91970 Doing Business 2015 Chile Economy Profile 2015 Chile Doing Business 2015 Chile 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Chile 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 30 Registering property .................................................................................................................. 37 Getting credit .............................................................................................................................. 43 Protecting minority investors ................................................................................................... 50 Paying taxes ................................................................................................................................ 59 Trading across borders .............................................................................................................. 62 Enforcing contracts .................................................................................................................... 67 Resolving insolvency .................................................................................................................. 74 Labor market regulation ........................................................................................................... 77 Distance to frontier and ease of doing business ranking ...................................................... 84 Resources on the Doing Business website .............................................................................. 87 Doing Business 2015 Chile 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Chile. To allow useful comparison, it also information on ordering Doing Business 2015, are provides data for other selected economies (comparator available on the Doing Business website at economies) for each indicator. The data in this report are http://www.doingbusiness.org. current as of June Doing Business 2015 Chile 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Chile 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: OECD high income based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 17,619,708 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 15,230 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 41 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 39* distance to the best performance in each Doing Business Change in rank: -2 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 71.2 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 71.2 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Chile THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Chile THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Chile and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Chile 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Chile (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Chile (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Chile 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Chile come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Chile 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Chile Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Mexico DB2015 Indicator Brazil DB2015 Chile DB2015 Chile DB2014 Peru DB2015 DB2015 Starting a Business 59 52 146 167 84 67 89 46 New Zealand (1) (rank) Starting a Business (DTF 89.83 89.83 72.58 63.37 86.13 88.85 85.10 91.22 New Zealand (99.96) Score) Procedures (number) 7.0 7.0 14.0 11.6 8.0 6.0 6.0 6.0 New Zealand (1.0)* Time (days) 5.5 5.5 25.0 83.6 11.0 6.3 26.0 5.6 New Zealand (0.5) Cost (% of income per 0.7 0.7 15.2 4.3 7.5 18.6 9.2 1.2 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 4.0 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 62 61 181 174 61 108 87 41 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 76.13 76.10 42.54 48.31 76.45 68.43 72.91 78.87 China (95.53) (DTF Score) Doing Business 2015 Chile 12 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Mexico DB2015 Indicator Brazil DB2015 Chile DB2015 Chile DB2014 Peru DB2015 DB2015 Hong Kong SAR, Procedures (number) 13.0 13.0 21.0 18.2 10.0 11.3 14.0 15.8 China (5.0) Time (days) 152.0 152.0 341.0 426.1 73.0 87.6 174.0 78.6 Singapore (26.0) Cost (% of warehouse 0.7 0.7 3.5 0.4 7.4 10.3 0.5 1.0 Qatar (0.0)* value) Getting Electricity 49 47 104 19 92 116 86 61 Korea, Rep. (1) (rank) Getting Electricity (DTF 81.34 81.33 72.42 89.20 74.20 68.47 75.67 79.52 Korea, Rep. (99.83) Score) Procedures (number) 6.0 6.0 6.0 4.0 5.0 6.8 5.0 4.8 12 Economies (3.0)* Time (days) 30.0 30.0 92.0 53.3 105.0 78.9 100.0 89.6 Korea, Rep. (18.0)* Cost (% of income per 62.1 63.9 45.4 31.6 504.4 346.1 325.5 25.5 Japan (0.0) capita) Registering Property 45 44 119 138 42 110 26 29 Georgia (1) (rank) Registering Property 78.96 78.95 60.63 56.18 79.33 62.45 83.48 82.92 Georgia (99.88) (DTF Score) Procedures (number) 6.0 6.0 7.0 13.6 6.0 6.8 4.0 4.4 4 Economies (1.0)* Time (days) 28.5 28.5 51.5 31.7 16.0 63.6 6.5 15.2 3 Economies (1.0)* Cost (% of property 1.2 1.2 6.6 2.5 2.0 5.1 3.3 2.4 4 Economies (0.0)* value) Getting Credit (rank) 71 67 71 89 2 12 12 2 New Zealand (1) Getting Credit (DTF 50.00 50.00 50.00 45.00 95.00 80.00 80.00 95.00 New Zealand (100) Score) Strength of legal rights 4 4 2 2 12 8 8 11 3 Economies (12)* index (0-12) Doing Business 2015 Chile 13 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Mexico DB2015 Indicator Brazil DB2015 Chile DB2015 Chile DB2014 Peru DB2015 DB2015 Depth of credit 6 6 8 7 7 8 8 8 23 Economies (8)* information index (0-8) Credit registry coverage 44.7 40.5 41.2 52.5 0.0 0.0 33.5 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 8.8 5.9 100.0 63.6 87.0 100.0 100.0 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 56 55 62 35 10 62 40 25 New Zealand (1) Investors (rank) Protecting Minority 58.33 58.33 57.50 62.50 71.67 57.50 61.67 65.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 6.7 6.7 5.0 5.7 8.0 6.0 7.0 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.0 5.0 6.5 6.8 6.3 5.5 5.3 4.8 France (7.8)* 10) Strength of minority investor protection 5.8 5.8 5.8 6.3 7.2 5.8 6.2 6.6 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 29 29 170 177 146 105 57 47 (1)* Paying Taxes (DTF United Arab Emirates 84.50 84.57 44.99 41.31 59.71 71.17 79.43 80.84 Score) (99.44)* Payments (number per Hong Kong SAR, 7.0 7.0 9.0 9.0 11.0 6.0 9.0 10.6 year) China (3.0)* Time (hours per year) 291.0 291.0 405.0 2,600.0 239.0 334.0 293.0 175.0 Luxembourg (55.0) Trading Across Borders 40 42 128 123 93 44 55 16 Singapore (1) (rank) Trading Across Borders 82.05 81.52 65.11 66.11 72.69 81.26 78.81 88.25 Singapore (96.47) Doing Business 2015 Chile 14 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Mexico DB2015 Indicator Brazil DB2015 Chile DB2015 Chile DB2014 Peru DB2015 DB2015 (DTF Score) Documents to export 5 5 6 6 4 4 5 3 Ireland (2)* (number) Time to export (days) 15.0 15.0 12.0 13.4 14.0 12.0 12.0 6.0 5 Economies (6.0)* Cost to export (US$ per 910.0 980.0 1,770.0 2,322.8 2,355.0 1,499.3 890.0 1,224.0 Timor-Leste (410.0) container) Cost to export (deflated 910.0 991.6 1,770.0 2,322.8 2,355.0 1,499.3 890.0 1,224.0 US$ per container) Documents to import 5 5 8 8 6 4 7 5 Ireland (2)* (number) Time to import (days) 12.0 12.0 30.0 17.0 