50524 Doing Business 2010 Kazakhstan © 2009 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, D.C. 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Additional copies of Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be purchased at www.doingbusiness.org ISBN: 978-0-8213-7961-5 E-ISBN: 978-0-8213-7965-3 DOI: 10.1596/978-0-8213-7961-5 ISSN: 1729-2638 Library of Congress Cataloging-in-Publishing Data has been applied for. Printed in the United States. Current features News on the Doing Business project www.doingbusiness.org Rankings How economies rank-from 1 to 183 www.doingbusiness.org/economyrankings Contents Reformers Short summaries of DB2010 reforms, lists of reformers since DB2004 Introduction 1 and a ranking simulation tool and Aggregate Rankings www.doingbusiness.org/reformers Starting a Business 5 Historical data Customized data sets since DB2004 Dealing with www.doingbusiness.org/customquery Construction Permits 10 Methodology and research Employing Workers 16 The methodologies and research papers underlying Doing Business www.doingbusiness.org/MethodologySurveys Registering Property 20 Getting Credit 25 Download reports Access to Doing Business reports as well as subnational and regional reports, reform case studies and customized country and regional Protecting Investors 29 profiles www.doingbusiness.org/downloads Paying Taxes 33 Subnational and regional projects Trading Across Borders 37 Differences in business regulations at the subnational and regional level Enforcing Contracts 41 www.doingbusiness.org/subnational Closing a Business 45 Law Library Online collection of business laws and regulations relating to Doing Business 2010 49 business and gender issues Reforms www.doingbusiness.org/lawlibrary www.doingbusiness.org/genderlawlibrary Local partners More than 8,000 specialists in 183 economies who participate in Doing Business www.doingbusiness.org/LocalPartners Reformers' Club Celebrating the top 10 Doing Business reformers www.doingbusiness.org/Reformers/ReformersClub.aspx Business Planet Interactive map on the ease of doing business http://www.doingbusiness.org/map Doing Business 2010: Reforming Through Difficult Times is the seventh in a series of annual reports investigating regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies, from Afghanistan to Zimbabwe, over time. A set of regulations affecting 10 stages of a business's life are measured: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. Data in Doing Business 2010: Reforming Through Difficult Times are current as of June 1, 2009*. The indicators are used to analyze economic outcomes and identify what reforms have worked, where, and why. The Doing Business methodology has limitations. Other areas important to business such as an economy's proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions, are not studied directly by Doing Business. To make the data comparable across economies, the indicators refer to a specific type of business, generally a local limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policymakers in designing reform. The data set covers 183 economies: 46 in Sub-Saharan Africa, 32 in Latin America and The Caribbean, 27 in Eastern Europe and Central Asia, 24 in East Asia and Pacific, 19 in the Middle East and North Africa and 8 in South Asia, as well as 27 OECD high-income economies as benchmarks. The following pages present the summary Doing Business indicators for Kazakhstan. The data used for this country profile come from the Doing Business database and are summarized in graphs. These graphs allow a comparison of the economies in each region not only with one another but also with the "good practice" economy for each indicator. The good-practice economies are identified by their position in each indicator as well as their overall ranking and by their capacity to provide good examples of business regulation to other countries. These good-practice economies do not necessarily rank number 1 in the topic or indicator, but they are in the top 10. More information is available in the full report. Doing Business 2010: Reforming Through Difficult Times presents the indicators, analyzes their relationship with economic outcomes and recommends reforms. The data, along with information on ordering the report, are available on the Doing Business website (www.doingbusiness.org). * Except for the Paying Taxes indicator that refers to the period January to December of 2008. Note: Doing Business 2008 and Doing Business 2009 data and rankings have been recalculated to reflect changes to the methodology and the addition of new countries (in the case of the rankings). 1 Economy Rankings - Ease of Doing Business Kazakhstan is ranked 63 out of 183 economies. Singapore is the top ranked economy in the Ease of Doing Business. Kazakhstan - Compared to global good practice economy as well as selected economies: Kazakhstan's ranking in Doing Business 2010 Rank Doing Business 2010 Ease of Doing Business 63 Starting a Business 82 Dealing with Construction Permits 143 Employing Workers 38 Registering Property 31 Getting Credit 43 Protecting Investors 57 Paying Taxes 52 Trading Across Borders 182 Enforcing Contracts 34 2 Closing a Business 54 Summary of Indicators - Kazakhstan Starting a Business Procedures (number) 7 Time (days) 20 Cost (% of income per capita) 4.8 Min. capital (% of income per capita) 13.4 Dealing with Construction Permits Procedures (number) 37 Time (days) 211 Cost (% of income per capita) 119.7 Employing Workers Difficulty of hiring index (0-100) 0 Rigidity of hours index (0-100) 20 Difficulty of redundancy index (0-10) 30 Rigidity of employment index (0-100) 17 Redundancy costs (weeks of salary) 9 Registering Property Procedures (number) 5 Time (days) 40 Cost (% of property value) 0.1 Getting Credit Strength of legal rights index (0-10) 5 Depth of credit information index (0-6) 6 Public registry coverage (% of adults) 0.0 Private bureau coverage (% of adults) 29.5 Protecting Investors Extent of disclosure index (0-10) 7 Extent of director liability index (0-10) 1 Ease of shareholder suits index (0-10) 9 Strength of investor protection index (0-10) 5.7 Paying Taxes Payments (number per year) 9 Time (hours per year) 271 Profit tax (%) 23.5 Labor tax and contributions (%) 9.6 Other taxes (%) 2.7 Total tax rate (% profit) 35.9 4 Trading Across Borders Documents to export (number) 11 Time to export (days) 89 Cost to export (US$ per container) 3005 Documents to import (number) 13 Time to import (days) 76 Cost to import (US$ per container) 3055 Enforcing Contracts Procedures (number) 38 Time (days) 390 Cost (% of claim) 22.0 Closing a Business Recovery rate (cents on the dollar) 40.6 Time (years) 1.5 Cost (% of estate) 15 When entrepreneurs draw up a business plan and try to get under way, the first hurdles they face are the procedures required to incorporate and register the new firm before they can legally operate. Economies differ greatly in how they regulate the entry of new businesses. In some the process is straightforward and affordable. In others the procedures are so burdensome that entrepreneurs may have to bribe officials to speed up the process or may decide to run their business informally. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices and fuel corruption. Methodology The data on starting a business is based on a survey and research investigating the procedures that a standard small to medium -size company needs to complete to start operations legally. This includes obtaining all necessary permits and licenses and completing all required inscriptions, verifications and notifications with authorities to enable the company to formally operate. Procedures are recorded only where interaction is required with an external party. It is assumed that the founders complete all procedures themselves unless professional services (such as by a notary or lawyer) are required by law. Voluntary procedures are not counted, nor are industry­specific requirements and utility hook-ups. Lawful shortcuts are counted. It is assumed that all in formation is readily available to the entrepreneur, that there has been no prior contact with officials and that all government and nongovernment entities involved in the process function without corruption. Survey Case Study The business: is a limited l iability company conducting general commercial activities is located in the largest business city is 100% domestically owned has a start-up capital of 10 times income per capita has a turnover of at least 100 times income per capita has between 10 and 50 employees does not qualify for any special benefits does not own real estate 5 1. Historical data: Starting a Business in Kazakhstan Starting a Business data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 79 82 Procedures (number) 8 8 7 Time (days) 21 21 20 Cost (% of income per capita) 7.6 5.2 4.8 Min. capital (% of income per capita) 22.9 15.9 13.4 2. The following graphs illustrates the Starting a Business indicators in Kazakhstan over the past 3 years: 6 3. Steps to Starting a Business in Kazakhstan It requires 7 procedures, takes 20 days, and costs 4.78 % GNI per capita to start a business in Kazakhstan. List of Procedures: 1. Notarize the company deed. 2. Open bank account and deposit initial capital; pay registration fee into the account of the Ministry of Justice 3. State registration of legal entity, statistical, and tax registration with the local department of Ministry of Justice 4. Make a company seal 5. Notarize certificate of state registration and other post-registration documents 6. Open the current account in the bank 7. Register for the obligatory insurance of life and health for employees More detail is included in the appendix. 7 4. Benchmarking Starting a Business Regulations: Kazakhstan is ranked 82 overall for Starting a Business. Ranking of Kazakhstan in Starting a Business - Compared to good practice and selected economies: 8 The following table shows Starting a Business data for Kazakhstan compared to good practice and comparator economies: Good Practice Procedures Time (days) Cost (% of Min. capital (number) income per (% of income Economies capita) per capita) Denmark* 0.0 New Zealand* 1 1 0.0 Selected Economy Kazakhstan 7 20 4.8 13.4 Comparator Economies Kyrgyz Republic 3 11 5.2 0.0 Moldova 8 10 7.0 11.4 Russian Federation 9 30 2.7 1.8 Tajikistan 12 25 24.3 9.9 Ukraine 10 27 5.8 153.5 * The following economies are also good practice economies for : Procedures (number): Canada Cost (% of income per capita): Slovenia 9 Once entrepreneurs have registered a business, what regulations do they face in operating it? To measure such regulation, Doing Business focuses on the construction sector. Construction companies are under constant pressure from government to comply with i nspections, with licensing and safety regulations, from customers to be quick and cost-effective. These conflicting pressures point to the tradeoff in building regulation; the tradeoff between protecting people (construction workers, tenants, passersby) and keeping the cost of building affordable. In many economies, especially poor ones, complying with building regulations is so costly in time and money that many builders opt out. Builders may pay bribes to pass inspections or simply build illegally, leadi ng to hazardous construction. Where the regulatory burden is large, entrepreneurs may tend to move their activity into the informal economy. There they operate with less concern for safety, leaving everyone worse off. In other economies compliance is simple, straightforward and inexpensive, yielding better results. Methodology The indicators on dealing with construction permits record all procedures officially required for an entrepreneur in the construction industry to build a warehouse. These include su bmitting project documents (building plans, site maps) to the authorities, obtaining all necessary licenses and permits, completing all required notifications and receiving all necessary inspections. They also include procedures for obtaining utility conne ctions, such as electricity, telephone, water and sewerage. The time and cost to complete each procedure under normal circumstances are calculated. All official fees associated with legally completing the procedures are included. Time is recorded in calendar days. The survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law. Survey Case Study The business: is a small to medium-size limited liabilit y company is located in the largest business city is domestically owned and operated, in the construction business has 20 qualified employees The warehouse to be built : is a new construction (there was no previous construction on the land) has complete architectural and technical plans prepared by a licensed architect will be connected to electricity, water, sewerage (sewage system, septic tank or their equivalent) and one land phone line. The connection to each utility network will be 32 feet, 10 inches ( 10 meters) long. will be used for general storage, such as of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals. will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). 10 1. Historical data: Dealing with Construction Permits in Kazakhstan Dealing with Construction Permits data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 177 143 Procedures (number) 38 38 37 Time (days) 231 231 211 Cost (% of income per capita) 2197.8 1431.8 119.7 2. The following graphs illustrates the Dealing with Construction Permits indicators in Kazakhstan over the past 3 years: 11 3. Steps to Building a Warehouse in Kazakhstan It requires 37 procedures, takes 211 days, and costs 119.74 % GNI per capita to build a warehouse in Kazakhstan. List of Procedures: 1. Request and obtain land allocation permit from Akim 10. Request and obtain approval from local fire department of Almaty City 11. Request and obtain approval from water authority 2. Request and obtain technical conditions from the water and sewage authority 12. Request and obtain approval from local Environmental Protection Authority 3. Request and obtain technical conditions from the telephone authority 13. Request and obtain opinion of the seismological agency on the project from Republican Enterprise 4. Request and obtain a technical conditions from the Kazakhstan Scientific Institute "Kaz NIISA" electricity authority 14. Request and obtain expert examination of project 5. Notarize documents documentation 6. Hire a topographic specialist and obtain topographic Request and obtain Project Clearance from the local 15. plan architecture and town-planning authorities 7. Request and obtain architectural planning Assignment Request and obtain Rendering Building and Assembly 16. (APZ) Jobs Permit from the State Architectural Supervision Receive on-site inspection Authorities 8. 