15 INTERNATIONAL TECH HUBS SECOND EDITION | BDO LLP
BDO LLP | INTERNATIONAL TECH HUBS SECOND EDITION
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THE GOVERNMENT SUPPORT At present, tax regimes in Latin America are undergoing a period of upheaval. Foreign-owned companies’s tax teams are having to adapt to new domestic tax rules currently being implemented across the region. However, as a result, foreign investors will find that there are novel tax regimes that are preferential, with incentives that make specific markets in Latin America more tax- effective and appealing. Businesses looking to establish themselves in this region will need to familiarise themselves with the particular tax and accounting standards required by each nation. Broadly speaking, most countries follow the Organisation for Economic Co-operation and Development (OECD) standards and International Financial Reporting Standards (IFRS), though there are still many variances. For example, Colombia and Chile follows International Financial Reporting Standards (IFRS), but Brazil is still in the process of implementing it. Argentina, meanwhile, uses a parallel system. THE INVESTOR ANGLE According to the Economic Commission for Latin America and the Caribbean (ECLAC) in their study ‘Foreign Direct Investment in Latin America and the Caribbean 2019’, in Latin America and the Caribbean, foreign direct investment inflows were up by 13.2% year-on-year for the first time in five years last year. This saw
$184,287 billion invested into the area, with hotspots being Brazil and Mexico. Manufacturing and services were the sectors receiving the most equity, with the sources of capital coming mostly from Europe and the United States. The facts show how Latin America maintains strong levels of interest from investors, but there could be greater support for businesses and investors alike. One of the biggest challenges for entrepreneurs and foreign investors is the varying levels of ease of doing business across Latin America. Some locations have engineered policies, incentives and visa options to help enable businesses to attract foreign direct investment, and some are still working on improving the process. An example of a growing capital market implementing improvements would be Brazil. Here, tech is classed as a growing segment, meaning that interest rates are favourable . The Brazilian Central Bank has lowered the Selic interest rate from 7.5% (late 2017) to 2.25% (June 2020) to help spur progress. Colombia also has a strong financial market, with plenty of capital available to finance tech companies. The drawback of the Colombian financial market is its high cost of doing business; when compared with the US, for example, the cost of a loan in Colombia is 5%–10% higher. That being said, the government has established resources to finance companies, especially in the technology sector, and there are alternative sources such as PE funds. Latin America has incredible potential for investors, and offers a verdant market for entrepreneurs to explore.
IN LATIN AMERICA AND THE CARIBBEAN, FOREIGN DIRECT INVESTMENT INFLOWS WERE UP BY 13.2% YEAR-ON-YEAR FOR THE FIRST TIME IN FIVE YEARS LAST YEAR
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