13.0 11.2 17.0 5.4 Singapore (4.0) Cost to import (US$ per 860.0 930.0 2,320.0 2,322.8 2,470.0 1,887.6 1,010.0 1,289.0 Singapore (440.0) container) Cost to import (deflated 860.0 941.0 2,320.0 2,322.8 2,470.0 1,887.6 1,010.0 1,289.0 US$ per container) Enforcing Contracts 64 65 63 118 168 57 100 41 Singapore (1) (rank) Enforcing Contracts 63.85 63.85 63.88 53.60 37.66 64.61 57.46 67.26 Singapore (89.54) (DTF Score) Time (days) 480.0 480.0 590.0 731.0 1,288.0 388.9 426.0 420.0 Singapore (150.0) Cost (% of claim) 28.6 28.6 20.5 16.5 47.9 30.9 35.7 30.5 Iceland (9.0) Procedures (number) 36.0 36.0 36.0 43.6 33.0 36.8 41.0 33.6 Singapore (21.0)* Resolving Insolvency 73 70 83 55 30 27 76 4 Finland (1) (rank) Resolving Insolvency 47.38 47.01 45.10 54.52 70.00 72.59 46.57 90.12 Finland (93.85) (DTF Score) Doing Business 2015 Chile 15 Best performer globally United States DB2015 Argentina DB2015 Colombia DB2015 Mexico DB2015 Indicator Brazil DB2015 Chile DB2015 Chile DB2014 Peru DB2015 DB2015 Time (years) 3.2 2.8 4.0 1.7 1.8 3.1 1.5 Ireland (0.4) Cost (% of estate) 14.5 14.5 12.0 12.0 6.0 18.0 7.0 8.2 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 0 1 1 1 0 1 going concern) Recovery rate (cents on 30.0 29.3 28.6 25.8 72.0 68.1 28.5 80.4 Japan (92.9) the dollar) Strength of insolvency 10.0 10.0 9.5 13.0 10.0 11.5 10.0 15.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulatio n exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Chile 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Chile 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Chile? According business city of an economy, except for 11 economies for to data collected by Doing Business, starting a business which the data are a population-weighted average of the there requires 7.0 procedures, takes 5.5 days, costs 0.7% 2 largest business cities. See the chapter on distance to of income per capita and requires paid-in minimum frontier and ease of doing business ranking at the end of capital of 0.0% of income per capita (figure 2.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 2.1 What it takes to start a business in Chile - Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Chile 18 STARTING A BUSINESS Globally, Chile stands at 59 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Chile to The rankings for comparator economies and the regional start a business. Figure 2.2 How Chile and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Chile 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Chile (table 2.1)? Table 2.1 How has Chile made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Chile made business start-up easier by introducing an online DB2011 system for registration and for filing the request for publication. Chile made business start-up easier by starting to provide an immediate temporary operating license to new companies, eliminating the requirement for an inspection of premises by DB2012 the tax authority before new companies can begin operations and allowing free online publication of the notice of a company’s creation. Chile made starting a business easier by creating a new online DB2014 system for business registration. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Chile 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Chile is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new firm. These are Legal form: Sociedad Anónima (SA) – closed identified by Doing Business through collaboration corporation with relevant local professionals and the study of laws, regulations and publicly available information Paid in minimum capital requirement: CLP 0 on business entry in that economy. Following is a City: Santiago detailed summary of those procedures, along with the associated time and cost. These procedures are Start-up Capital: 10 times GNI per capita those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Chile - Time to No. Procedure Cost to complete complete Draft online the statutes of the company and obtain an authentication number Since February, 2013, entrepreneurs can draft the articles of association online through a new online platform (www.tuempresasenundia.cl) and Less than one day 1 obtain an authorization number. With this number, they will visit the no charge (online procedure) notary to obtain a digital signature. Agency: Notary Have a notary certify the statutes with a digital signature online On February 8, 2013, Law 20.659 was published, which came into force on May 2, 2013. This new law simplifies the process of starting Limited Liability Companies by allowing entrepreneurs to register online (www.tuempresasenundia.cl) at zero cost. The new system allows users to register (modify, cancel, etc.) a company online, at zero cost. The CLP 6,000 per system provides the certificate of existence immediately, and it Less than one day signature 2 automatically assigns a tax payer ID number to the company (which is (online procedure) (assuming 5 the same as the Company Registration ID). The system will require that signatures) all partners subscribing the document have an advanced electronic signature (a token), or that they do the process with a notary that uses his own advanced electronic signature. Agency: Commercial Registry Doing Business 2015 Chile 21 Time to No. Procedure Cost to complete complete Give notice of initiation of activities to the Internal Revenue Service online Registration is a sole procedure to be complied with for all tax purposes in order to obtain a Chilean Tax ID (RUT number). Specially regarding those persons (individual or legal entities) that are going to develop activities in Chile, taxpayers must obtain a RUT number and perform "initiation of activities" ("Inicio de Actividades") before the Chilean IRS, Less than one day no charge 3 which is a sworn statement submitted to inform that the taxpayer will (online procedure) start to develop economical activities in Chile. Both procedures can be carried out through the Chilean IRS website. Agency: Internal Revenue Service Print receipts/invoices in the authorized printing company The printed document will acquire tax validity status, provided that it is stamped by the Chilean IRS and only for the period of time authorized by the referred tax authority. According Law 20.727, starting November, 2014, most of the VAT tax documentation shall be issued electronically (invoices, debit and credit notes, among others). Under Law No. 20.727 enacted on January 31, 2014, the use of electronic invoicing will USD 43 per 50- 4 1 day become mandatory for all Chilean enterprises. page book Agency: Receipt and invoices can be printed in any printed company, with the only requirement that the IRS format for such documents is followed Seal accounting books, invoices and other documents at the IRS Invoice and receipt forms can be sealed only after the tax registration number (rol unico tributario, or RUT) has been obtained, because the RUT must appear on them. Thus, this procedure is generally carried out 1 day no charge 5 once the forms are duly printed. Agency: Internal Revenue Service * Obtain a "patente municipal" working license from the competent municipality Decree Law 3063/1979 rules that any profession, activity, industry, 1 day, commerce, art, or any other