17. Receive inspection by Sanitary and Epidemiology 9. Request and obtain project clearance from Sanitation Service - I and Epidemiological Authority (SES) 12 18. Receive inspection by the Fire Service - II 19. Receive inspection by the Social Protection - III 20. Receive an inspection by the Almaty City Department of Architecture and Town-Planning Control after foundation works-IV 21. Receive inspection by Almaty City Department of Architecture and Town-Planning Control after floor works - V 22. Receive inspection by Almaty City Department of Architecture and Town-Planning Control after roof works - VI 23. Hire Construction Technology Supervision Company 24. Request water connection 25. Receive inspection from water authorities 26. Connect to water services 27. Request electric power connection services 28. Receive on-site electricity inspection 29. Receive connection to electricity 30. Request and obtain telephone connection 31. Request acceptance of the building from Working Commission 32. Receive inspection by the Working Commission 33. Obtain Act from Working Commission 34. Request acceptance of the building from State Acceptance Commission 35. Receive inspection by the State Acceptance Commission 36. Obtain Akimat approval of State Acceptance Commission decision 37. Register BuildCo's right to the warehouse More detail is included in the appendix. 13 4. Benchmarking Dealing with Construction Permits Regulations: Kazakhstan is ranked 143 overall for Dealing with Construction Permits. Ranking of Kazakhstan in Dealing with Construction Permits - Compared to good practice and selected economies: 14 The following table shows Dealing with Construction Permits data for Kazakhstan compared to good practice and comparator economies: Good Practice Procedures Time (days) Cost (% of (number) income per Economies capita) Denmark 6 Qatar 0.6 Singapore 25 Selected Economy Kazakhstan 37 211 119.7 Comparator Economies Kyrgyz Republic 12 137 165.2 Moldova 30 292 120.5 Russian Federation 54 704 2140.7 Tajikistan 32 250 1022.9 Ukraine 30 476 1449.3 15 Economies worldwide have established a system of laws and institutions intended to protect workers and guarantee a minimum standard of living for its population. This system generally encompasses four bodies of law: employment, industrial relations, social security and occupational health and safety laws. Employment regulations are needed to allow efficient contracting between employers and workers and to protect workers from discriminatory or unfair treatment by employers. Doing Business measures flexibility in the regulation of hiring, working hours and dismissal in a manner consistent with the conventions of the International Labour Organization (ILO). An economy can have the most flexible labor regulations as measured by Doing Business while ratifying and complying with all conventions directly relevant to the factors measured by Doing Business and with the ILO core labor standards. No economy can achieve a better score by failing to comply with these conventions. Governments all over the world face the challenge of finding the right balance between worker protection and labor market flexibility. But in developing countries especially, regulators often err to one extreme, pushing employers and workers into the informal sector. Analysis across economies shows that while employment regulation generally increases the tenure and wages of incumbent workers, overly rigid regulations may have undesirable side effects. These include less job creation, smaller company size, less investment in research and develop ment, and longer spells of unemployment and thus the obsolescence of skills, all of which may reduce productivity growth. Methodology Two measures are presented: a rigidity of employment index and a redundancy cost measure. The rigidity of employment in dex is the average of three sub-indices: difficulty of hiring, rigidity of hours and difficulty of redundancy. Each index takes values between 0 and 100, with higher values indicating more rigid regulation. The difficulty of hiring index measures the flexi bility of contracts and the ratio of the minimum wage to the value added per worker. The rigidity of hours index covers restrictions on weekend and night work, requirements relating to working time and the workweek taking into account legal provisions that refer specifically to small to medium-size companies in the manufacturing industry in which continuous operation is economically necessary, as well as mandated days of annual leave with pay. The difficulty of redundancy index covers workers' legal protec tions against dismissal, including the grounds permitted for dismissal and procedures for dismissal (individual and collective): notification and approval requirements, retraining or reassignment obligations and priority rules for dismissals and reemployme nt. The Redundancy cost indicator measures the cost of advance notice requirements, severance payments and penalties due when terminating a redundant worker, expressed in weeks of salary. Survey Case Study The business: is a limited liability company o perating in the manufacturing sector is located in the largest business city is 100% domestically owned has 60 employees The company is also assumed to be subject to collective bargaining agreements in economies where such agreements cover more than half the manufacturing sector and apply even to firms not party to them. 16 1. Historical data: Employing Workers in Kazakhstan Employing Workers data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 33 38 Redundancy costs (weeks of salary) 9 9 9 Rigidity of employment index (0-100) 17 17 17 2. The following graphs illustrates the Employing Workers indicators in Kazakhstan over the past 3 years: 17 3. Benchmarking Employing Workers Regulations: Kazakhstan is ranked 38 overall for Employing Workers. Ranking of Kazakhstan in Employing Workers - Compared to good practice and selected economies: 18 The following table shows Employing Workers data for Kazakhstan compared to good practice and comparator economies: Good Practice Rigidity of Redundancy employment costs (weeks Economies index (0-100) of salary) Hong Kong, China* 0 New Zealand* 0 Selected Economy Kazakhstan 17 9 Comparator Economies Kyrgyz Republic 18 17 Moldova 41 37 Russian Federation 38 17 Tajikistan 49 30 Ukraine 31 13 * The following economies are also good practice economies for : Rigidity of employment index (0-100): Australia, Brunei Darussalam, Kuwait, Marshall Islands, Singapore, St. Lucia, Uganda, United States Redundancy costs (weeks of salary): Denmark, Iraq, Marshall Islands, Micronesia, Fed. Sts., Palau, Puerto Rico, Tonga, United States 19 Formal property titles help promote the transfer of land, encourage investment and give entrepreneurs access to formal credit markets. But a large share of property in developing economies is not formally registered. Informal titles cannot be used as secur ity in obtaining loans, which limits financing opportunities for businesses. Many governments have recognized this and started extensive property titling programs. But bringing assets into the formal sector is only part of the story. The more difficult and costly it is to formally transfer property, the greater the chances that formalized titles will quickly become informal again. Eliminating unnecessary obstacles to registering and transferring property is therefore important for economic development. Efficient property registration reduces transaction costs and helps to formalize property titles. Simple procedures to register property are also associated with greater perceived security of property rights and less corruption. That s, benefits all entrepreneur especially women, the young and the poor. The rich have few problems protecting their property rights. They can afford to invest in security systems and other measures to defend their property. But small entrepreneurs cannot. Reform can change this. Methodology Doing Business records the full sequence of procedures necessary for a business (buyer) to purchase a property from another business (seller) and to transfer the property title to the buyer's name. The property of land and building will be tran sferred in its entirety. The transaction is considered complete when the buyer can use the property as collateral for a bank loan. Local property lawyers and officials in property registries provide information on required procedures as well as the time and cost to complete each one. For most economies the data are based on responses from both. Based on the responses, three indicators are constructed: number of procedures to register property time to register property (in calendar days) official costs to register property (as a percentage of the property value) Survey Case Study The buyer and seller: are limited liability companies are private nationals (no foreign ownership) are located in periurban area of the largest business city conduct general commercial activities The property: consists of land and a 2 -story building (warehouse) is located in the periurban commercial zone of the largest business city The land area is 557.4 m 2 (6,000 square feet). The warehouse has a total area of 929 m2 (10,000 square feet). has a value equal to 50 times income per capita The seller company owned the property for the last 10 years. is registered in the land registry and/or cadastre and is free of all disputes . 20 1. Historical data: Registering Property in Kazakhstan Registering Property data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 26 31 Procedures (number) 8 5 5 Time (days) 52 40 40 Cost (% of property value) 0.9 0.1 0.1 2. The following graphs illustrates the Registering Property indicators in Kazakhstan over the past 3 years: 21 3. Steps to Registering Property in Kazakhstan It requires 5 procedures, takes 40 days, and costs 0.06 % of property value to register the property in Kazakhstan. List of Procedures: 1. Obtain a non-encumbrance certificate 2. Obtain a technical passport of the property 3. Notarization of seller's and buyer's incorporation documents and the sale-purchase agreement 4. The buyer applies to the Public Service Center to register the property 5. Registration of the title at the Registration Service Committee More detail is included in the appendix. 22 4. Benchmarking Registering Property Regulations: Kazakhstan is ranked 31 overall for Registering Property. Ranking of Kazakhstan in Registering Property - Compared to good practice and selected economies: 23 The following table shows Registering Property data for Kazakhstan compared to good practice and comparator economies: Good Practice Procedures Time (days) Cost (% of (number) property Economies value) New Zealand* 2 Norway* 1 Saudi Arabia 0.0 Selected Economy Kazakhstan 5 40 0.1 Comparator Economies Kyrgyz Republic 4 5 2.8 Moldova 5 5 0.9 Russian Federation 6 43 0.1 Tajikistan 6 37 4.6 Ukraine 10 93 2.6 * The following economies are also good practice economies for : Procedures (number): United Arab Emirates Time (days): Saudi Arabia, Thailand, United Arab Emirates 24 Firms consistently rate access to credit as among the greatest barriers to their operation and growth. Doing Business constructs two sets of indicators of how well credit markets function: one on credit registries and the other on legal rights of borrowers and lenders. Credit registries, institutions that collect and distribute credit information on borrowers, can greatly expand access to credit. By sharing credit information, they help lenders assess risk and allocate credit more efficiently. They also free entrepreneurs from having to rely on personal connections alone when trying to obtain credit. Methodology Credit information: three indicators are constructed: depth of credit information index, which measures the extent to which the rules of a credit information system facilitate lending based on the scope of information distributed, the ease of access to information and the quality of information public registry coverage, which reports the number of individuals and firms covered by a public credit re gistry as a percentage of the adult population private bureau coverage, which reports the number of individuals and firms, covered by a private credit bureau as a percentage of the adult population Legal Rights: the strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders. Ten points are analyzed: Can a business use movable assets as collateral while keeping possession of the assets, and can any financial institution accept such assets as collateral? Does the law allow a business to grant a non -possessory security right in a single category of revolving movable assets, without requiring a specific description of the secured assets? Does the law allow a business to grant a non pos sessory security right in substantially all of its assets, without requiring a specific description of the secured assets? Can a security right extend to future or after -acquired assets and extend automatically to the products, proceeds or replacements of the original assets? Is general description of debts and obligations permitted in collateral agreements and in registration documents, so that all types of obligations and debts can be secured by stating a maximum rather than a specific amount between the parties? Is a collateral registry in operation that is unified geographically and by asset type as well as being indexed by the name of the grantor of a security right? Are secured creditors paid first when a debtor defaults outside an insolvency procedure or when a business is liquidated? Are secured creditors subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure? Are parties allowed to agree in a collateral agreement that the lender may enforce its security right out of court? Legal Rights Survey Case Study The Debtor: is a Private Limited Liability Company has its headquarters and only base of operations in the largest business city obtains a loan from a local bank (the Cred itor) for an amount up to 10 times income (GNI) per capita Both debtor and creditor are 100% domestically owned. 