What is global compliance?

‘Compliance’ in a business context is the state of meeting all of your legal obligations and commitments. So, what is global compliance? Also known as international compliance, it is the adherence to a wide variety of rules and regulations governing your business practice internationally, as well as on the local level in all of the countries you operate in.

Maintaining global compliance is an involved process, including following strict sets of business rules, standards and regulations set by each country in which a business trades. Depending on the size of the business and its sector, these regulations can differ greatly – for example, trading across multiple countries or trading products such as medicine.

International compliance covers a range of business practices, which we’ll explore in detail later in this article. These practices include:

• Tax compliance
• Equal opportunities for employees
• Money laundering prevention
• Product and payment standards
• Data protection and reporting

Whatever the industry, and however large or small your business, every organisation needs to follow the full scope of relevant compliance standards, to avoid a host of potentially debilitating business risks.

Why companies need to follow global regulatory compliance

Following global regulatory compliance is a legal requirement for all businesses, but it may affect some more than others. For example, if a business is looking to expand into new international markets, there may be different trade or employment laws to follow.

Similarly, compliance obligations can affect recruitment, whether a potential employee is emigrating to join the business from overseas, or you’re hiring staff abroad. Immigration laws may affect a person’s right to work, while classification laws will govern the nature of your engagement with international employees and contractors.

For example, if an employee is working overseas, they can only continue to be paid by the organisation’s home country if a hosting agreement is in place. These agreements are subject to numerous conditions, including duration of work, immigration requirements, and reporting regulations. Additionally, such an agreement has to be between two entities which have a legal connection, such as your company HQ and a branch of your company established in another country.

Partnering with an Employer of Record (EoR) provider, which already has legal entities established around the world, can help you avoid the mountainous paperwork and establishment costs of setting up a foreign subsidiary.

Global compliance: risks and rewards

Ultimately, international compliance regulations are in place to ensure the fair treatment of employees and contractors; the protection of a business’s assets; and to establish a clear legal framework, in the instance of complaint or contractual breaches on either party’s behalf. Moreover, failure to comply with international regulations can result in hefty fines, criminal charges, loss of customers, and worse.

In other words, global compliance is important because it helps to ensure the welfare of your staff and the sustainability of your business - from profit margins to reputational protection - while maximising the cost-effectiveness of your international business expansion, protecting your reputation, and avoiding triggering legal or financial action.

What are the different types of international compliance? 10 key issues to be aware of

Global regulatory compliance is in place to maintain safety for staff, customers and wider stakeholders. For example, it may affect equal opportunities in the workplace, maintain high product standards, or protect a company from reputational damage.

There are a number of different global compliance factors which you may have to consider when conducting business abroad – broadly covering employee rights, business finances, and product or service standards.

Below, we explore the 10 key international compliance considerations facing businesses operating overseas in 2024 and beyond.

1) International tax compliance

Any business that has a permanent establishment in a particular country must comply with that country’s tax laws. This may affect anything from income tax to corporation tax. Organisations must follow the OECD model tax convention, which means that if they have a base to carry out their activities, then they should follow that country’s tax obligations.

Notably, this is now expanding to companies which work remotely or digitally, while making significant revenue in an overseas country, but may not have an official residence there.

2) Employee rights

Employment rights vary around the world, and legal obligations may cover anything from minimum wage requirements to sick leave, vacation days, and equal opportunities. Companies must not discriminate against employees based on factors such as gender or disability, for example, though the details of the rules governing employee rights often vary from country to country.

This is why it is paramount that you have staff on board with the know-how and resources to manage varying compliance nuances across the portfolio of regions your business operates in.

Employee entitlements

International labour laws lay out clear guidelines on which nations around the world can either directly adopt or use as inspiration for their own labour laws. Employee rights, or entitlements, can differ from country to country. In addition to minimum wages, holiday days, sabbaticals, and sick leave, employee entitlements may include:

• 13^th, 14^th or even 15^th month salaries
• Paid parental leave
• Employee insurance contributions and benefits packages, such as health insurance in the USA
• Pension contributions
• Protection from unfair dismissal

Equal opportunities and equality acts

Most countries today have also enshrined the rights of all employees not to be discriminated against on the basis of their sex, gender, sexuality, ethnicity, age, political beliefs, or religion. The UK’s 2010 Equality Act, for example, combined and updated a number of historic anti-discrimination acts to create a more protective piece of legislation, which all businesses operating in the UK must comply with.