profitable activity, independent of its simultaneous with 6 denomination, must obtain a working license from the municipality. A no charge previous separate license must be obtained from the corresponding municipality procedure for each of the enterprise’s establishments, offices, warehouses, and so forth. Agency: Municipality Doing Business 2015 Chile 22 Time to No. Procedure Cost to complete complete * Register with the labor-related accident insurance (Seguro Social contra Riesgos de Accidentes del Trabajo y Enfermedades Profesionales) at the Mutuales de Seguridad According to Law 16.744 (article 15), it is mandatory for the employer to pay an insurance which covers work related accidents and professional illnesses. Entrepreneurs have the option to pay the insurance to the public Institute of Occupational Safety (Instituto de Seguridad Laboral (ISL), former Instituto de Normalización Previsional) or to private 1 day, nonprofit entities known as Mutuales. In Chile, there are three private simultaneous with 7 no charge Mutuales: previous • Asociación Chilena de Seguridad. procedure • Mutual de Seguridad de la Cámara Chilena de Construcción. de la construcción. • Instituto de Seguridad del Trabajo. Agency: Mutuales de Seguridad * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Chile 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Chile 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Chile? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 13.0 procedures, takes 152.0 days and costs and ease of doing business ranking at the end of this 0.7% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Chile - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Chile 25 DEALING WITH CONSTRUCTION PERMITS Globally, Chile stands at 62 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Chile to legally build a warehouse. Figure 3.2 How Chile and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Chile 26 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Chile are based on a BUILDING A WAREHOUSE set of specific procedures—the steps that a company must complete to legally build a warehouse— identified by Doing Business through information Estimated cost of collected from experts in construction licensing, CLP 373,819,906 construction : including architects, civil engineers, construction lawyers, construction firms, utility service providers City : Santiago and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and cost, to a company and structure matching the standard are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Chile - Time to No. Procedure Cost to complete complete Request and obtain indication on water and sewage availability with Sanitation Company 1 5 days no charge Agency: Sanitation Company * Request and obtain preliminary information from the Municipality 2 10 days no charge Agency: Municipality Request and obtain assessment from the Regional Sanitary Authority (Secretaría Regional Ministerial de Salud (Seremi)) The General Urbanism and Construction Ordinance of Chile (“Ordenanza General de Urbanismo y Construcciones) under Article 4.14.2 sets parameters for qualifying industrial or warehousing facilities into 4 categories: Dangerous, Unhealthy / Pollutant, Irritating or Harmless. Based on this Ordinance, warehousing or industrial establishments shall be assessed on a case by case basis by the respective Regional Sanitary Authority (“Secretaría Regional Ministerial 5 days CLP 16,000 3 (Seremi) de Salud”), taking into account the risks that the building may cause to their workers, neighborhood and community. A warehouse such as the one in the Doing Business case study would likely be rated "Harmless" because it is used for storage of non- hazardous items such as books. Agency: Regional Sanitary Authority (Secretaría Regional Ministerial de Salud (Seremi)) Doing Business 2015 Chile 27 Time to No. Procedure Cost to complete complete Request and obtain provisional installation permit from the Municipality To obtain a provisional permit for installation of temporary facilities, BuildCo’s architects must meet the Municipality’s architects to review 4 the drawings and designs. This permit enables BuildCo to have 5 days no charge bathrooms, electricity, and so forth on the construction site. Agency: Municipality * Request and obtain water and sewerage supply certificate from Sanitation Company Upon issuing the permit, the Municipality requests a copy of this certificate, proving that the company is able to obtain a water and 15days no charge 5 sewerage connection. Agency: Sanitation Company Request and obtain operation permit from the Regional Sanitary Authority 6 20 days no charge Agency: Regional Sanitary Authority (Secretaría Regional Ministerial de Salud (Seremi)) Request and obtain building permit BuildCo must obtain a municipal building permit. An external reviewer is also involved in this process. In 2005, a number of municipalities introduced a pilot program for a one-stop shop (la Ventanilla Transaccional de Trámites Municipales, VTM), an Internet platform where nine proceedings can be completed. The project was expected to be in full operation in 26 municipalities by 2006. The system is expected to cut processing time to 8 days. On 50 days CLP 2,115,751 7 January 12, 2006, the Municipality of Santiago introduced major changes to its regulatory plan (plano regulador) to regulate some omissions from the construction ordinance (ordenanza de construcción), without changing the current rules of construction. Some municipalities -- for example, Las Condes, Providencia, San Miguel, and Ñuñoa -- have restricted construction in terms of density and building height. The same restrictions were expected in Santiago in 2007. The latter is due to community pressures, reduced municipal revenues for this type of building permit, and the impact of the projects Doing Business 2015 Chile 28 Time to No. Procedure Cost to complete complete on public services and infrastructure. Other municipalities in the greater Santiago area are planning the opposite to attract investments, such as La Florida, San Bernardo, Maipú, and Quinta Normal. Environmental requirements are requested to obtain building permits, which in turn, can affect the schedule of a construction project. The plot for the case study warehouse would most likely be located in Los Andes, which has not been affected by either change. The cost of the building permit is 1.5% of the construction cost. The construction cost is calculated according to a fee schedule. The fee schedule is not based on a simple classification of buildings. There are two elements to consider: 1) classification based on material and structure used and 2) classification based on the amount of positive attributes that the building has. Regarding classification based on material, one can classify the building based on 9 different categories (A-I) depending on the materials (steel, concrete, wood, etc.) and structures used. Regarding the classification based on positive attributes, one can classify the building into 5 different categories based on the number points the building would obtain following the provided technical guide (design, structure, installations, and finishing of the building). The 5 different categories are: Category 1 – Superior (20 or more points); Category 2 - Medium superior (13-19 points); Category 3 - Medium (6-12 points); Category 4 - Medium inferior (0-5 points); Category 5 - Inferior (based on definition 2.3). The Doing Business warehouse would fall into classification A and obtains 3 points. Thus, the warehouse falls into classification "A4" (A because it is steel and 4 because it receives 3 points). Therefore, the cost per square meter is CLP 108450 Agency: Municipality Request and recieve inspection in the middle of construction 8 1 day no charge Agency: Municipality Request and obtain certificate of compliance for roads and sidewalks from SERVIU 9 10 days CLP 8,468 Agency: SERVIU Doing Business 2015 Chile 29 Time to No. Procedure Cost to complete complete * Request and obtain certificate of urbanization from DOM According to Decree N° 47 de 1992 del Minvu (OGUC) this is a requirement in order to obtain the final project approval. 