25 1. Historical data: Getting Credit in Kazakhstan Getting Credit data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 41 43 Strength of legal rights index (0-10) 5 5 5 Depth of credit information index (0-6) 4 6 6 Private bureau coverage (% of adults) 0.0 25.6 29.5 Public registry coverage (% of adults) 13.7 0.0 0.0 2. The following graphs illustrates the Getting Credit indicators in Kazakhstan over the past 3 years: 26 3. Benchmarking Getting Credit Regulations: Kazakhstan is ranked 43 overall for Getting Credit. Ranking of Kazakhstan in Getting Credit - Compared to good practice and selected economies: 27 The following table shows Getting Credit data for Kazakhstan compared to good practice and comparator economies: Good Practice Strength of Depth of Public Private legal rights credit registry bureau Economies index (0-10) information coverage (% coverage (% index (0-6) of adults) of adults) New Zealand* 100.0 Portugal 81.3 Singapore* 10 United Kingdom 6 Selected Economy Kazakhstan 5 6 0.0 29.5 Comparator Economies Kyrgyz Republic 10 3 0.0 5.9 Moldova 8 0 0.0 0.0 Russian Federation 3 5 0.0 14.3 Tajikistan 3 0 0.0 0.0 Ukraine 9 3 0.0 3.0 * The following economies are also good practice economies for : Strength of legal rights index (0-10): Hong Kong, China, Kenya, Kyrgyz Republic, Malaysia Private bureau coverage (% of adults): Argentina, Australia, Canada, Iceland, Ireland, Norway, Sweden, United Kingdom, United States 27 countries have the highest credit information index. 28 Companies grow by raising capital, either through a bank loan or by attracting equity investors. Selling shares allows companies to expand without the need to provide collateral and repay bank loans. However, investors worry about their money, and look for laws that protect them. A study finds that the presence of legal and regulatory protections for investors explains up to 73% of the decision to invest. In contrast, company characteristics explain only between 4% and 22%*. Good protections for minority sh areholders are associated with larger and more active stock markets. Thus both governments and businesses have an interest in reforms strengthening investor protections. Methodology To document some of the protections investors have, Doing Business mea sures how economies regulate a standard case of self- dealing, use of corporate assets for personal gain. Three indices of investor protection are constructed based on the answers to these and other questions. All indices range from 0 to 10, with higher values indicating more protections or greater disclosure. The three indices are: The extent of disclosure index covers approval procedures, requirements for immediate disclosure to the public and shareholders of proposed transactions, requirements for disclosure in periodic filings and reports and the availability of external review of transactions before they take place. The extent of director liability index covers the ability of investors to hold Mr. James and the board of directors liable for damages, the ability to rescind the transaction, the availability of fines and jail time associated with self -dealing, the availability of direct or derivative suits and the ability to require Mr. James to pay back his personal profits from the transaction. The ease of shareholder suits index covers the availability of documents that can be used during trial, the ability of the investor to examine the defendant and other witnesses, shareholders' access to internal documents of the company, the appointment of an inspect or to investigate the transaction and the standard of proof applicable to a civil suit against the directors. These three indices are averaged to create the strength of investor protection index. Survey case study Mr. James, a director and the majority shareholder of a public company, proposes that the company purchase used trucks from another company he owns. The price is higher than the going price for used trucks. The transaction goes forward. All required approvals are obtained, and all required disclosures made, though the transaction is prejudicial to the purchasing company. Shareholders sue the interested parties and the members of the board of directors. Several questions arise: Who approves the transaction? What information must be disclosed ? What company documents can investors access? What do minority shareholders have to prove to get the transaction stopped or to receive compensation from Mr. James? *Doidge, Kardyi and Stulz (2007) 29 1. Historical data: Protecting Investors in Kazakhstan Protecting Investors data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 53 57 Strength of investor protection index (0-10) 5.7 5.7 5.7 2. The following graph illustrates the Protecting Investors index in Kazakhstan compared to best practice and selected Economies: 9.7 7.7 5.7 5.3 5.0 4.7 4.7 n an ta nd ub z ne a ep rgy ov hs ist ra n ai lic a de sia n ak d jik al kr y tio ol Fe us Ze K az Ta U M R K ew R N Note: The higher the score, the greater the investor protection. 30 3. Benchmarking Protecting Investors Regulations: Kazakhstan is ranked 57 overall for Protecting Investors. Ranking of Kazakhstan in Protecting Investors - Compared to good practice and selected economies: 31 The following table shows Protecting Investors data for Kazakhstan compared to good practice and comparator economies: Good Practice Strength of investor Economies protection index (0-10) New Zealand 9.7 Selected Economy Kazakhstan 5.7 Comparator Economies Kyrgyz Republic 7.7 Moldova 4.7 Russian Federation 5.0 Tajikistan 5.3 Ukraine 4.7 32 Taxes are essential. Without them there would be no money to provide public amenities, infrastructure and services which are crucial for a properly functioning economy. But particularly for small and medium size companies, they may opt out and choose to op erate in the informal sector. One way to enhance tax compliance is to ease and simplify the process of paying taxes for such businesses. Methodology The Doing Business tax survey records the effective tax that a small and medium company must pay and the administrative costs of doing so. Three indicators are constructed: number of tax payments, which takes into account the method of payment, the frequency of payments and the number of agencies involved in our standardized case study. time, which measures the number of hours per year necessary to prepare and file tax returns and to pay the corporate income tax, value added tax, sales tax or goods and service tax and labor taxes and mandatory contributions. total tax rate, which measures the amount of taxes and mandatory contributions payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. Survey case study TaxpayerCo is a medium-size business that started operations last year. Doing Business asks tax practitioners in 183 economies to review TaxpayerCo's financial statements and a standard list of transactions that the company completed during the year. Respondents are asked how much in taxes and mandatory contributions the business must pay and what the process is for doing so. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government and include corporate income tax, turnover tax, all labor taxes and contributions paid by the company (including mandatory contrib utions paid to private pension or insurance funds), property tax, property transfer tax, dividend tax, capital gains tax, financial transactions tax, vehicle tax, sales tax and other small taxes (such as fuel tax, stamp duty and local taxes). A range of standard deductions and exemptions are also recorded. 33 1. Historical data: Paying Taxes in Kazakhstan Paying Taxes data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 61 52 Total tax rate (% profit) 41.6 41.7 35.9 Payments (number per year) 9 9 9 Time (hours per year) 271 271 271 2. The following graphs illustrates the Paying Taxes indicators in Kazakhstan over the past 3 years: 34 3. Benchmarking Paying Taxes Regulations: Kazakhstan is ranked 52 overall for Paying Taxes. Ranking of Kazakhstan in Paying Taxes - Compared to good practice and selected economies: 35 The following table shows Paying Taxes data for Kazakhstan compared to good practice and comparator economies: Good Practice Payments Time (hours Total tax rate (number per per year) (% profit) Economies year) Maldives* 1 0 Timor-Leste 0.2 Selected Economy Kazakhstan 9 271 35.9 Comparator Economies Kyrgyz Republic 75 202 59.4 Moldova 48 228 31.1 Russian Federation 11 320 48.3 Tajikistan 54 224 85.9 Ukraine 147 736 57.2 * The following economies are also good practice economies for : Payments (number per year): Qatar 36 The benefits of trade are well documented; as are the obstacles to trade. Tariffs, quotas and distance from large markets greatly increase the cost of goods or prevent trading altogether. But with bigger ships and faster planes, the world is shrinking. Glo bal and regional trade agreements have reduced trade barriers. Yet Africa's share of global trade is smaller today than it was 25 years ago. So is the Middle East's, excluding oil exports. Many entrepreneurs face numerous hurdles to exporting or importing goods, including delays at the border. They often give up. Others never try. In fact, the potential gains from trade facilitation may be greater than those arising from only tariff reductions. Methodology Doing Business compiles procedural requirements for trading a standard shipment of goods by ocean transport. Every procedure and the associated documents, time and cost, for importing and exporting the goods is recorded, starting with the contractual agreement between the two parties and ending with delivery of the goods. For importing the goods, the procedures measured range from the vessel's arrival at the port of entry to the shipment's delivery at the importer's warehouse. For exporting the goods, the procedures measured range from the packing of thegoods at the factory to their departure from the port of exit. Payment is by letter of credit and the time and cost for issuing or securing a letter of credit is taken into account. Documents recorded include port filing documents, customs declaration and clearance documents, as well as official documents exchanged between the parties to the transaction. Time is recorded in calendar days, from the beginning to the end of each procedure. Cost includes the fees levied on a 20 -foot container in U.S. dollars . All the fees associated with completing the procedures to export or import the goods are included, such as costs for documents, administrative fees for customs clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or duties. Economies that have efficient customs, good transport networks and fewer document requirements, making compliance with export and import procedures faster and cheaper, are more competitive globally. That can lead to more exports; and exports are associated with faster growth and more jobs. Conversely, a need to file many documents is associated with more corruption in customs. Faced with long delays and frequent demands for bribes, many traders may avoid customs altogether. Instead, they smuggle goods across the border. This defeats the very purpose in having border control of trade to levy taxes and ensure high quality of goods. Survey case study To make the data comparable across countries, several assumptions about the business and the traded goods are used: The business is of medium size . The business employs 60 people . The business is located in the peri-urban area of the economy'slargest business city . The business is a private, limited liability company, dom estically owned, formally registered and operating under commercial laws and regulations of the economy. The traded goods are ordinary, legally manufactured products transported in a dry-cargo, 20-foot FCL (full container load) container. 37 1. Historical data: Trading Across Borders in Kazakhstan Trading Across Borders data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 182 182 Cost to export (US$ per container) 2730 3005 3005 Cost to import (US$ per container) 2780 3055 3055 Documents to export (number) 11 11 11 Documents to import (number) 13 13 13 Time to export (days) 89 89 89 Time to import (days) 76 76 76 2. The following graphs illustrates the Trading Across Borders indicators in Kazakhstan over the past 3 years: 38 3. Benchmarking Trading Across Borders Regulations: Kazakhstan is ranked 182 overall for Trading Across Borders. Ranking of Kazakhstan in Trading Across Borders - Compared to good practice and selected economies: 39 The following table shows Trading Across Borders data for Kazakhstan compared to good practice and comparator economies: Good Practice Documents to Time to Cost to Documents to Time to Cost to export export (days) export (US$ import import (days) import (US$ Economies (number) per (number) per container) container) Denmark* 5 France 2 2 Malaysia 450 Singapore 3 439 Selected Economy Kazakhstan 11 89 3005 13 76 3055 Comparator Economies Kyrgyz Republic 7 63 3000 7 72 3250 Moldova 6 32 1815 7 35 1945 Russian Federation 8 36 1850 13 36 1850 Tajikistan 10 82 3150 10 83 4550 Ukraine 6 31 1230 10 36 1430 * The following economies are also good practice economies for : Time to export (days): Estonia 40 Where contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers. Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step -by- step evolution of a commercial sale dispute before local courts. The data is collected through study of the codes of civil procedure and other court regulations as well as through surveys completed by local litigation lawyers (and, in a quarter of the countries, by judges as well). Justice delayed is often justice denied. And in many economies only the rich can afford to go to court. For the rest, justice is out of reach. In the absence of efficient courts, firms undertake fewer investments or business transactions. And they prefer to involve only a small group of people who know each other from previous dealings. Methodology Rankings on enforcing contracts are based on 3 sub-indicators: number of procedures, which are defined as any interaction between the parties or between them and the judge or court officer. This includes steps to file the case, steps for trial and judgment and steps necessary to enforce the judgment. time, which counts the number of calendar days from the moment the Seller files the lawsuit in court until payme nt is received. This includes both the days on which actions take place and the waiting periods in between. cost, which is recorded as a percentage of the claim (assumed to be equivalent to 200% of income per capita). Three types of costs are recorded: court costs (including expert fees), enforcement costs (including costs for a public sale of Buyer's assets) and attorney fees. Survey case Study The dispute concerns a contract for the sale of goods between two businesses (the Seller and the Buyer). Both are located in the economy's largest business city. The Seller sells and delivers goods, worth 200% of the economy's income per capita, to the Buyer. The Buyer refuses to pay on the grounds that they were not of adequate quality. The Seller sues the Buyer to recover the amount under the sales agreement (200% of the economy's income per capita). The claim is filed before a court in the economy's largest business city with jurisdiction over commercial cases worth 200% of the income per capita and is disputed on the merits. Judgment is 100% in favor of the Seller and is not appealed. The Seller enforces the judgment and the money is successfully collected through a public sale of Buyer's assets. 41 1. Historical data: Enforcing Contracts in Kazakhstan Enforcing Contracts data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 37 34 Procedures (number) 38 38 38 Time (days) 390 390 390 Cost (% of claim) 22.0 22.0 22.0 2. The following graphs illustrates the Enforcing Contracts indicators in Kazakhstan over the past 3 years: 42 3. Benchmarking Enforcing Contracts Regulations: Kazakhstan is ranked 34 overall for Enforcing Contracts. Ranking of Kazakhstan in Enforcing Contracts - Compared to good practice and selected economies: 43 The following table shows Enforcing Contracts data for Kazakhstan compared to good practice and comparator economies: Good Practice Procedures Time (days) Cost (% of (number) claim) Economies Bhutan 0.1 Ireland 20 Singapore 150 Selected Economy Kazakhstan 38 390 22.0 Comparator Economies Kyrgyz Republic 39 260 29.0 Moldova 31 365 20.9 Russian Federation 37 281 13.4 Tajikistan 34 430 25.5 Ukraine 30 345 41.5 44 The economic crises of the 1990s in emerging markets, from East Asia to Latin America, from Russia to Mexico, raised concerns about the design of bankruptcy systems and the ability of such systems to help reorganize viable companies and close down unviable ones. In countries where bankruptcy is inefficient, unviable businesses linger for years, keeping assets and human capital from being reallocated to more productive uses. Bottlenecks in bankruptcy cut into the amount claimants can recover. In countries w here bankruptcy laws are inefficient, this is a strong deterrent to investment. Access to credit shrinks, and nonperforming loans and financial risk grow because creditors cannot recover overdue loans. Conversely, efficient bankruptcy laws can encourage entrepreneurs. The freedom to fail, and to do so through an efficient process, puts people and capital to their most effective use. The result is more productive businesses and more jobs. The Doing Business indicators identify weaknesses in the bankruptcy l aw as well as the main procedural and administrative bottlenecks in the bankruptcy process. In many developing countries bankruptcy is so inefficient that creditors hardly ever use it. In countries such as these, reform would best focus on improving contra ct enforcement outside bankruptcy. Methodology Three measures are constructed from the survey responses: the time to go through the insolvency process, the cost to go through the process and the recovery rate, how much of the insolvency estate is recovered by stakeholders, taking into account the time, cost, depreciation of assets and the outcome of the insolvency proceeding. Survey case study The data on closing a business are developed using a standard s et of case assumptions to track a company going through the step -by- step procedures of the bankruptcy process. It is assumed that: the company is a domestically owned the company is a limited liability corporation operating a hotel in the country's largest business city the company has 201 employees, 1 main secured creditor and 50 unsecured creditors Assumptions are also made about the future cash flows. The case is designed so that the company has a higher value as a going concern, that is, the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. The data are derived from questionnaires answered by attorneys at private law firms. 45 1. Historical data: Closing Business in Kazakhstan Closing a Business data Doing Business 2008 Doing Business 2009 Doing Business 2010 Rank .. 54 54 Time (years) 1.5 1.5 1.5 Cost (% of estate) 15 15 15 Recovery rate (cents on the dollar) 39.1 40.6 40.6 2. The following graphs illustrates the Closing Business indicators in Kazakhstan over the past 3 years: 46 3. Benchmarking Closing Business Regulations: Kazakhstan is ranked 54 overall for Closing a Business. Ranking of Kazakhstan in Closing Business - Compared to good practice and selected economies: 47 The following table shows Closing Business data for Kazakhstan compared to good practice and comparator economies: Good Practice Recovery rate Time (years) Cost (% of (cents on the estate) Economies dollar) Ireland 0.4 Japan 92.5 Singapore* 1 Selected Economy Kazakhstan 40.6 1.5 15 Comparator Economies Kyrgyz Republic 14.2 4.0 15 Moldova 28.6 2.8 9 Russian Federation 28.2 3.8 9 Tajikistan 25.4 3.0 9 Ukraine 9.1 2.9 42 * The following economies are also good practice economies for : Cost (% of estate): Colombia, Kuwait, Norway 48 Number of reforms in Doing Business 2010 Dealing with Construction Trading Across Borders Positive Reform Registering Property Enforcing Contracts Employing Workers Protecting Investors Starting a Business Closing a Business Negative Reform Total Getting Credit Paying Taxes number Permits of Rank reforms Economy 1 Rwanda 7 2 Kyrgyz Republic 7 3 Macedonia, FYR 7 4 Belarus 6 5 United Arab Emirates 3 6 Moldova 3 7 Colombia 8 8 Tajikistan 5 9 Egypt, Arab Rep. 4 10 Liberia 3 Kazakhstan 3 Ukraine 1 Russian Federation 3 Note: Economies are ranked on the number and impact of reforms, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in Ease of Doing Business from the previous year. The larger the improvement, the higher the ranking as a reformer. 49 Belarus Belarus eased the process for getting construction permits by simplifying approval processes. Restrictions relating to redundancy dismissals were eased by raising the threshold for prior notification requirements. Tax payments were made more convenient through increased use of electronic systems--reducing tax compliance times--while lower ecological and turnover tax rates and a reduction in the number of payments for property tax reduced the tax burden on businesses. Property registration continues to improve, with faster processing and elimination of the requirement for notarization. Business start-up was eased by simplifying registration formalities, abolishing the minimum capital requirement, limiting the role of notaries, and removing the need for a company seal approval. Implementation of a risk-based management system and improvement of border crossing operations reduced transit times for trade. Colombia Colombia passed several decrees continuing its efforts to regulate the profession of insolvency administrators. The government eased the construction permit process with a new construction decree that categorizes building projects based on risk and allows electronic verification for certain documents. Access to credit improved thanks to a new credit information law that guarantees the right of borrowers to inspect their own data and new rules that make it mandatory for credit providers to consult and share information with credit bureaus. The tax burden on businesses was eased with the introduction of electronic tax filing and payment, and some payments were reduced. An amendment to the Company Law strengthened investor protections by making it easier to sue directors in cases of prejudicial transactions between interested parties. Property registration was made easier by making it possible to obtain required certificates online and by making standard preliminary sale agreements available free of charge. Business start-up was made easier by creating a public-private health provider that enables faster affiliation of employees and through a tool that allows online pre-enrollment with the social security office. Implementation of an electronic declaration system has expedited customs clearance. Egypt, Arab Rep. The Arab Republic of Egypt, a former global leading reformer and a regional leading reformer in 2008/09, continued to make it easier to deal with construction permits by issuing executive articles for the 2008 construction law and eliminating most preapprovals for construction permits. Contract enforcement was expedited with the creation of commercial courts. Access to credit information has expanded with the addition of retailers to the database of the private credit bureau. Finally, company start-up was eased by the removal of the minimum capital requirement. Kazakhstan Kazakhstan has eased the process for getting construction permits by eliminating the requirement to pay for new electrical connection, reducing time limits for building permits, and lowering the cost of topographic surveys. The tax burden on companies was eased by lowering the social tax for 2008 and the corporate income tax for 2009 (from 30 percent to 10 percent). Business start-up was made easier by simplifying documentation requirements and abolishing the requirement to register at the local tax office. Kyrgyz Republic The Kyrgyz Republic eased the process for getting construction permits by streamlining the fee structure, introducing a risk-based system of approval and building control, allowing low-risk projects to conduct an internal building control process, and simplifying the process for obtaining utility connections. Requirements relating to redundancy dismissals and worker reassignment were eased. Access to credit was enhanced by making secured lending more flexible and allowing general descriptions of encumbered assets and of debts and obligations. In addition, amendments to the Civil Code provide for automatic extension of security rights to proceeds of the original assets. The tax burden on businesses was eased by reducing the rates for several taxes and the number of payments for several. Surveying and notarization requirements were made optional for property registration, and business start-up was eased by eliminating the minimum capital requirement, reducing the registration time, and abolishing various post-registration fees and the need to open a bank account before registration. The elimination of six previously required documents and the simplification of inspection procedures has sped up trading across borders. Liberia Liberia eased the process for getting construction permits by lowering the permit fee and cost of obtaining a power generator, abolishing the requirement to obtain a tax waiver certificate before submitting documents to obtain a building permit, and making fixed telephone connections more readily available for public use with the reopening of the national phone company. Business start-up was eased by removing the need to obtain an environmental impact assessment when forming a general trading company. The trade process was expedited by creating a one-stop shop bringing together various ministries and agencies, and streamlining the inspection regime. 50 Macedonia, FYR The Former Yugoslav Republic of Macedonia has been reforming the construction permit process, shortening waiting times but raising fees. Worker hiring was made more flexible by allowing greater use of fixed-term contracts, easing restrictions on working hours, and making redundancy dismissals more flexible. The public credit bureau increased its coverage by introducing a better database that includes more information and by lowering the minimum loan threshold. Social security payments were classified in five groups, and social security contribution rates reduced. Investor protections were increased by regulating the approval of transactions between interested parties, increasing disclosure requirements in annual reports, and making it easier to sue directors in cases of prejudicial transactions between interested parties. Property registration was eased with the introduction of new time limits at the real estate cadastre--reducing the average time to register a title deed by eight days--and a non-encumbrance certificate can now be obtained from the real estate registry instead of through the court. Business start-up was simplified by integrating procedures at a one-stop shop. Moldova Moldova lowered the rates for social security contributions paid by employers. Property registration was simplified by eliminating the requirement for a cadastral sketch, reducing procedures from six to five and days from 48 to 5. Business start-up was eased by implementing an expedited company registration service. Russian Federation The Russian Federation introduced several changes to its insolvency law to speed up liquidation and strengthen the legal status of secured creditors. The corporate income tax rate was cut from 24 percent to 20 percent. Property registration was expedited by introducing new documentation requirements--such as cadastral passports--in lieu of inventory documents and cadastral maps. Rwanda Rwanda improved the process for dealing with distressed companies with a new law aimed at streamlining reorganization. Employing workers was made easier by abolishing the maximum duration for fixed-term contracts and allowing unlimited renewals of such contracts, as well as by allowing redundancy procedures to be