Though not all countries you expand into will have equality acts or equal opportunities initiatives in place, it is advisable to develop your own Equality, Diversity, and Inclusion (EDI) policy in line with the more progressive countries you have a presence in. This will keep you above board across the board, whilst creating a more welcoming and supportive work environment within your company.

3) Anti-money laundering

Companies that wish to establish a permanent residence internationally will need to follow international anti-money laundering regulations.

These come hand in hand with counter-terrorism laws, and require an anti-money laundering or counter-terrorism programme for monitoring larger financial transactions. Companies may also need to undergo staff training and follow strict reporting procedures.

4) Reporting on finances and accounting

Financial statements are crucial to an organisation’s compliance – demonstrating that they are acting within the obligations of tax laws and general good business practices. This is largely universal across many countries, preparing clear statements including taxes paid, though each country will have its own unique set of standards – as such, awareness of the minutiae of tax law in each country you pay taxes in is crucial.

Failure to report finances, conduct accounting, or pay taxes correctly will likely lead to financial penalties, if not legal action.

5) Data protection laws

Data protection laws vary from country to country but one of the most prominent belongs to the European Union: the General Data Protection Regulation or GDPR.

Businesses trading within these areas must adhere to a strict set of guidelines, including using personal data for lawful purposes, and informing customers what their data is being used for. The customer must also be given the right to erase their data.

6) Anti-slavery laws

Anti-slavery legislation is growing in prominence around the world, with the United Kingdom leading the charge in anti-slavery practices. Other countries such as Australia are following suit, taking steps such as investigating and monitoring any exploitation in their supply chain.

Depending on the country you are trading in, you may have to create these reports – for example, the Modern Slavery Act 2015 applies to countries outside the UK as long as the business is carrying out business in the UK. Some countries may also require you to follow anti-corruption laws, such as in the United States.

7) Anti-corruption laws

It will come as little surprise to you to learn that most countries prohibit the practice of bribing their officials or the officials of foreign nations in which you do business. Corruption is viewed in most international countries as a very serious crime, and is punished accordingly.

While we don’t think that anyone reading this article would consider consciously violating a country’s anti-corruption laws, it is important to know what each of these laws are before conducting business – after all, you never know how an overseas judicial system may interpret your international transactions.

A recent high-profile example of anti-corruption laws being enacted occurred in 2020. The massive multinational Goldman Sachs Group Inc., in collusion with its Malaysian subsidiary, admitted to conspiring to violate the USA’s Foreign Corrupt Practices Act (FCPA) by bribing Malay and Abu Dhabi officials in exchange for lucrative business deals. Goldman Sachs was ordered to pay more than $2.9 billion for the breach of this law.

8) Payment standards

Financial transactions are subject to a huge range of rules that apply internationally, whether making or receiving payments. For example, organisations may have to follow security standards such as the Payment Card Industry Data Security Standard.

There may be additional checks to approve payments and there may also be further considerations for exchange rates, depending on whom you’re paying or receiving money from. Paying wages to overseas employees can be complicated when it comes to compliance, and getting the process wrong may not only result in penalties or fines, but also in reputational damage and poorer remote employee retention.

9) Service and product standards

These standards vary enormously depending on the industry. Product standards may, for example, govern definitions deemed relatively insignificant, such as the dimensions of a piece of ‘A4’ paper in one country versus another. Alternatively, product standards could have a severe impact on people’s wellbeing, such as global compliance to a high standard in the production and distribution of medical products or cybersecurity services. Many companies follow ISO standards, though there will be different rules for individual countries or large regulatory areas, such as the European Union.

While international service and product standards are not always enforced by law, they are often made a legal obligation of your company in contracts and licenses. For example, a contract with your computer chip manufacturing company to provide chips to a smartphone manufacturer may require you to adhere to a specific set of product standards. Thus, doing so would fall under the remit of your compliance team.

