Latin America towards European norms. From alignment with EU food safety laws to implementing fair trade and ethical standards in line with those of Europe, Latin America is increasingly coming into line with their rules in order to develop exports, as seen in the recently signed EU-MERCOSUR free trade agreement.
How is the Future of U.S.-Latam Trade?
Bright. While there do remain some problems to be resolved, in general, the relationship between Latin America and its northern cousins is on the up and trending towards convergence rather than separation.
This is important for both sides. With global uncertainty rising and the looming threat of increased tariffs on the United States, Latin America needs to come closer to the USA and show that it is prepared to do business in the way that North Americans prefer.
U.S.-Latam trade shaping accounting trends worldwide is set to continue as part of a general guide towards global alignment and standardization. It is designed to show transparency in business dealings and thereby build trust for all parties going into the future.
