Latin America red tape overtakes tax as expansion hurdle

Vistra and Euromonitor International have published a study finding that regulatory and administrative requirements are a bigger obstacle than tax for businesses expanding across Latin America. The research covers ten markets across the Americas.

Across eight Latin American markets, regulatory and entity-management friction averaged 61 out of 100, compared with 26 for accounting and tax, according to the Vistra Friction Index: Americas. Higher scores indicate greater operational complexity.

The findings point to a marked gap between tax administration and broader regulatory demands in the region. Electronic invoicing and digital tax reporting have improved some aspects of compliance, but businesses still face uncertainty, uneven administrative processes and inconsistent requirements.

Seven of the eight Latin American markets in the study scored above 50 for regulatory friction. Chile was the exception, at 30.

Mexico stood out because it combined one of the region's highest regulatory and entity-management scores with the lowest accounting and tax score. It recorded 69.3 out of 100 for regulatory and entity-management friction, while its accounting and tax friction score was 4.4.

That contrast suggests companies entering Mexico may find non-tax requirements more burdensome than tax compliance itself. The report said this pattern underlines how sharply operational barriers can vary even within a single market.

Regional contrast

The study also compared business conditions across the wider Americas and found different sources of complexity in North America. In the US, regulatory and entity-management requirements were among the least difficult in the ten markets surveyed, with a score of 7.2, but HR and payroll friction was far higher at 48.

The report linked the US score to labour costs and immigration requirements. That contrasted with Latin America, where regulatory and administrative requirements were the main source of friction for cross-border expansion.

Among the ten markets studied, Ecuador recorded the highest overall operational friction score at 59.3, driven by regulatory and employment challenges.

Brazil scored 39.6 for overall operational friction, with its tax system and ongoing reforms continuing to create challenges for international businesses.

Chile was the only Latin American market in the index to combine high investment attractiveness with low operational friction. It scored 56.8 for attractiveness and 23.5 for operational friction.

Only three of the ten markets examined combined high investment attractiveness with low operational friction. This suggests companies expanding in the Americas may often need to balance market potential against the cost and complexity of operating locally.

Reform pressure

Planned reforms between 2026 and 2030 are likely to reshape operating conditions across Latin America, with tax, labour and regulatory changes expected in several of the region's largest markets.

In Brazil, businesses are preparing for a transition to a dual VAT system. The study said the shift will require changes to invoicing, reporting and tax compliance processes.

Mexico is also facing labour changes through a phased reduction in the working week from 48 to 40 hours. The move will affect workforce planning and payroll, according to the report.

Elsewhere, Colombia's labour reforms and Argentina's labour modernisation and gradual easing of exchange controls were identified as developments likely to alter business conditions for companies operating across borders.

Some of these reforms are intended to simplify systems over time, but they may increase complexity in the short term as businesses adjust their structures, systems and internal processes.

Raimundo Diaz, President, Vistra Global Solutions Americas, said: "Latin America offers enormous opportunities for international businesses, but regulatory complexity varies hugely from market to market. Chile scores just 30 out of 100 for regulatory friction, while Ecuador tops 59. Businesses that understand these differences early can move faster and avoid costly surprises."

The index was commissioned by Vistra and compiled by Euromonitor International. It assessed ten markets using two measures: market attractiveness, covering factors including economic growth and investment potential, and operational friction, measuring challenges across regulation, tax, accounting and payroll.

Diaz added: "With Brazil overhauling its VAT system and Mexico reducing its working week, the next few years will bring real change across the region. Businesses that invest in the right local expertise and compliance structures now will be better placed to manage that change and take advantage of new opportunities as they emerge."