38 days CLP 4,205 10 Agency: DOM Request and receive final inspection According to Decree N° 47 de 1992 del Minvu (OGUC) this is a requirement in order to obtain the final project approval. 1 day no charge 11 Agency: Municipality Request and obtain project approval The Municipality is notified of the project's completion after the independent inspector submits a positive project evaluation. 12 days no charge 12 Agency: Municipality * Receive connection to water services The connection takes place at any time upon BuildCo’s request (but within no more than 7 days maximum) for each utility service. 7 days CLP 315,671 13 Agency: Sanitation Company * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Chile 30 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Chile 31 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Chile? According to data collected by Doing Business, business city of an economy, except for 11 economies for getting electricity there requires 6.0 procedures, takes which the data are a population-weighted average of the 30.0 days and costs 62.1% of income per capita (figure 2 largest business cities. See the chapter on distance to 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Chile - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Chile 32 GETTING ELECTRICITY Globally, Chile stands at 49 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Chile to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Chile and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Chile 33 GETTING ELECTRICITY What are the details? The indicators reported here for Chile are based on a set OBTAINING AN ELECTRICITY CONNECTION of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility—identified by Name of utility: Chilectra Doing Business. Data are collected from the distribution utility, then completed and verified by electricity City: Santiago regulatory agencies and independent professionals such as electrical engineers, electrical contractors and The procedures are those that apply to a warehouse and construction companies. The electricity distribution utility electricity connection matching the standard surveyed is the one serving the area (or areas) in which assumptions used by Doing Business in collecting the warehouses are located. If there is a choice of data (see the section in this chapter on what the distribution utilities, the one serving the largest number indicators cover). The procedures, along with the of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Chile - Time to No. Procedure Cost to complete complete The customer submits a service application in person with Chilectra and awaits that Chilectra issues an estimate for the project The customer submits an application with Chilectra in person. Based on the application Chilectra will prepare a technical project for the connection and will issue an estimate of the costs. Chilectra requires a number of supporting documents with the application: • Address of the premise that is to be connected • Sketch of the location of the premise • Certificate of prior conditions ("Certificado de condiciones previas") • Construction plans detailing the layout of the floors (not needed for a warehouse) • Plan of the layout of infrastructure services (such as water and gas pipes) that might interfere with the civil works. Specifications of the type 1 of connection required (overhead/underground, 1- or 3-phased, 15 calendar days CLP 419,626.26 traditional or with a concentrador de medida) • Required load (in kW) • Type of consumption tariff requested, which can be for example AT-3, AT-4.3 if the metering is for medium voltage or BT-3, BT 4.3 if metering is for low voltage. The decision on which tariff to choose will depend on the consumption profile for the warehouse. • Coordinates of the customer (Name, tax registration number, bank account information, commercial address, telephone, legal representative) • Coordinates of the applicant (Name, tax registration number, bank account information, commercial address, telephone) • Coordinates of the contact person on the construction site to coordinate connection works. • Date by which the supply will be need to be turned on • In case that the maximum load will only be reached over time, indicate Doing Business 2015 Chile 34 Time to No. Procedure Cost to complete complete the a profile of the timeline Agency: Chilectra * Receive external inspection by Chilectra A few days after receiving the application Chilectra will conduct an inspection in situ to identify the exact connection point. 3 calendar days CLP 0 2 Agency: Chilectra * The customer has to sign the supply contract in front of a notary If the customer is the owner of a limited company, he has to sign the supply contract in front of a notary attesting to his role as the owner of 3 the company. 1 calendar day CLP 2,500 Agency: Notario The customer pays the connection costs and awaits that Chilectra executes the connection works The customer accepts the contract and submits the necessary supporting material such as the declaration in front of the notary and the power of attorney. For the finalization of the contract the acceptance of the cost estimate has to be accepted and paid for and the inspection certificate issued by the "Superintendencia de Electricidad y Combustibles (SEC)" on the internal wiring (Anexo TE-1 SEC) has to be submitted. The payment of the estimate can be done in one of the three offices of Chilectra determined for this purpose. For 3-phase connections the metering material is included in connection 14 calendar days CLP 4,223,689.15 4 tariff. Other items included in the tariff are current transformers and other material, inspections, approvals with the municipality and the civil works (excavation permit) needed for the connection . The price of the excavation permit to open a sidewalk (2 m width * 4 m long) for a period of 6 days in the town of Santiago is about 60,000 CLP. To sign the supply contract the following documents have to be submitted: • The declaration in front of the notary attesting to the fact that the customer is the owner of the building. If the owner is a company the declaration has to clarify the persons that are legally responsible for the actions of the company. • Certificate of the number of the