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Summary: Global compliance helps businesses reduce fines, prevent collapsing under financial or legal liability, and avoid workflow disruptions or stoppages so that you can run your company smoothly.
Global compliance is critical for organizations hiring talent internationally or conducting business abroad. No matter which path you take, you must understand the regulations, rules, and standards that apply in each country where you do business or have talent.
Global compliance rules may differ, depending on the size of your organization and your business sector. However, there are some common compliance standards that all international organizations must understand to avoid catastrophic risks.
In this article, we explain why global compliance matters, some key areas of global compliance, and what you can do to ensure you remain globally compliant when joining the international marketplace.
Why is global compliance critical for companies?
Global compliance helps businesses reduce fines, prevent collapsing under financial or legal liability, and avoid workflow disruptions or stoppages so that you can run your company smoothly.
For example, if you plan to expand into new global markets, you must follow certain international trade or employment laws. If you have a worker emigrating from another country to join your company, you must comply with immigration laws. If you’re accepting payments globally, then you must follow specific financial payment or trade compliance standards. Failure to do so can often result in fines, penalties, or legal issues, negatively impacting your business.
When going global, you must not only comply with international rules (those standards that apply across international borders) but also local rules and regulations that may only apply in-country. Certain international compliance rules apply to financial payment standards, data protection, and product standards. Local compliance rules, on the other hand, may include standards regarding equal employment opportunities and other labor laws.
What are the 10 key areas of global compliance?
When building your global compliance strategy, here are 10 common areas of global compliance that you should consider.
1. Global tax compliance
Global tax compliance is your legal obligation to pay taxes in countries where you do business. Tax rates will vary from location to location; however, you need to be aware of which taxes you owe in each country.
Additionally, you must understand permanent establishment, as this impacts which tax laws may apply to you. Permanent establishment occurs when a business has a stable and ongoing presence in a foreign country, potentially subjecting it to corporate taxes in that location. Permanent establishment can impact income to corporation tax. Additionally, companies must follow the OECD model tax convention if permanent establishment exists.
Companies with online businesses may owe additional taxes on digital services that generate significant revenue in a country. These taxes often apply even if the business has no official or permanent residence in that country.
2. Financial reporting and accounting standards
Each country also has its own legal rules and regulations about how corporate financial statements are prepared. Financial statements and accounting standards are critical to a company’s compliance, demonstrating that it complies with tax laws and maintains good business practices.
Thankfully, many countries use internationally-standardized financial reporting and accounting standards. For example, many countries have adopted the International Financial Reporting Standards (IFRS), which replaced the International Accounting Standards (IAS). The IFRS is an internationally standardized set of rules for preparing financial business information.
The US, on the other hand, typically applies Generally Accepted Accounting Principles (GAAP). GAAP accounting is used by private, governmental, and nonprofit entities.
Failure to report company finances correctly may lead to financial penalties and fines.
3. Financial payment standards
When making bank transfers and accepting payments, businesses must comply with international financial payment standards, helping to keep payment information secure.
For example, the Payment Card Industry Data Security Standard (PCI DSS) is a set of security rules for companies that process major credit or debit cards, such as Visa, Mastercard, American Express, and Discover. These rules apply to all businesses that process credit or debit card transactions, regardless of their location.
Additionally, the international Legal Entity Identifier (LEI) Framework applies to numerous countries, such as the EU and the US. The LEI is a reference code (similar to a bar code) used across global jurisdictions to identify each entity engaged in the financial transaction uniquely. This serves as the first global identifier, helping companies and regulators identify the parties to the financial transactions instantly.
Depending on where you’re doing business, you also may need to comply with additional payment rules regarding exchange rates.
4. Anti-money laundering (AML) and counter-terrorist standards
Most countries now have anti-money laundering (AML) and counter-terrorist laws for businesses that have established permanent residence in the region. AML laws help international governments stop criminals from abusing the financial system. Some AML rules include monitoring large transactions, reporting suspected incidents, and training employees to protect against money laundering activities.
Additionally, AML rules often include counter-terrorism laws, preventing money laundering and the financing of terrorism by imposing obligations on the financial sector, the gambling sector, and other industries.
For example, the US sets these rules out in the Bank Secrecy Act of 1970. The UK has the Sanctions and Anti-Money Laundering Act 2018, and Australia has both the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the Anti-Money Laundering and Counter-Terrorism Financing Rules.
5. Anti-corruption and bribery laws
If you work in the legal or financial industries, you may need to comply with rules and regulations to train workers in anti-corruption and bribery practices. These rules could outline what qualifies as a bribe or what your workers should do if they are approached with a bribe.
In the US, the Foreign Corrupt Practices Act (FCPA) prohibits corporations and their officers from bribing foreign officials to assist in obtaining or retaining business. The FCPA applies to activities occurring outside the US as long as the company has a “sufficient degree of connection” to the US.
