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Global ERPs: A Guide to International Compliance & Localization

Csaba Farkas Head of Accounting and Tax Consultancy, TMF Group

Doing business globally creates a range of challenges for companies. You need a sound go-to-market approach in each country, tailored products and services, and the obvious language skills. 

But the finance function is also implicated, with a range of tax and compliance hurdles to mount in any new market. Which makes your ERP setup so crucial. How can this essential business tool handle international rules and regulations, without breaking your internal processes? 

This article explores some of the key focal points and challenges with global ERP systems. We’ll see the critical considerations before you embark on this journey, and how to get the help you need to do it well. 

About TMF Group

TMF Group provides vital administrative services to corporate and private clients doing business internationally. Our 9,100 experts and 120 offices in 85 jurisdictions worldwide provide accounting, tax, payroll, fund administration, compliance and entity management services essential to global business success.

What is ERP localization?

ERP localization is the customization and configuration of ERP systems according to the local rules from market to market. Different countries have different requirements, most significantly (for finance teams) different accounting and tax challenges. 

When implementing an ERP system, local accounting and tax requirements must be considered and embedded in the systems and processes. So ERP localization is this process of tailoring the tool to meet your needs, based on the requirements in the countries and industries you serve.

Why is localization necessary?

In light of growing digitalization, corporate income tax and VAT are moving further upstream, closer to the taxable transactions themselves. Authorities are more dependent on data and analytics to enhance tax collection and reduce tax evasion.

Tax handling in companies’ ERP systems will therefore need to become compliant by design. 

The issues come from those different tax rules and requirements mentioned above. Your ERP needs to be compliant with local rules. This is something that IT specialists can’t do themselves – they need the support of ERP localization specialists that understand the requirements of each jurisdiction.

The global tax accounting and compliance picture is complicated, with rules and regulations often very localized. The Portuguese Tax Administration (PTA), for example, requires companies to exclusively use software programs that they’ve previously certified for issuing invoices and other relevant tax documents.

And that’s a relatively simple, black and white example. If you don’t have the knowledge in house to monitor local regulations and make changes where appropriate, things can get tricky. 

Who is this important for?

Any company operating in multiple countries - and using an ERP - will need some level of localization. In order to successfully implement/change an ERP system, the local rules have to be understood, considered and applied at the beginning of every ERP project, as they have a direct impact on the system set up. 

These can include requirements for a local chart of accounts, tax rates for indirect taxes (VAT, GST) or withholding taxes, invoicing obligations, storage requirements or tax filing processes. 

ERP localization helps you ensure:

  • Your company and its IT deployment partners clearly understand local rules in each country

  • That the country-specific requirements are captured and correctly implemented in the system 

  • That the processes are tested by experts before go-live date to ensure local compliance 

It’s an essential process. The real question is how robust and considered your approach will be.

What are the key challenges in installing a global ERP system?

Choosing and launching an ERP system is a huge topic for any finance team. More than half of companies surveyed consider ERP implementation an unsuccessful project after the fact. 

Localization adds another dimension, and one which involves extensive knowledge of other jurisdictions. ERP localization projects typically lead to headaches and long delays.

In our experience, there are five key reasons for these issues. 

1. Local requirements

To know these intimately and ensure your ERP is accurate is an obvious hurdle. More and more information is needed from the ERP system.

And in many cases, local authorities request data even before your tax returns are submitted. Which means you need that data to be available far sooner than you might have expected.

2. Company processes

Installing any important company software is always challenging. Companies with limited experience in change management or slow rollout procedures will struggle.

Businesses aren’t always clear on processes and business goals related to these projects. Sometimes they don’t even know that they will need to change processes and update systems. Very often business processes aren’t clearly defined or understood upfront, which causes issues, delays and headaches. 

Processes are the first area of focus, and companies sometimes overlook the importance of them in the ERP configuration exercise.

3. People

ERPs have a wide range of stakeholders, and getting everybody involved rowing in the same direction can be hard work. It’s very often unclear who should be involved in ERP localization projects and what skills are needed. 