more flexible, with consultation and notification of third parties no longer required. Getting credit was made easier with a new secured transactions act and insolvency act to make secured lending more flexible, allowing a wider range of assets to be used as collateral and a general description of debts and obligations. In addition, out of court enforcement of collateral has become available to secured creditors, who also now have top priority within bankruptcy. A new company law has strengthened investor protections by requiring greater corporate disclosure, director liability, and shareholder access to information. Property registration was simplified by decreasing the number of days required to transfer a property. Business start-up was eased by eliminating a notarization requirement; introducing standardized memorandums of association; enabling online publication; consolidating name checking, registration fee payment, tax registration, and company registration procedures; and shortening the time required to process completed applications. By implementing administrative changes--such as increased operating hours and enhanced cooperation at the border, along with the removal of some documentation requirements for importers and exporters--Rwanda has improved trading times. Tajikistan Tajikistan amended its insolvency law, aiming to reduce statutory time limits and the costs of proceedings. Changes were introduced that simplified the construction permit process, reducing procedures and time. A new law on credit histories improves access to credit information by creating a private credit bureau. Investor protections were strengthened with amendments to the joint stock company law, increasing disclosure requirements for transactions involving conflicts of interest, allowing for greater director liability, and giving shareholders the chance to request that harmful related-party transactions be rescinded. The state duty for property transfer has quadrupled, raising the cost of registering property by 2.8 percent of a property's value. Business start-up was eased by reducing the minimum capital requirement and shortening the time to obtain a tax identification number. Ukraine Ukraine enhanced investor protections by adopting a new law on joint stock companies that regulates approval of transactions between interested parties, increases disclosure requirements in annual reports, and makes it easier to sue directors in cases of prejudicial transactions between interested parties. United Arab Emirates The United Arab Emirates shortened the time for delivering building permits by improving its online system for processing applications. Business start-up was eased by simplifying the documents needed for registration, abolishing the minimum capital requirement, and removing the requirement that proof of deposit of capital be shown for registration. Greater capacity at the container terminal, elimination of the terminal handling receipt as a required document, and an increase in trade finance products, have improved trade processes. 51 APPENDICES Starting a Business in Kazakhstan This table summarizes the procedures and costs associated with setting up a business in Kazakhstan. STANDARDIZED COMPANY Legal Form: Private Limited Liability Company Minimum Capital Requirement: City: Almaty Registration Requirements: No: Procedure Time to complete Cost to complete 1 Notarize the company deed. 1 2 Open bank account and deposit initial capital; pay registration fee into 1 the account of the Ministry of Justice 3 State registration of legal entity, statistical, and tax registration with 14 2280 the local department of Ministry of Justice 4 Make a company seal 1 3250 5 Notarize certificate of state registration and other post-registration 1 documents 6 Open the current account in the bank 1 0 7 Register for the obligatory insurance of life and health for employees 1 0 52 Procedure 1 Notarize the company deed. Time to complete: 1 Cost to complete: Comment: One document (i.e., the charter) has to be submitted to the Ministry of Justice. It is to be executed in 4 sets - each in Kazakh and Russian language - 3 sets are to be filed with the Ministry of Justice, and the 4th is to be kept by a notary. The Foundation Agreement must be executed in 6 sets - 1 per founder plus 1 set for the notary, also in Kazakh and Russian languages. At the moment, the laws of Kazakhstan do not require filing of the Foundation Agreement with the Ministry of Justice. However, the company must still have it in its files duly executed and notarized. In accordance with the article of the Tax Code (January 1, 2009) 536 (16), the state notary fee for shareholder's signature notarization shall be 10% of the MCI for each document. Every year the MCI is changing. In this year 1 MCI is KZT 1273 According to the official fee schedule for notary certification under the Tax Code Article 497 : Fee schedule for notary certification: - Charter: Under the Tax Code Article 497(15), the notary fee for founder's signature certification shall be 10% of the MCI for each signature (e.g., 10%* MCI x 5 founders' signatures x 3 original copies). - Foundation Agreement: Under the Tax Code Article 497(4), the notary fee for certification of the foundation agreement shall be 500% of the MCI for each original copy of the foundation agreement (e.g., 500%* MCI x 5 founders' signatures x 1 original copy for each founder). Procedure 2 Open bank account and deposit initial capital; pay registration fee into the account of the Ministry of Justice Time to complete: 1 Cost to complete: Comment: Founders must pay at least 25% of charter capital prior to state registration with the local branch offices of the Ministry of Justice. However, this preregistration contribution must not be less than the minimal amount of charter capital. The minimal amount is 100 times the MCI (KZT 105,000). Minimal initial capital must be paid before the date of a state registration. The entire charter capital must be paid within the term established by the general meeting of founders, but no later a year from state registration of the company. Although the law requires this procedure, the local department of justice does not require confirmation of payment of the initial charter capital. Procedure 3 State registration of legal entity, statistical, and tax registration with the local department of Ministry of Justice Time to complete: 14 Cost to complete: 2280 Comment: In accordance with the amendments to the Law on state registration of legal entities and branches and representative offices ( 2198 of April 17,1995) adopted on July 4, 2008 and anmendments to the Order of the Minister of Justice (112 of April 12, 2007) adopted on October 13, 2008 the smal business legal entity can be registrated in 2 ways: 1. Within 3 working days. (One day for statistical body, one day for department of justice and one day for tax body) For this registartion of legal entity the apllicant presents to Center for Costumer Services the following documents: 53 - Set form of the Application; - the Charter (4 notarized examples); - the copies of ID and taxpayer certificates of the director and shareholders of the legal entity; - the document confirming the payment of the state registration fee (KZT 2280); If necessary the Power of attorney on the representative shall be presented also. 2. Within 3 working days. (One day for statistical body, one day for department of justice and one day for tax body). This registration is fulfiled on base of the Standard Charter adopted by the Government. For this registartion of legal entity the apllicant presents to Center for Costumer Services the following documents: - Set form of the Application (3 notarized examples); - the copies of ID and taxpayer certificates of the director and shareholders of the legal entity; - the document confirming the payment of the state registration fee (KZT 2280) If necessary the Power of attorney on the representative shall be presented also. However, in practice, the departments of justice delays the legal entity registration for some days. Procedure 4 Make a company seal Time to complete: 1 Cost to complete: 3250 Comment: To make a company seal, promoters must file a copy of certificate of state registration of the company; a power of attorney, if the person is not the director; a copy of the statistics card and the taxpayer registration certificate; and a letter of application requesting the seal, with required information about the seal content. Procedure 5 Notarize certificate of state registration and other post-registration documents Time to complete: 1 Cost to complete: Comment: Under the Tax Code Article Art 536(15), the notary fee for certifying copies of the state registration and other postregistration documents shall be 10% of the MCI per page. Each registration document is a two-page document, and the total for one set of certified copies (if the charter had 10 pages) would be 10% of MCI x 16 pages. One set of notarized copies of the registration documents and the charter is usually required to open a bank account, and one set is usually required for recording the company with the local tax office. Additional copies would be needed if the company were to apply for work permits to employ expatriates, obtain licenses and other operational permits, open branches or representative offices, or set up subsidiaries or acquire shares or ownership interests in other legal entities. Procedure 6 Open the current account in the bank Time to complete: 1 Cost to complete: 0 Comment: To open a current account, the founder must provide the bank with the following documents: - Cards with sample signatures and an imprint of the company seal. - Copy of a document, distributed by the tax authority, confirming registration with the tax authority. - Copy of the state registration certificate of legal entity from the registration body of the Ministry of Justice of the Republic of Kazakhstan. 54 - Copy of the statistical card of legal entity. - Notarized copy of the charter, or other document confirming activity of the legal entity operating on the basis of a standard charter. - Copies of identity documents for person(s) listed on the signature card(s) and company founders. - Application for bank account setup (bank-provided form). Procedure 7 Register for the obligatory insurance of life and health for employees Time to complete: 1 Cost to complete: 0 Comment: Each employee should have employer-paid insurance according to the Law On Obligatory Insurance of The Liability of the Employer for Life and Health Tort to The Employee in Discharge of Labor and (Official) Duties (February 7, 2005) that became effective on July 1, 2005.The amount of insurance premium payable by an employer depends on insurance risks and wages. To assess risks, the insurance companies place all insurable personnel into three categories: administrative, operational, and support. Amounts of the insurance premium vary from 0.04% to 9.99%. According to 7 May 2007 amendments to the law on obligatory insurance, an employer is required to get an insurance policy within 10 business days from the date of state registration indicated in the company's Certificate of State Registration 55 Dealing with Construction Permits in Kazakhstan The table below summarizes the procedures, time, and costs to build a warehouse in Kazakhstan. BUILDING A WAREHOUSE Date as of: January 2009 Estimated Warehouse Value: City: Almaty Registration Requirements: No: Procedure Time to complete Cost to complete 1 Request and obtain land allocation permit from Akim of Almaty City 30 days no charge 2 Request and obtain technical conditions from the water and sewage 10 days no charge authority 3 * Request and obtain technical conditions from the telephone authority 10 days no charge 4 * Request and obtain a technical conditions from the electricity authority 10 days no charge 5 * Notarize documents 1 day KZT 891 6 * Hire a topographic specialist and obtain topographic plan 1 day KZT 14,500 7 Request and obtain architectural planning Assignment (APZ) 7 days no charge 8 * Receive on-site inspection 1 day no charge 9 * Request and obtain project clearance from Sanitation and Epidemiological 30 days KZT 30,000 Authority (SES) 10 * Request and obtain approval from local fire department 21 days no charge 11 * Request and obtain approval from water authority 24 days no charge 12 * Request and obtain approval from local Environmental Protection 25 days no charge Authority 13 * Request and obtain opinion of the seismological agency on the project 16 days KZT 10,000 from Republican Enterprise Kazakhstan Scientific Institute "Kaz NIISA" 14 Request and obtain expert examination of project documentation 30 days KZT 321,248 56 15 Request and obtain Project Clearance from the local architecture and 30 days no charge town-planning authorities 16 Request and obtain Rendering Building and Assembly Jobs Permit from 14 days no charge the State Architectural Supervision Authorities 17 Receive inspection by Sanitary and Epidemiology Service - I 1 day KZT 3,000 18 Receive inspection by the Fire Service - II 1 day no charge 19 Receive inspection by the Social Protection - III 1 day no charge 20 Receive an inspection by the Almaty City Department of Architecture and 1 day no charge Town-Planning Control after foundation works-IV 21 Receive inspection by Almaty City Department of Architecture and 1 day no charge Town-Planning Control after floor works - V 22 Receive inspection by Almaty City Department of Architecture and 1 day no charge Town-Planning Control after roof works - VI 23 Hire Construction Technology Supervision Company 1 day KZT 491,652 24 * Request water connection 1 day KZT 15,000 25 * Receive inspection from water authorities 1 day no charge 26 * Connect to water services 6 days no charge 27 * Request electric power connection services 1 day no charge 28 * Receive on-site electricity inspection 1 day no charge 29 * Receive connection to electricity 5 days no charge 30 * Request and obtain telephone connection 3 days KZT 26,800 31 Request acceptance of the building from Working Commission 1 day KZT 28,844 32 Receive inspection by the Working Commission 1 day no charge 33 Obtain Act from Working Commission 20 days no charge 57 34 Request acceptance of the building from State Acceptance Commission 1 day KZT 34,844 35 Receive inspection by the State Acceptance Commission 1 day no charge 36 Obtain Akimat approval of State Acceptance Commission decision 20 days no charge 37 Register BuildCo's right to the warehouse 2 days KZT 64,286 * Takes place simultaneously with another procedure. 