relevant municipality (“Certificado de Doing Business 2015 Chile 35 Time to No. Procedure Cost to complete complete número Municipal”). • Copy of the identify document of the owner or legal representative of the company • Tax registration number of copy of the tax registration number (Rol Único Tributario - UT). • Coordinates of the person receiving the cost estimate for the connection and future consumption bills. • Relevant documents needed to grant the “way of right” for installation of transformers on the premises of the customer. Once the supply contract has been signed Chilectra will then carry out the actual connection works. Material for the connection is provided by Chilectra and always available. Agency: Chilectra * The customer receives approval of the internal installation works by the "Superintendencia de Electricidad y Combustibles (SEC)" The internal wiring of the client is his responsibility but needs to be authorized by the "Superintendencia de Electricidad y Combustibles (SEC)". Once the internal wiring has been completed the customer has to request an inspection by the "Superintendencia de Electricidad y Combustibles (SEC)". When applying for the inspection, the electrician in charge of the internal wiring has to submit a declaration that he has executed the installation works according to standards of the SEC. 5 SEC inspects the premise randomly and issues a certificate (Formulario 11 calendar days USD 0 SEC – T1). The legal time limit for the issuance of the certificate by SEC is 10 days (http://www.sec.cl/portal/page?_pageid=33,2256885&_dad=portal&_sch ema=PORTAL). The progress of the process can be checked on over the phone after the 5th working day by calling SEC (600 6000 732) or by contacting one of the organization's regional offices. Agency: Superintendencia de Electricidad y Combustible (SEC) * Receive final connection and meter installation The last step of the connection works (meter installation) can only be done after the internal wiring installation has been approved by the 14 calendar days CLP 0 6 Superintendencia de Electricidad y Combustibles (SEC). A minimum delay of two weeks is needed for this step to inform the surrounding community of the cut in electricity in order to connect the new customer. Doing Business 2015 Chile 36 Time to No. Procedure Cost to complete complete Agency: Chilectra * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Chile 37 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Chile 38 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Chile? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 6.0 procedures, takes which the data are a population-weighted average of the 28.5 days and costs 1.2% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Chile - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Chile 39 REGISTERING PROPERTY Globally, Chile stands at 45 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Chile to transfer property. Figure 5.2 How Chile and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Chile 40 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: CLP 373,819,906 notaries and property registries. These procedures are those that apply to a transaction matching the City: Santiago standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Chile Time to No. Procedure Cost to complete complete Conduct due diligence of the property A lawyer is contracted to conduct due diligence of the property’s legal history, for not less than 10 years. The lawyer will also obtain the documents described in Procedures 2-3 from the Property Registry and the Treasury, as well as undertake the registration formalities. Lawyer 9-21 days fees for the study of the titles, drafting of the contract and completing all (simultaneous About 1% of 1 the formalities involved in the registration Procedure range between 1 with Procedures 2 transaction value and 2.5% of the transaction value. While it is not legally required to and 3) employ a lawyer for the study and the registration, it is common practice. Agency: Property Registry * Request copies of property titles for the past 10 years, the ‘Certificado de Vigencia’ and certificate of encumbrance from Registry The copies of the property titles, the ‘Certificado de Vigencia’ and the Encumbrance certificate (‘Certificado de Hipotecas y Gravámenes y de Interdicciones y Prohibiciones de Enajenar’) can all be requested at the 7 days same time. Both documents are usually requested by the lawyer (simultaneous Included in 2 responsible for the diligence of the property. The copies of the property with Procedures 1 Procedure 5 titles are obtained in about 2 days while the certificates in 7 days. There and 3) is a possibility to request the copies online paying through the Internet (www.conservador.cl) and receiving the copies through the mail. Agency: Property Registry Doing Business 2015 Chile 41 Time to No. Procedure Cost to complete complete * Obtain evidence of complete payment of land tax from Treasury (Servicios de Tesorerías) The Property Taxes Debt Certificated (Certificado de Deuda de Less than a day Contribuciones) is granted by the Treasury (Tesorería General de la (online procedure República) and can be requested online www.tesoreria.cl. This document and simultaneous No cost 3 certificates that the property does not have debts regarding property with Procedures 1 taxes. and 2) Agency: Treasury (Servicios de Tesorerías) Execution and signing of the public deed Upon completion of the due diligence, the transfer public deed is CLP 30,000 (copies executed and signed before a Notary Public, by both parties. Jointly with the execution of the public deed, the Public Notary has the duty of and other complete the declaration about property transfer form (2890 Form). Two expenses at the copies of this form are required in order to register the ownership Notary’s office) + 4 transfer in the corresponding Property Registry. The Property Registry 2 days 0.1% of property conserve one copy, and the other one is send to de IRS (Servicio de price with a Impuesto Internos) with the purpose to complete and update the maximum charge property fiscal cadaster. of CLP 128,000 (Notary’s fees) Agency: Public Notary office Registration of the public deed at the Real Estate Office In the case of properties located in the cities of Santiago, Valparaíso and Viña del Mar the value is 0.2% of the property value. For other cities the value is 0.3%, with a maximum charge of approx, CLP 260,000. The parties can request the transfer personally at the registry the property transfer or online at the http://www.cbrsantiago.cl/portall_cbr/ website . The Registry checks the payment of all taxes related to the property. The registry has a digital record of all requests, but in the registry all the transfer is done on paper. The registry is based on a deed CLP 13,500 (copies system, and covers the City of Santiago and the great Santiago. and certificates) + 5 7-15 days 0.2% of the The Registry provides the information of the transaction and the value of property value the property and taxes to the SII within the first ten days of the following (Stamp duty) month. The time limit for the registry’s decision is 2 days, and there is a 2-month period for the parties to