Companies also may not have those people or skills internally and underestimate the need for experts. We always recommend you see expert advice for this kind of project.

ERP localization experts will:

  • Help in the identification of possible compliance issues 

  • Bring essential knowledge of both domestic and international rules, and how to embed these within ERP solutions

  • Help to deal with more complex cases, which could cause headaches if there is no internal knowledge

  • Translate local tax rules into instructions for ERP implementation companies

  • Find workaround solutions and assist with the testing and validation of ERP systems. This ensures the setup follows local requirements and best practices.

  • Document ERP taxation and accounting processes, and provide tax and accounting compliance training on the ERP systems to other company stakeholders

Most importantly, experts offer peace of mind for a project which can otherwise feel like an enormous burden. 

4. Costs and resources

This won’t come as any surprise to experienced CFOs, but long, complex projects always end up draining resources. Depending on the number of countries you localize for, there can be a significant time and money investment involved. 

There are significant differences between countries, and it takes time and experience to meet all these requirements. This makes being compliant in each new market costly.

5. Technology

In our experience, technical challenges are not usually a huge problem. But they can of course go wrong. The ERP technology itself is often complex, and it also requires data connections to the rest of your systems. Which adds even more complexity. 

IT implementation partners are usually needed for any update or upgrade to your ERP technology. But this must be made in cooperation with localization experts. 

Entities usually have one global ERP system. To make it work locally, you must know what functionalities are governed by local rules.

Some further important technology considerations:

  • How are the local rules are going to be addressed?

  • Can the global ERP do it? Or will you need APIs and additional tools to manage local requirements?

  • Are interfaces needed to communicate directly with different tax authorities without manual intervention?

  • Is a certification required of the ERP to be compliant in any markets?

Specific ERP features and functionalities to look for

There are a great number of ERP platforms available, with an equally large range of functions and features. 

ERP localization on an international scale requires a few very important features. 

  • Content storage: What content can be stored within the ERP system? Companies in APAC, for example, currently require physical, paper storage. In Spain, the storage requirements span between 4 and 8 years, which the ERP system should be capable of generating.

  • Types of information or data applied within the ERP system: The local accounting and tax rules should be configured appropriately in the ERP system, including VAT codes/rates, and accounting related matters. Should your chart of accounts or secondary ledger be maintained within the ERP system? Again, you have country-specific expectations. In France, entities submit a DAS 2 report to the government regarding all payments made to suppliers on an annual basis. In Germany, GDPDU requires companies to export data for all transactions and master data from a fiscal year from their ERP system.

  • Local certification requirements for ERPs: Some countries (such as Portugal) require the use of authorised ERP systems only.

How long does ERP localization take?

The answer here dependson the country and the specific local rules. To help, TMF has just published its GBCI report which gives an indication on the local complexities.

Usually if businesses have the appropriate knowledge, expertise, and the right people, the process takes a couple of weeks for one country. A large portion of this time (and a key focus) is training. Localization experts should hold training and workshops and also document processes appropriately. 

You’ll need walkthrough sessions with colleagues regarding the newly configured ERP systems. And in our experience, shadowing employees early on really helps. Shadowing involves skilled individuals who watch and give advice to colleagues who are new to the localized ERP system. 

Additional mentoring might even be needed as well. We don’t consider knowledge transfer to be complete until every user feels comfortable with the new system. This is extremely important.

In the end, it can take some time before a localization project is completed for one country and everyone is comfortable with the results. So while I suggested “a few weeks” above, I wouldn’t expect it to be fluid and natural within one month.

How to begin your localization project

As I hope is now clear, ERP localization is both complicated and intricate, full of hidden rules and pitfalls for the inexperienced. For this reason, we always recommend working with trusted professionals.

Global compliance is TMF Group’s specialty, and we’d be glad to discuss your business and make recommendations.

However you choose to proceed, remember that the process can be long, with training and shadowing vital steps in your rollout. But with professional help, you’ll have a compliant business in new markets in no time.