58 Procedure 1 Request and obtain land allocation permit from Akim of Almaty City Time to complete: 30 days Cost to complete: no charge BuildCo applies to City Akimat to obtain the Decision of Mayor of City of Almaty. The Comment: Decision gives the right to design the project for the next 12 months on the specified land. Resolution of Government of Kazakhstan N 425 as of 6 May 2008 provides for a new "Rule of issuance of baseline materials and data for designing of new construction". According to this Rule all local municipalities must issue the location permit for small and medium companies within 10 days, and for large scale companies within 30 days. However, the Akimat of Almaty continues to issue the location permit regardless of size of companies in 30 days. Often in practice this procedure may end up taking up to 12 months. Procedure 2 Request and obtain technical conditions from the water and sewage authority Time to complete: 10 days Cost to complete: no charge Each technical condition is obtained separately at each authority. According to the Comment: Instruction "On order of issuance of technical conditions to connect objects to water supply and sewage in cities and district centers of Kazakhstan" as of 30 December 1997, the timelimit for connection is 10 days. This is further confirmed in the Resolution N 1313 as of 13 December 2002. Resolution of Government of Kazakhstan N 425 as of 6 May 2008 provides for a new "Rule of issuance of baseline materials and data for designing of new construction" according to which the timelimit has been reduced from 10 days to 5 working days. However, according to practice the GKP "Vodokanal", the sole provider of water & sewage services in Almaty, the usual time it takes to connect to its services is one month. Procedure 3 Request and obtain technical conditions from the telephone authority Time to complete: 10 days Cost to complete: no charge Each technical condition is obtained separately at each authority. Resolution of Comment: Government of Kazakhstan N 425 as of 6 May 2008 provides for a new "Rule of issuance of baseline materials and data for designing of new construction" according to which the timelimit has been reduced from 10 days to 7 days (5 working days). However, Resolution N 1313 as of 13 December 2002 provides for a different timelimit of 10 days. In practice the procedure may take up to one month. Procedure 4 Request and obtain a technical conditions from the electricity authority Time to complete: 10 days Cost to complete: no charge The company must submit the following documents: certificate of company registration, Comment: tax registration certificate, bank statement attesting to solvency, technical documents, including building specifications, detailing the volume of power required, the location of the enterprise, location of the connection, date when the power is requested, and type of activity to be conducted. There is no cost for technical condition itself. At the moment of actual connection BuildCo must pay for the right to connect. 59 According to internal regulations of the Joint Stock Company "Almaty Power Consolidated" applications requesting technical conditions up to 1 Megawatt will be answered in one month. As of June 11, 2008 small and medium scale companies with demand up to 50 KWt are no longer required to pay the fee for connecting to electricity mains. The decision was made on June 10, 2008 during a meeting of Cabinet of Ministers under the chairmanship of Prime Minister. Procedure 5 Notarize documents Time to complete: 1 day Cost to complete: KZT 891 BuildCo provides a copy of the following four documents totaling seven pages: Comment: governmental registration certificate (double sided), statistical card (single sided), taxpayer registration number (double sided), and the deed of ownership of land (two pages). Notarizations may be carried out by private notaries or state notaries. The fees of both private notaries and state notaries are calculated with reference to a monthly calculation index (MCI) which is established by Parliament for each year in the national budget. The MCI for 2009 year is equal to KZT 1,273 in accordance with the Kazakhstan Law on State Budget for 2009-2011. State notaries charge 10% of the MCI for each side of a page to be notarized. Thus, for 7 pages the charge is KZT 891 (10% of 1,273 X 7 = 891). The fees for private notaries in Almaty were established at 20% of MCI at a meeting of the private notaries on 31 January 2008. It is most likely that companies will opt for public notaries since it is cheaper. Notarization is completed in a day. Procedure 6 Hire a topographic specialist and obtain topographic plan Time to complete: 1 day Cost to complete: KZT 14,500 Topographical surveying of land is a licensed activity (complex procedure) performed by Comment: very few companies. As of January 2009 due to severe construction crisis in Kazakhstan's financial capital Almaty, and decline in demand, topographic surveying companies have reduced their prices. Cost per hectare of conducting a topographic survey now can range anywhere between KZT 9000 to KZT 20,000. This is a significant jump from previous cost of KZT 33,000 to KZT 95,000. Procedure 7 Request and obtain architectural planning Assignment (APZ) Time to complete: 7 days Cost to complete: no charge To obtain an architectural-planning assignment, the company must submit a business plan Comment: and project feasibility study to the city architecture department. The application must include any plans for construction, a description of the business activities to take place on site, and estimated utility hook-up and consumption requirements. In addition, the company must submit a copy of the property title along with the plot document, approval of engineering-geological estimation of the plot ,and company registration documents The architectural-planning assignment is a permit to develop a building plan/design/project. The design estimates are valid for 3 years from the date of its approval. It includes some provisions and requirements that must be taken into account while developing the project and building, in particular, the requirement that an opinion 60 be obtained on the project from the seismological agency and the sanitary and epidemiologic authorities, as well as project appraisal, and so forth. After obtaining the architectural-planning assignment, the company should develop a project (design) and must then obtain several agencies' approvals of the project in accordance with the architectural-planning assignment and the applicable laws. Each of these agencies reviews the application documents and the project, and may physically inspect the land. As a prerequisite to signing the permit, each department signs a technical approval or "contract" with the company. The contract often requires the signatures of several officers in a department. The contract indicates the department's approval of the company's technical proposals and sets forth the responsibilities of the investor to abide by the terms and conditions of the approval. As of May 6, 2008 Government Resolution N 425 approved new "Rule of issuance of baseline materials and data for designing of new construction". According to it the architectural-planning assignment should be issued within 3 working days for small enterprises, and for all the rest no more than 5 working days. In case of BuildCo it is 5 working days, since it has 60 employees and is considered a medium company. There is no official charge for it. There is no official charge by law, but the architectural-planning assignment is prepared by the commercial organization in the administration which charges KZT 30,000 for the architectural-planning assignment based on the decision of Almaty City Architecture and Town-Planning Department. Based on the technical conditions issued by the utility providers, the Almaty City Architecture and Town-Planning Department issues an architectural-planning assignment, which serves as the authorization to start the development of the project from the design organizations. The applicable law is the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan," Law No. 232-II, dated July 16, 2001. Procedure 8 Receive on-site inspection Time to complete: 1 day Cost to complete: no charge An inspection is a parallel or inclusive step for issuing the architectural-planning Comment: assignment. The visit is necessary to set clearer requirements for construction. The applicable law is the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan," Law No. 242-II, dated July 16, 2001. Procedure 9 Request and obtain project clearance from Sanitation and Epidemiological Authority (SES) Time to complete: 30 days Cost to complete: KZT 30,000 According to Law on Radiological Safety of Population N 219-I as of 23 April 1998 and Comment: other by-laws the Sanitation and Epidemiologic Authority (SES) examines the construction projects for their compliance with state radiological, sanitary and hygienic regulations. No specific time limit is expressly provided by law for this procedure. However, according to practice it takes 1-3 months. The SES will conduct an inspection to undertake a radiological measurement. The approval is obtained after the fee is paid. The fee is based on various factors is approximately KZT 30,000. Procedure 10 Request and obtain approval from local fire department Time to complete: 21 days 61 Cost to complete: no charge This procedure is regulated by the Government Resolution No. 48, as of January 24, 2005 Comment: "On approval of the Rules of obtaining approval on projects standards, regulations and rules established requirements of fire protection on construction objects". The Fire Service Department issues the project clearance to ensure that fire norms have been adequately met in the project design. Comments for revision or endorsement are also issued. There is no time-limit stipulated for this procedure and it can take up to 1 month. Any subsequent consideration would take 15 days. Procedure 11 Request and obtain approval from water authority Time to complete: 24 days Cost to complete: no charge It is the responsibility of the State Expertise Authority to issue the technical conditions for Comment: connection to water, heat, and electricity, under the Governmental Decree on the Order of Conducting State Expertise, Decree No. 918, dated August 19, 2002 (with changes and amendments dated July 7, 2006). Yet companies have to consult with the Water and Sewage company. No on-site inspection is required by law; however, in practice, inspections take place. Water and Sewage company examines the submitted project of devices and constructions for the connection and issues its conclusion on it. With inspection this procedure may take 30 days. The state act which regulated specified provision (Instructions for use of municipal water pipe and sewage in cities and settlements of Republic Kazakhstan, adopted by The Order of the Ministry of Economy and Trade of Republic Kazakhstan #80, 30 May 1997) was not registered by Ministry of Justice and has no legal effect but yet is continued to be used. Procedure 12 Request and obtain approval from local Environmental Protection Authority Time to complete: 25 days Cost to complete: no charge In accordance with the Article 50 of Ecological Code RK No 212-III January 9, 2007 the Comment: time for getting approval of local Environment Protection Authority can't be more than 3 months. Procedure 13 Request and obtain opinion of the seismological agency on the project from Republican Enterprise Kazakhstan Scientific Institute "Kaz NIISA" Time to complete: 16 days Cost to complete: KZT 10,000 Republican Enterprise Kazakhstan Scientific Institute (Kaz NIISA) carries out the Comment: seismological survey, required for areas subject to dangerous levels of seismic activity. The only document required is the project design. A specialist makes a field visit, reviews the project design documents, and issues a finding that is attached to the project. The minimum time it takes is 10 days and may cost anywhere from KZT 10,000 to KZT 100,000. Procedure 14 Request and obtain expert examination of project documentation Time to complete: 30 days 62 Cost to complete: KZT 321,248 With limited exceptions provided by law, all projects must undergo expert examination to Comment: ascertain if the project conforms to the numerous constructions standards. What might be called state expertise is conducted by Republican State Enterprise "Gosekspertiza" which is authorized by the Government to conduct expertise of state-related projects, projects of high technical complexity, social, transport and recreational infrastructure projects. The projects will be subject to expertise on compliance with regulations on frame stability, frame functioning stability, and labor conditions and protection. In essence, the project is checked against numerous construction standards (SNIPs). Subject to the limited exceptions, the expertise for all other projects may be performed by any duly licensed expert specialist or non-governmental expert organisation. The cost and time for performance of services by private expert individuals or organisations are not established by law and will be subject to negotiation and the circumstances of each project. The cost will be 247 x 1300.6 sq.m = 321,248 KZT. If the project is sent to Gosexpertiza the official timelimit is 45 days. If the project is complex it may be extended to 60 days and for technically simple projects of small business time should not exceed 15 days. Procedure 15 Request and obtain Project Clearance from the local architecture and town-planning authorities Time to complete: 30 days Cost to complete: no charge Project clearance from the local architecture and town-planning authorities involves Comment: verifying the project's conformity with the architectural-planning assignment and with the set of technical conditions. The following documents should be submitted: an application to the Architecture and Town-Planning Department Chief Executive; the architectural-planning assignment; documentation confirming the title to the land; topographical survey; approvals and opinions of the seismological, fire, sanitary-and-epidemiologic, and environmental agencies; independent or state experts' examinations; licenses of the developer and the expert organization; and so forth. Procedure 16 Request and obtain Rendering Building and Assembly Jobs Permit from the State Architectural Supervision Authorities Time to complete: 14 days Cost to complete: no charge The following documents should be submitted to obtain this permit: an application form; Comment: land plot permit for construction purposes, approved project with a favorable expert examination; a license to perform architectural activities, town-planning and building activity with a list of building types and assembly jobs; approved building general plan; agreement made with the developer to conduct supervision and maintenance of the construction process; a form signed by the general contractor and building owner; certificates of "earthquake-proof construction" and "geodesy in construction" (if applicable). The applicable law is the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan," Law No. 232-II, dated July 16, 2001. Before starting construction work, the company must notify the proper authorities. Under the Government Resolution No. 425 (6 May 2008) the time for obtaining building and assembly jobs permit has been reduced from 30 days to 14 days. The list of documents required to obtain a construction permit was reduced by the Order of the Industry and Trade Minister No. 170, dated 23 April 2008. 