amend any mistake. Note: The registration time refers to the Registry in Santiago. Outside of Santiago, the time would be longer (up to 3 weeks). Agency: Real Estate Office Doing Business 2015 Chile 42 Time to No. Procedure Cost to complete complete Obtain a Property Certificate and a Mortgages and Ownership Limitations Certificate Once the registration has been completed, it is recommended to obtain from the Conservador de Bienes Raíces de Santiago (the Real Estate Office) 1) a copy of the Property Certificate stating the new ownership, 2) Mortgages and Ownership Limitations Certificate, stating the new ownership is clean. While this procedure is not legally required, it ensures that all the information is correct. If the registration was done Less than a day through the portal, the applicant can download the updated ownership (online No cost 6 certificate at the http://www.cbrsantiago.cl/portall_cbr/ website. procedure) There is no need for title insurance in Chile since the Registrar and the Notaries must personally answer for their mistakes on their functions. They hire responsible insurance for these cases. Outside of Santiago, it may take up to 2 weeks to obtain the title and certificates. Agency: Real Estate Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Chile 43 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Chile 44 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Chile stands at 71 in the ranking of 189 and bankruptcy laws in Chile facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 6 on the depth of credit rankings for comparator economies and the regional information index and a score of 4 on the strength of average ranking provide other useful information for legal rights index (see the summary of scoring at the end assessing how well regulations and institutions in Chile of this chapter for details). Higher scores indicate more support lending and borrowing. credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Chile and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Chile 45 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Chile and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Chile 46 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Chile (table 6.1)? Table 6.1 How has Chile made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Chile strengthened its secured transactions system by DB2012 implementing a unified collateral registry and a new legal framework for nonpossessory security interests. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Chile 47 GETTING CREDIT What are the details? The getting credit indicators reported here for Chile are The data on the legal rights of borrowers and lenders are based on detailed information collected in that economy. gathered through a survey of financial lawyers and The data on credit information sharing are collected verified through analysis of laws and regulations as well through a survey of a credit registry and/or credit bureau as public sources of information on collateral and (if one exists). To construct the depth of credit bankruptcy laws. For the strength of legal rights index, a information index, a score of 1 is assigned for each of 8 score of 1 is assigned for each of 10 aspects related to features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 4 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically Yes to the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's Yes name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Chile 48 Strength of legal rights index (0–12) Index score: 4 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through No public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No No 0 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes Yes 1 capita distributed? By law, do borrowers have the right to access their Yes Yes 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 60,732 145,650 Number of individuals 1,011,256 5,289,742 Percent of total 8.8 44.7 Doing Business 2015 Chile 49 Source: Doing Business database. Doing Business 2015 Chile 50 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Chile 51 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Chile? The economy has a score of 5.8 on not measure all aspects related to the protection of the strength of minority investor protection index, with a minority investors, a higher ranking does indicate that an higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Chile stands at 56 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Chile and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Chile 52 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Chile in 2014. A summary of scoring for the minority investors indicators into context is to see where protecting minority investors indicators at the end of this the economy stands in the distribution of scores across chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Chile 53 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Chile 54 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Chile 55 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Chile 56 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Chile (table 7.1)? Table 7.1 How has Chile strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform An amendment to Chile’s securities law strengthened investor protections by requiring greater corporate disclosure and DB2011 regulating the approval of transactions between interested parties. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Chile 57 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Chile are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Chile. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Chile Answer Score Extent of disclosure index (0-10) 8.0 Which corporate body can provide legally sufficient Board of directors excluding 2 approval for the Buyer-Seller transaction? (0-3) interested members Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction and 2 and/or shareholders required? (0-2) on the conflict of interest Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 6.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if negligent 1 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1 plaintiff? (0-1) Can both fines and imprisonment be applied against the Yes 1 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 6.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? No 0 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3 Doing Business 2015 Chile 58 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the Yes 1 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 5.8 Extent of conflict of interest regulation index (0-10) 6.7 Extent of shareholder rights index (0-10.5) 7.0 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the Yes for listed companies 1 external auditor? Can shareholders freely trade shares prior to a major No 0 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 4.5 Is the CEO barred from also serving as chair of the board of No 0 directors? Must the board of directors include independent board No 0 members? Must a company have a separate audit committee? No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 shares? Must a potential acquirer make a tender offer to all No 0 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its No 0 parent company? Extent of corporate transparency index (0-9) 3.5 Must ownership stakes representing 10% be disclosed? No 0 Must information about board members’ other directorships as well as basic information on their primary employment No 0 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes for listed companies 1 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Chile 59 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 5.0 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Chile 60 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Chile—and how much do firms pay in taxes? On frontier and ease of doing business ranking at the end of average, firms make 7.0 tax payments a year, spend this profile for more details. 