10) Global trade compliance regulations

Trading goods internationally is also a matter of compliance, as it will incur tariffs, as well as import and export controls. Companies may have to apply for licences or permits depending on the goods they are trading, while there may also be specific rules for goods being brought into a country, such as the value of the goods or the import tax attached to them.

What happens to an organisation in the event of non-compliance?

Failure to comply with international labour laws, tax regulations, immigration rules, and other such compliance factors can have devastating impacts on your business. Failure to comply with any number of global compliance issues may result in the following:

• Financial penalties: Hefty fines may be issued for any number of compliance breaches, from failure to pay the correct taxes, misclassifying your employees as contractors, or breaching data protection laws. In 2020, for example, Google was fined $120,000,000 by French authorities for dropping non-essential cookies on customers without first gaining their consent.
• Reputational damage: Certain non-compliance cases, such as in labour laws, employee rights, and equal opportunities - not to mention tax - can make a pariah of your business, turning both the public and your investors against you.
• Breaches of contract: Compliance may well be baked into any number of international B2B contracts, such as we expressed in our ‘computer chip x smartphone manufacturer’ example above. A breach of any compliance concerns written into a contract may, therefore, be deemed a breach of contract by the other partner(s), and could result in the loss of the contract, if not legal action and/or an obligation to pay reparations.
• Legal action or criminal sanctions: Global compliance covers various sets of criminal law, including bribery, money laundering, corruption, and theft. Non-compliance (whether deliberate or accidental) with any criminal laws will likely result in a court case, and can lead to imprisonment for your organisation’s management team.
• Loss of licenses or authorities: Depending on your industry, you may need to hold certain licenses or approvals to operate – for example, an international restaurant chain may need a license to serve alcohol in its establishments. Compliance failures can also result in the revocation of these licenses, which would effectively render your business inoperational and, as such, no longer viable.

How to maintain global compliance with Mauve: 4 simple steps

We hope that the risks of non-compliance outlined in the previous section make it plainly clear just how important global compliance is, not just for the massive multinationals, but for small, independent businesses too.

Whether you’re planning to move into a new market, or already trading in another country, it is important to routinely review your practices. You should do so regularly, either at set intervals - such as once a year - or whenever new legislation comes in.

Naturally, of course, this is easier said than done. Keeping on top of international compliance requires time, training, and resources – which not every business can afford to spare. It also requires compliance to be baked into your business processes.

Below we outline a number of helpful actions you can take, to ensure you maintain global compliance in whichever countries you choose to expand into.

1) Develop a compliance procedure

If you don’t have one already, put together a compliance plan, including how to conduct checks, report on your enterprise’s compliance status, and the development of a compliance training process for your employees.

Keep relevant employees abreast of any and all changes to global compliance with regular team meetings. In essence, your procedure should build compliance into your business processes – using the challenges of international compliance, to inform how your business operates, rather than the other way around,

2) Put together a trustworthy and dependable compliance staff

The people you choose to manage your company’s compliance overseas should be both knowledgeable and responsible. It is important that you identify an individual or team of individuals who/which is primarily responsible for ensuring your business remains compliant across the spectrum of countries you operate in.

This person or group will be responsible for staying abreast of compliance changes as they arise, as well as developing an effective means of monitoring the business’s compliance with these changes.

3) Conduct regular audits of your organisations international compliance

Once compliance has been established with all rules and regulations across all of the various territories of operation, it would be a waste of your resources to then sit back and relax. Labour laws, tax regulations, equal opportunity acts, and more are evolving every year, with governments around the world strengthening, changing, or weakening their stances on each depending on their political leanings and the global economic climate.

As such, it is highly recommended that you conduct regular compliance audits of your company to check the degree to which your company meets its compliance obligations. Any gaps identified can be corrected before relevant authorities need intervene.

4) Stay compliant internationally with consultancy from Mauve

Trading internationally can work wonders for your business and put you on the path toward growth and all-round success. Yet there are countless tricky guidelines to navigate, particularly if you don’t have the resources to manage international compliance in-house.

With the right guidance, however, you can safeguard the welfare of your employees, your stakeholders, and your business against the myriad risks of non-compliance.

To avoid risking your capital, your reputation and your customer base, while ensuring cost-effective global compliance, contact Mauve Group today, and discover how our consultancy services can help you to expand internationally, stress-free.