63 Procedure 17 Receive inspection by Sanitary and Epidemiology Service - I Time to complete: 1 day Cost to complete: KZT 3,000 The SES will inspect the site during construction. The inspector issues an inspection Comment: report identifying any irregularities and may return to verify that adequate changes have been made. In addition to that SES will charge KZT 3,000 for radiological measurement. Administrative fines could be imposed if mistakes are found. The applicable law is the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-II, dated July 16, 2001; and the Governmental Decree Confirming the Rules of Obtaining Approval Procedures for Construction of New and Reconstruction of Existing Buildings, Decree No. 1313, dated December 13, 2002. Procedure 18 Receive inspection by the Fire Service - II Time to complete: 1 day Cost to complete: no charge The Fire Service may inspect the site one or two times during construction. The inspector Comment: issues an inspection report identifying any irregularities and may return to verify that adequate changes have been made. Administrative fines could be imposed if mistakes are found. The applicable law is the Law on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-II, dated July 16, 2001; and the Governmental Decree Confirming the Rules of Obtaining Approval Procedures for Construction of New and Reconstruction of Existing Buildings, Decree No. 1313, dated December 13, 2002. Procedure 19 Receive inspection by the Social Protection - III Time to complete: 1 day Cost to complete: no charge Comment: Procedure 20 Receive an inspection by the Almaty City Department of Architecture and Town-Planning Control after foundation works-IV Time to complete: 1 day Cost to complete: no charge BuildCo may receive inspections from the Almaty City Department on Architecture and Comment: Town-Planning Control at various stages of the construction process: laying the foundation, finishing the first floor, roofing, and so forth. The inspector issues an inspection report identifying any irregularities and may return to verify that adequate changes have been made. Administrative fines could be imposed if mistakes are found. The building control agency does not require prior request of inspection. The applicable law is the Law of the Republic of Kazakhstan on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-11, dated July 16, 2001. In practice there may be more inspections. Procedure 21 Receive inspection by Almaty City Department of Architecture and Town-Planning Control after floor works - V 64 Time to complete: 1 day Cost to complete: no charge BuildCo receives an inspection from the Almaty City Department on Architecture and Comment: Town-Planning Control at various stages of the construction process: laying the foundation, finishing the first floor, roofing, and so forth. The inspector issues an inspection report identifying any irregularities and may return to verify that adequate changes have been made. Administrative fines could be imposed if mistakes are found. The building control agency does not require prior request of inspection. The applicable law is the Law of the Republic of Kazakhstan on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-11, dated July 16, 2001. Procedure 22 Receive inspection by Almaty City Department of Architecture and Town-Planning Control after roof works - VI Time to complete: 1 day Cost to complete: no charge BuildCo receives an inspection from the Almaty City Department on Architecture and Comment: Town-Planning Control at various stages of the construction process: laying the foundation, finishing the first floor, roofing, and so forth. The inspector issues an inspection report identifying any irregularities and may return to verify that adequate changes have been made. Administrative fines could be imposed if mistakes are found. The building control agency does not require prior request of inspection. The applicable law is the Law of the Republic of Kazakhstan on Architectural, City Planning, and Construction Activity in the Republic of Kazakhstan, Law No. 242-11, dated July 16, 2001. Procedure 23 Hire Construction Technology Supervision Company Time to complete: 1 day Cost to complete: KZT 491,652 A licensed construction engineering supervision company carries out the technical Comment: process of checking the different stages of the building. BuildCo is unlikely to have a license for this area of expertise. Such activities do not replace the inspections mentioned above but occur in parallel to them. The average price is USD 3­6 dollars per square meter, and may depend on the complexity of construction. For new construction, the rate is USD 6; for reconstruction, USD 3 (USD 3 x 1300.6 square meters). Procedure 24 Request water connection Time to complete: 1 day Cost to complete: KZT 15,000 The applicant submits a form stating the applicant's name, location, estimated volume of Comment: water consumption, and water pressure needed. Within a day or two, the water company inspects the site and evaluates the costs of connection. Within 2 or 4 additional days, the applicant can contact the Water Authority to find out if the connection can be made, what the engineering requirements for connection are and the cost. Once the cost is paid, the hook-up construction can begin. The cost depends on the location of the plot and might be as much as KZT 30,000. 65 Procedure 25 Receive inspection from water authorities Time to complete: 1 day Cost to complete: no charge Comment: Procedure 26 Connect to water services Time to complete: 6 days Cost to complete: no charge Comment: Procedure 27 Request electric power connection services Time to complete: 1 day Cost to complete: no charge The company must submit the following documents: certificate of company registration, Comment: tax registration certificate, bank statement attesting to solvency, engineering documents (including building specifications and detailing the volume of power required), the company's location, location of the connection, date when electrical service is requested, and type of activity to be conducted. According to amendments to Law on Electricity as of 29 December 2008, effective January 2009, Article 19.2 (6) which required payment for new technical connection in the amount of KZT 68,000 per kVA was eliminated. Procedure 28 Receive on-site electricity inspection Time to complete: 1 day Cost to complete: no charge The waiting time for an inspection is approximately 5 days. Comment: Procedure 29 Receive connection to electricity Time to complete: 5 days Cost to complete: no charge Comment: Procedure 30 Request and obtain telephone connection Time to complete: 3 days 66 Cost to complete: KZT 26,800 The connection fee for fixed telephone line services by Kazakhtelecom was reduced in Comment: 2009 from KZT 36,800 to KZT 26,800. Procedure 31 Request acceptance of the building from Working Commission Time to complete: 1 day Cost to complete: KZT 28,844 The company convenes a Working Commission upon the completion of construction. Comment: Although the the legislation stipulates for Working Commission to be an exclusive relationship between building owner and contractor. However, in practice the companies will have to involve Sanitary and Epidemiological Authority and Fire Department at this stage. Inspection will take place before the Act of Working Commission is drafted and signed by all parties. Procedure 32 Receive inspection by the Working Commission Time to complete: 1 day Cost to complete: no charge The Working Commission, which is also comprised of Sanitary and Epidemiological Comment: Authority and Fire Department will have to inspect the site. If the building has been built according to specifications, the inspection takes 1­2 days. Procedure 33 Obtain Act from Working Commission Time to complete: 20 days Cost to complete: no charge The applicable law is the Law on Architectural, City Planning, and Construction Activity Comment: in the Republic of Kazakhstan, Law No. 242-II, dated July 16, 2001; and the Governmental Decree Confirming the Rules of Obtaining Approval Procedures for Construction of New and Reconstruction of Existing Buildings, Decree No. 1313, dated December 13, 2002. Procedure 34 Request acceptance of the building from State Acceptance Commission Time to complete: 1 day Cost to complete: KZT 34,844 After the Working Commission, the State Acceptance Commission will inspect the Comment: building. The approval is signed by all members of the Commission: construction authority, city office of the land agency, city department of sanitation, city fire department, state agency for construction control, local water company, local electric company, and Kazakh Telecom, and then sent it to the Akimat for approval. If the building has been built according to specifications, the inspections take 1­2 days. The SES will inspect the building along with other authorities but a separate application must be filed. It may come together with others or on a separate day to undertake a final radiological measurement. The cost for that is KZT 6,000. If not followed up it may take 1-3 months. The approval from the SES is pre-requisite to obtain the approval of State Acceptance Commission. 67 Procedure 35 Receive inspection by the State Acceptance Commission Time to complete: 1 day Cost to complete: no charge The State Acceptance Commission may inspect the building. The approval is signed by Comment: all members of the commission and then sent to the Akimat for approval. If the building has been built according to specifications, the inspections will take 1­2 days. Procedure 36 Obtain Akimat approval of State Acceptance Commission decision Time to complete: 20 days Cost to complete: no charge Once the Act of State Acceptance Commission is signed it needs to be endorsed by amity Comment: City Akim. Procedure 37 Register BuildCo's right to the warehouse Time to complete: 2 days Cost to complete: KZT 64,286 Time: 15 business days if the building is registered in the usual order, and 2 business days Comment: if it is registered in an accelerated procedure. Cost: KZT 12,730 if the building is registered in the usual order, and KZT 63,650 if it is registered in an accelerated procedure. BuildCo must register the building with the Department of Justice at the place of location of the warehouse. Amendments were made to the Kazakhstan Law on State Registration of Immovable Property and Transactions Related in 2008, which provide for both usual and accelerated registration. The standard term for the registration in the usual order is 15 business days, and for the accelerated registration - 2 business days. The registration fees are calculated on the basis of MCI which is for 2009 year is equal to KZT 1,273. The registration fee for the registration performed in the usual order is 10MCI = KZT 12 730, and for the accelerated registration - 50 MCI = KZT 63,650. The documents to be submitted include an application, legal documents proving ownership, payment receipt, identification or legal entity registration certificate, charter, decision of the Akimat approving the building for use, the act of the state commission on approval for use, and so forth. An officer of the Registration Service Committee accepts the documents and issues a receipt that lists the documents received and indicates date and time the documents were received. 68 Employing Workers in Kazakhstan Employing workers indices are based on responses to survey questions. The table below shows these responses in Kazakhstan. Employing Workers Indicators (2009) Answer Score 0.0 Difficulty of hiring index (0-100) Are fixed-term contracts prohibited for permanent tasks? No 0 What is the maximum duration of fixed-term contracts (including renewals)? (in months) No limit 0.0 What is the ratio of mandated minimum wage to the average value added per worker? 0.13 0.00 30.0 Difficulty of redundancy index (0-10) Is the termination of workers due to redundancy legally authorized? Yes 0 Must the employer notify a third party before terminating one redundant worker? Yes 1 Does the employer need the approval of a third party to terminate one redundant worker? No 0 Must the employer notify a third party before terminating a group of 9 redundant workers? Yes 1 Does the employer need the approval of a third party to terminate a group of 9 redundant No 0 workers? Is there a retraining or reassignment obligation before an employer can make a worker Yes 1 redundant? Are there priority rules applying to redundancies? No 0 Are there priority rules applying to re-employment? No 0 8.7 Redundancy costs (weeks of salary) What is the notice period for redundancy dismissal after 20 years of continuous 4.3 employment? (weeks of salary) What is the severance pay for redundancy dismissal after 20 years of employment? (weeks of 4.3 salary) What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0.0 16.7 Rigidity of employment index (0-100) 20.0 Rigidity of hours index (0-100) Can the workweek extend to 50 hours (including overtime) for 2 months per year to Yes 0 respond to a seasonal increase in production? 