6. Global trade compliance rules
Companies that go global must also comply with both domestic and international trade compliance rules. This could include compliance regarding imports, exports, and tariffs. There may also be specific rules in-country, such as regulations on what goods can be brought into a country depending on their value.
7. International service and product standards
Global businesses also need to adhere to international service and product standards, ensuring a certain consistency and quality when creating products or performing services. These international standards ensure that the products your customers and clients are using daily are high quality, safe, and reliable.
For example, these standards may assure practices within companies, such as risk management, technical product specifications, and information security and cybersecurity. Additionally, these international standards help businesses adopt sustainable and ethical practices.
The International Organization for Standardization (ISO) sets most international standards for services and products. However, other entities may also set standards depending on where you are doing business globally. For instance, other global entities regulating product and service standards include the International Electrotechnical Commission (IEC) and the International Telecommunication Union (ITU).
Adhering to these international standards is not always because of legislation or regulation. Many contracts or licenses require adherence to these standards, depending on your industry. Failing to comply with these standards could result in legal liability, such as breach of contract or loss of a license.
8. Labor laws and other employee rights
If they employ talent globally, companies must comply with numerous statutes, regulations, and rules surrounding employees. To remain compliant, businesses must adhere to labor, equal opportunity, statutory employee benefits, and other employee rights.
Although these laws may vary from location to location, generally, they:
- Prevent discrimination as to gender, age, ethnicity, and disability
- Entitle employees to minimum wage, breaks, paid time off (PTO), sick leave, and parental leave
- Protect employees from unfair dismissal
- Provide employees with health insurance, pension contributions, or workers’ compensation
Understanding these labor laws and other employee rights is imperative when expanding your business glob
9. Anti-slavery laws
Anti-slavery laws are growing worldwide, with the UK leading the way and Australia coming in a close second.
For example, the Modern Slavery Act 2015 sets out how slavery and human trafficking should be handled within the UK. Australia passed the Modern Slavery Act in 2018, requiring certain businesses based or operating in Australia to report annually on the risks of modern slavery in their operation and supply chains.
Other countries, like the US, Germany, and the Philippines, criminalize slavery in their criminal codes or constitutions.
10. Data and privacy protection rules
Companies must also comply with myriad data and privacy protection rules, protecting sensitive information for clients, customers, and vendors. One of the most significant pieces of data and privacy legislation is the EU’s General Data Protection Regulation (GDPR).
The GDPR establishes general obligations for businesses that control or process the personal data of EU customers by implementing appropriate security measures to protect this data while preventing breaches. Further, this law grants customers the right to be informed about what their data is being used for and gives them the right to ensure that their data is accurate or to erase certain data.
This law applies to businesses both in and outside of the EU; it specifically applies to any company doing business with EU customers, meaning that most online companies would need to comply with the GDPR.
California also has data protection legislation called the California Consumer Privacy Act (CCPA). Like the GDPR, the CCPA enhances privacy rights and consumer protection for California residents in the US. Any company doing business with California customers must comply with the CCPA, whether or not the company is located in California.
How to ensure Global Compliance?
While global compliance may differ depending on your business’ size or industry, there are some universal steps that you can take to become globally compliant. Here are a few best practices to keep in mind:
- Assessment: Review your current business practices, such as what rules you already have in place and which rules you will need to abide by when you expand to another country.
- Training: Communicate these new practices to your team, including all relevant locations. You may also decide to set up global compliance training for your employees and leadership.
- Planning: Create a plan to ensure global compliance, such as appointing staff to oversee day-to-day compliance issues and annual deadlines to maintain compliance.
- Management: Design appropriate governance processes, such as establishing a compliance committee for proper oversight, conducting internal risk management audits, and creating an appropriately allocated compliance budget.
- Support: Team up with a global compliance partner, such as an employer of record (EOR) or a global professional employer organization (PEO), to assist you in international business and legal practices and help you stay on top of your obligations.
As cross-border and online business and trade increases, global compliance becomes more complex. More than ever, businesses must continue to educate themselves on what’s legally required to conduct business internationally while avoiding costly fines, penalties, litigation, or workflow disruptions.
Conclusion
In today’s business world, global compliance is critical to your company’s future success. Building a global compliance strategy will help you expand into new markets while running your business smoothly. Check out services at RemotePeople if you are looking for help with global compliance.
FAQ
Global compliance helps businesses reduce fines, prevent collapsing under financial or legal liability, or face workflow disruptions or stoppages – helping you run your company smoothly.
Common areas of global compliance include international tax, financial reporting and accounting standards, financial payment standards, international product and service standards, labor laws and other employee rights, and data and privacy protection rules.
Andrew (Drew) joined the Remote People team in 2020 and is currently Director, Regulatory Affairs. For the past 13 years, he has been a trusted advisor to C-Suite executives and government ministers on international compliance and regulatory issues. Drew holds a law degree from the University of Otago, a PhD from the University of Sydney, and is an enrolled Barrister and Solicitor of the High Court of New Zealand.