291.0 hours a year filing, preparing and paying taxes and Globally, Chile stands at 29 in the ranking of 189 pay total taxes amounting to 27.9% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Chile. Figure 8.1 How Chile and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Chile 61 PAYING TAXES What are the details? The indicators reported here for Chile are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Santiago chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online filing 42 20% 21.2 profits gross Employment taxes 1 paid jointly 125 3.35% 4 salaries property Property tax 1 online filing 0 1.2% 1.8 value Municipal tax 1 online filing 0 0.5% capital 0.8 Vehicle license tax 1 0 fixed rate 3 UTM 0 included in Fuel tax 1 0 the price 0 of fuel small Municipal tax on cleanliness 0 paid jointly 0 fixed fee 0 amount value not Value added tax (VAT) 1 paid jointly 125 19% 0 added included gross Employee paid - Social 0 paid jointly 0 19.8% salaries 0 withheld security contributions Totals 7.0 291.0 27.9 Source: Doing Business database. Doing Business 2015 Chile 62 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Chile 63 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Chile? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 5 documents, doing business ranking at the end of this profile for more takes 15.0 days and costs $910.0. Importing the same details. container of goods requires 5 documents, takes 12.0 Globally, Chile stands at 40 in the ranking of 189 days and costs $860.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Chile to export and import goods. Figure 9.1 How Chile and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Chile 64 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Chile (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Chile made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Chile made trading across borders faster by implementing an DB2012 online electronic data interchange system for customs operations. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Chile 65 TRADING ACROSS BORDERS What are the details? The indicators reported here for Chile are based on a LOCATION OF STANDARDIZED COMPANY set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: San Antonio cover). Information on the required documents and the time and cost to complete export and import is City: Santiago collected from local freight forwarders, shipping lines, The predefined stages, and the associated time and cost, customs brokers, port officials and banks. for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Chile Stages to export Time (days) Cost (US$) Customs clearance and inspections 2 100 Documents preparation 7 220 Inland transportation and handling 3 400 Ports and terminal handling 3 190 Totals 15 910 Stages to import Time (days) Cost (US$) Customs clearance and inspections 2 100 Documents preparation 5 170 Inland transportation and handling 2 400 Ports and terminal handling 3 190 Totals 12 860 Doing Business 2015 Chile 66 Documents to export Bill of Lading Commercial Invoice Customs export declaration Packing List Technical standard/health certificate Documents to import Bill of lading Commercial Invoice Customs import declaration Packing list Technical standard/health certificate Source: Doing Business database. Doing Business 2015 Chile 67 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Chile 68 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial cities. See the chapter on distance to frontier and ease of dispute through the courts in Chile? According to data doing business ranking at the end of this profile for more collected by Doing Business, contract enforcement takes details. 480.0 days, costs 28.6% of the value of the claim and Globally, Chile stands at 64 in the ranking of 189 requires 36.0 procedures (see the summary at the end of economies on the ease of enforcing contracts (figure this chapter for details). Most indicator sets refer to a 10.1). The rankings for comparator economies and the case scenario in the largest business city of an economy, regional average ranking provide other useful except for 11 economies for which the data are a benchmarks for assessing the efficiency of contract population-weighted average of the 2 largest business enforcement in Chile. Figure 10.1 How Chile and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Chile 69 ENFORCING CONTRACTS What are the details? The indicators reported here for Chile are based on a COURT NAME set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what the Claim value: CLP 14,238,381 indicators cover). These procedures, and the time and cost of completing them, are identified through Court name: Santiago Civil Court study of the codes of civil procedure and other court regulations, as well as through questionnaires City: Santiago completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Chile OECD high Indicator Chile income average Time (days) 480 540 Filing and service 30 Trial and judgment 270 Enforcement of judgment 180 Cost (% of claim) 28.6 21.4 Attorney cost (% of claim) 15.0 Court cost (% of claim) 5.0 Enforcement Cost (% of claim) 8.6 Procedures (number) 36 32 Number of procedures (without bonus points) 36 Total number of procedures (including bonus points) 36 Doing Business 2015 Chile 70 No. Procedures Filing and service: 1 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 2 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 3 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Arrangements for physical delivery of summons and complaint: Plaintiff takes the necessary steps to * arrange for physical service of process on Defendant (e.g. instructing a court officer or a private bailiff). Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 4 made. Second attempt at physical delivery: If a first attempt is not ordinarily successful, a second attempt to 5 physically deliver the summons and complaint to Defendant is required by law or standard practice. (Check ‘yes’ only if a first attempt at physical delivery is not ordinarily successful) Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 6 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 7 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 8 report on the attachment of Defendant’s property to the judge. Hearing on pre-judgment attachment: A hearing takes place as a matter of law or standard practice to 9 resolve the question of whether Defendant’s assets can be attached prior to judgment. This process may include the submission of separate summons and petitions. Doing Business 2015 Chile 71 No. Procedures Trial and judgment: Defendant files preliminary objections.: Defendant presents preliminary objections to the court. * (Preliminary exemptions differ from answers on the merits. Examples of preliminary motions are motions to dismiss on the basis of the statute of limitations or jurisdictional objections, etc.) Checke Plaintiff’s answer to preliminary motions: Plaintiff responds to preliminary motions raised by Defendant. * Checked as ‘yes’ if preliminary motions are commonly raised (step 30) and if Plaintiff responds to them immediately. Judge’s resolution on preliminary objections: Judge decides on preliminary objections separ ately from the 10 merits of the case. Checked as ‘yes’ if preliminary objections are commonly made (step 30) and if judge resolves the question before rendering his decision. Defendant files an answer to Plaintiff’s claim: Defendant files a written pleadi ng which includes his answer 11 or defense on the merits of the case (see assumption 4). Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 12 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 13 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 14 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 15 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 16 hearing or trial (see assumption 5-a). Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 17 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 18 Writing of judgment: The judge produces a written copy of the judgment. Doing Business 2015 Chile 72 No. Procedures Court notification of availability of the written judgment: The court notifies the parties that the written 19 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 20 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 21 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 22 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 23 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 24 judgment. Plaintiff’s request for physical enforcement: As Plaintiff commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the Judge's order for physical enforcement: Judge orders the police to assist with the physical enforcement of 25 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment for Defendant’s moveable assets does not ordinarily involve physical seizure of the as Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 26 private bailiff requests Defendant to voluntarily comply with the judgment. Contestation of selection of assets identified for sale: A party, Plaintiff or Defendant, which was not 27 involved in the designation of the assets for attachment, contests the selection of assets for enforcement of judgment through a sale. 28 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 29 assets). Report on execution of attachment: A court enforcement officer or private bailiff delivers a report on the 30 attachment of Defendant's movable goods to the judge. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 31 opposes aspects of the enforcement process before the judge. Doing Business 2015 Chile 73 No. Procedures Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 32 newspapers. 33 Sale through public auction: The Defendant’s movable property is sold at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 34 applicable, to other creditors, according to the rules of priority). Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 35 Plaintiff had advanced previously. 36 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Chile 74 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Chile 75 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Chile characterize the top-performing economies. How scores 2.5 out of 3 points on the commencement of efficient are insolvency proceedings in Chile? According proceedings index, 4.5 out of 6 points on the to data collected by Doing Business, resolving insolvency management of debtor’s assets index, 1.0 out of 3 points takes 3.2 years on average and costs 14.5% of the on the reorganization proceedings index, and 2.0 out of debtor’s estate, with the most likely outcome being that 4 points on the creditor participation index. Chile’s total the company will be sold as piecemeal sale. The average score on the strength of insolvency framework index is recovery rate is 30.0 cents on the dollar. Most indicator 10.0 out of 16. sets refer to a case scenario in the largest business city of Globally, Chile stands at 73 in the ranking of 189 an economy, except for 11 economies for which the data economies on the ease of resolving insolvency (figure are a population-weighted average of the 2 largest 11.1). The rankings for comparator economies and the business cities. See the chapter on distance to frontier regional average ranking provide other useful and ease of doing business ranking at the end of this benchmarks for assessing the efficiency of insolvency profile for more details. proceedings in Chile. Figure 11.1 How Chile and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Chile 76 Source: Doing Business database. Doing Business 2015 Chile 77 Figure 11.2 Recovery Rate (0-100) - Chile Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Chile Source: Doing Business database. Doing Business 2015 Chile 78 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Chile LABOR MARKET REGULATION What are the details? The data reported here for Chile are based on a detailed regulations as well as secondary sources are reviewed to survey of labor market regulation that is completed by ensure accuracy. local lawyers and public officials. Employment laws and Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) 12 months Maximum length of fixed-term contracts, including renewals (months) 12 Minimum wage applicable to the worker assumed in the case study 427.79 (US$/month) Ratio of minimum wage to value added per worker 0.23 Source: Doing Business database. Doing Business 2015 Chile 80 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 6.0 Premium for night work (% of hourly pay) 0% Premium for work on weekly rest day (% of hourly pay) 0% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 15.0 Paid annual leave for a worker with 5 years of tenure (in working days) 15.0 Paid annual leave for a worker with 10 years of tenure (in working days) 15.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 15.0 working days) Source: Doing Business database. Doing Business 2015 Chile 81 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) n.a. Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Chile 82 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 23.1 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? Yes Health insurance existing for permanent employees? Yes Availability of courts or court sections specializing in labor disputes? Yes Source: Doing Business database. Doing Business 2015 Chile 83 Doing Business 2015 Chile 84 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Chile 85 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Chile 86 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Chile 87 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Chile 88