69 What is the maximum number of working days per week? 6 0 Are there restrictions on night work and do these apply when continuous operations are Yes 1.00 economically necessary? Are there restrictions on "weekly holiday" work and do these apply when continuous No 0.00 operations are economically necessary? What is the paid annual vacation (in working days) for an employee with 20 years of 18 0 service? Note: The first three indices measure how difficult it is to hire a new worker, how rigid the regulations are on working hours, and how difficult it is to dismiss a redundant worker. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of the three indices. 70 Registering Property in Kazakhstan This topic examines the steps, time, and cost involved in registering property in Kazakhstan. STANDARDIZED PROPERTY Property Value: 43,472,549.28 City: Almaty Registration Requirements: No: Procedure Time to complete Cost to complete 1 * Obtain a non-encumbrance certificate 3-5 days no cost 2 * Obtain a technical passport of the property 17-21 days no cost 3 Notarization of seller's and buyer's incorporation 1 day KZT 14,003 documents and the sale-purchase agreement 4 The buyer applies to the Public Service Center to register 1 day KZT 546 the property 5 Registration of the title at the Registration Service 17-21 days KZT 12,730 Committee * Takes place simultaneously with another procedure. 71 Procedure 1 Obtain a non-encumbrance certificate Time to complete: 3-5 days Cost to complete: no cost Comment: The non-encumbrance certificate is issued within 3-5 days and is free of change. Procedure 2 Obtain a technical passport of the property Time to complete: 17-21 days Cost to complete: no cost Comment: The conditions for the issue of a technical passport are set out in the "Standards of Rendering Public Services on Issue of Technical Passports for Immovable Property through the Population Servicing Centers", which is Annex 3 to Order of Minister of Justice No325 "On Establishing the Standards of Rendering Public Services through the Population Servicing Centers" of 28 November 2008. According to these Standards the technical passport for the property with an area of over 1,000 sq m could be issued within one (1) month period from the day of application. The Registration Service Committee prepares technical passport within 19 calendar days. Procedure 3 Notarization of seller's and buyer's incorporation documents and the sale-purchase agreement Time to complete: 1 day Cost to complete: KZT 14,003 Comment: According to Article 536, paragraph 1 of the Tax Code No99-IV of 10 December 2008 which came into effect 01 January 2009, if at least one of the parties concluding the sale and purchase agreement is a legal entity, the notarization of transaction shall cost one thousand (1,000) percent of the monthly index which equals KZT 1,273 as of 1 January 2009. Prior to this change, the fee to notarize was 1,500 percent of the monthly index. The cost for certification of the copies of corporate documents is 10% of the Monthly Index per page. Therefore, the notary fee for certification of the sale-purchase agreement is at KZT 12,730 and certification of each page of the corporate documents costs KZT 127 per page. Procedure 4 The buyer applies to the Public Service Center to register the property Time to complete: 1 day Cost to complete: KZT 546 Comment: All documents are submitted to the Public Service Center Procedure 5 Registration of the title at the Registration Service Committee Time to complete: 17-21 days 72 Cost to complete: KZT 12,730 Comment: The Law Amending Legal Acts of the Republic of Kazakhstan on Taxation on November 12, 2008 established new statutory time limit of 15 working days for the regular procedure (cost: 10 times the minimum calculation index) and 2 days for the expedited procedure (cost: 50 times the minimum calculation indicator MCI). Cost of registration of non-residential premises depends on the number of buildings to be registered: 1 building ­ 10 x Monthly Index (1,723 for 2008) = KZT 12,723 2-5 buildings ­ 15 x Monthly Index = KZT 25,845; 6-10 buildings ­ 20 x Monthly Index = KZT 34,460. The documentation shall include: - a filled in standard application form; - 2 original copies of the notarized sale-purchase agreement (obtained in Procedure 3) - Non-encumbrance certificate (obtained in Procedure 1) - Technical passport of the property (obtained in Procedure 2) 73 Getting Credit in Kazakhstan The following table summarize legal rights of borrowers and lenders, and the availability and legal framework of credit registries in Kazakhstan. Getting Credit Indicators (2009) Indicator score Private credit Public credit Private bureau coverage (% of adults) 6 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade Yes No 1 creditors or utility companies as well as financial institutions? Are more than 2 years of historical credit information distributed? Yes No 1 Is data on all loans below 1% of income per capita distributed? Yes No 1 Is it guaranteed by law that borrowers can inspect their data in the Yes No 1 largest credit registry? Coverage 29.5 0.0 Number of individuals 3,500,000 0 Number of firms 31,000 0 Strength of legal rights index (0-10) 5 Can any business use movable assets as collateral while keeping possession of the assets; and any financial Yes institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of revolving movable Yes assets, without requiring a specific description of the secured assets ? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without No requiring a specific description of the secured assets ? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, No proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements, so that all types of obligations No and debts can be secured by stating a maximum amount rather than a specific amount between the parties ? Is a collateral registry in operation, that is unified geographically and by asset type, as well as indexed by the Yes grantor's name of a security right ? Do secured creditors have absolute priority to their collateral outside bankruptcy procedures? Yes Do secured creditors have absolute priority to their collateral in bankruptcy procedures? No 74 During reorganization, are secured creditors' claims exempt from an automatic stay on enforcement? No Does the law authorize parties to agree on out of court enforcement? Yes 75 Protecting Investors in Kazakhstan The table below provides a full breakdown of how the disclosure, director liability, and shareholder suits indexes are calculated in Kazakhstan. Protecting Investors Data (2009) Indicator Extent of disclosure index (0-10) 7 3 What corporate body provides legally sufficient approval for the transaction? (0-3; see notes) 2 Immediate disclosure to the public and/or shareholders (0-2; see notes) 0 Disclosures in published periodic filings (0-2; see notes) 2 Disclosures by Mr. James to board of directors (0-2; see notes) 0 Requirement that an external body review the transaction before it takes place (0=no, 1=yes) Extent of director liability index (0-10) 1 0 Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company. (0-2; see notes) 0 Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for damage to the company. (0-2; see notes) 0 Whether a court can void the transaction upon a successful claim by a shareholder plaintiff (0-2; see notes) 0 Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff (0=no, 1=yes) 0 Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff (0=no, 1=yes) 0 Whether fines and imprisonment can be applied against Mr. James (0=no, 1=yes) 1 Shareholder plaintiff's ability to sue directly or derivatively for damage the transaction causes to the company (0-1; see notes) Ease of shareholder suits index (0-10) 9 4 Documents available to the plaintiff from the defendant and witnesses during trial (0-4; see notes) 2 Ability of plaintiffs to directly question the defendant and witnesses during trial (0-2; see notes) 0 Plaintiff can request categories of documents from the defendant without identifying specific ones (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction (0=no, 1=yes) 76 1 Level of proof required for civil suits is lower than that for criminal cases (0=no, 1=yes) 1 Shareholders owning 10% or less of Buyer's shares can inspect transaction documents before filing suit (0=no, 1=yes) Strength of investor protection index (0-10) 5.7 Notes: Extent of Disclosure Index What corporate body provides legally sufficient approval for the transaction? 0=CEO or managing director alone; 1=shareholders or board of directors vote and Mr. James can vote; 2=board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote Immediate disclosure to the public and/or shareholders 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures in published periodic filings 0=none; 1=disclosure on the transaction only; 2=disclosure on the transaction and Mr. James' conflict of interest Disclosures by Mr. James to board of directors 0=none; 1=existence of a conflict without any specifics; 2= full disclosure of all material facts Director Liability Index Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company 0= Mr. James is not liable or liable only if he acted fraudulently or in bad faith; 1= Mr. James is liable if he influenced the approval or was negligent; 2= Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for for damage to the company 0=members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1=liable for negligence in the approval of the transaction; 2=liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0=rescission is unavailable or available only in case of Seller's fraud or bad faith; 1=available when the transaction is oppressive or prejudicial to minority shareholders; 2=available when the transaction is unfair or entails a conflict of interest Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company 0=not available; 1=direct or derivative suit available for shareholders holding 10% of share capital or less Shareholder Suits Index Documents available to the plaintiff from the defendant and witnesses during trail Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense; (2) information that directly proves specific facts in the plaintiff's claim; (3) any information that is relevant to the subject matter of the claim; and (4) any information that may lead to the discovery of relevant information. Ability of plaintiffs to directly question the defendant and witnesses during trial 0=no; 1=yes, with prior approval by the court of the questions posed; 2=yes, without prior approval 77 Paying Taxes in Kazakhstan The table below addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year in Kazakhstan, as well as measures of administrative burden in paying taxes. Tax or mandatory Payments Notes on Time Statutory tax Tax Totaltax rate Notes on contribution (number) Payments (hours) rate base (% profit) TTR Value added tax (VAT) 1 92 13.00% value added Fuel tax 1 KZT 500 per number of 0.00 1 liter tone liters Land tax 1 online KZT 28.95 land area 0.07 filing per square meter Vehicle tax 1 online 15 MCI carrying 0.07 filing capacity Environment pollution 1 online KZT 1,411 fuel and 0.15 fee filing per ton of waste fuel and consumption KZT 770 per ton of waste Advertising tax 1 1 MCI - 100 Size of 0.21 MCI per advertising month object in square meters Tax on interest 0 15.0% interest 0.39 income Property tax 1 online 1.0% property 2.20 filing annual average net book value Social Tax 1 74 13%-5% gross salaries 9.62 Corporate income tax 1 105 30.00% taxable 23.54 profits Totals 9 271 35.9 78 Notes: a) data not collected b) VAT is not included in the total tax rate because it is a tax levied on consumers c) very small amount d) included in other taxes e) Withheld tax f) electronic filling available g) paid jointly with another tax Name of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. When there is more than one statutory tax rate, the one applicable to TaxpayerCo is reported. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. 79 Trading Across Borders in Kazakhstan These tables list the procedures necessary to import and exports a standardized cargo of goods in Kazakhstan. The documents required to export and import the goods are also shown. Nature of Export Procedures (2009) Duration (days) US$ Cost Documents preparation 29 200 Customs clearance and technical control 23 200 Ports and terminal handling 11 380 Inland transportation and handling 26 2225 Totals 89 3005 Nature of Import Procedures (2009) Duration (days) US$ Cost Documents preparation 33 200 Customs clearance and technical control 16 250 Ports and terminal handling 4 380 Inland transportation and handling 23 2225 Totals 76 3055 Export Export license Export transaction passport Inspection report Packing list Tax certificate Terminal handling receipts Bill of lading Certificate of conformation Certificate of origin Commercial invoice Customs export declaration Import 80 Terminal handling receipts Transit document Customs import declaration Import transaction passport Inspection report Packing list Tax certificate Technical standard/health certificate Bill of lading Cargo release order Certificate of conformation Certificate of origin Commercial invoice Enforcing Contracts in Kazakhstan This topic looks at the efficiency of contract enforcement in Kazakhstan. Nature of Procedure (2009) Indicator Procedures (number) 38 Time (days) 390 Filing and service 15.0 Trial and judgment 135.0 Enforcement of judgment 240.0 Cost (% of claim)* 22.00 Attorney cost (% of claim) 8.5 Court cost (% of claim) 3.5 Enforcement Cost (% of claim) 10.0 Court information: Almaty Inter-District (" Commercial Court . ") * Claim assumed to be equivalent to 200% of income per capita. 81 82 83