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Cover design: The Word Express Doing Business 2014 Ukraine 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 45 Getting credit .............................................................................................................................. 56 Protecting investors ................................................................................................................... 63 Paying taxes ................................................................................................................................ 72 Trading across borders .............................................................................................................. 79 Enforcing contracts .................................................................................................................... 87 Resolving insolvency .................................................................................................................. 96 Employing workers .................................................................................................................. 101 Data notes ................................................................................................................................. 108 Resources on the Doing Business website ............................................................................ 114 Doing Business 2014 Ukraine 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). 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, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Ukraine. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Ukraine 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start 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 Region: Europe & Central Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 45,593,300 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 3,500 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 112 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 140* investors, paying taxes, trading across borders, Change in rank: 28 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 58.44 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 50.97 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 7.44 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. 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 2014 Ukraine 6 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 2014 Ukraine 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Ukraine and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Ukraine 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Ukraine ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Ukraine 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Ukraine come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Ukraine 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Ukraine Kyrgyz Republic DB2014 Best performer globally Kazakhstan DB2014 Russian Federation Moldova DB2014 Ukraine DB2014 Ukraine DB2013 Belarus DB2014 Poland DB2014 Indicator DB2014 DB2014 Starting a Business 47 50 15 30 12 81 116 88 New Zealand (1) (rank) Procedures (number) 6 7 5 6 2 6 4 7 New Zealand (1)* Time (days) 21.0 22.0 9.0 12.0 8.0 7.0 30.0 15.0 New Zealand (0.5) Cost (% of income per 1.3 1.5 0.8 0.6 2.7 5.4 14.3 1.3 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 8.1 12.6 1.2 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 41 186 30 145 66 174 88 178 China (1) (rank) Hong Kong SAR, Procedures (number) 10 20 12 29 12 26 18 36 China (6) Time (days) 73.0 375.0 128.0 157.0 142.0 291.0 161.0 297.0 Singapore (26.0) Doing Business 2014 Ukraine 11 Kyrgyz Republic DB2014 Best performer globally Kazakhstan DB2014 Russian Federation Moldova DB2014 Ukraine DB2014 Ukraine DB2013 Belarus DB2014 Poland DB2014 Indicator DB2014 DB2014 Cost (% of income per 607.1 1,262.6 21.3 87.3 128.7 65.0 10.6 89.0 Qatar (1.1) capita) Getting Electricity 172 170 168 87 180 165 137 117 Iceland (1) (rank) Procedures (number) 10 11 7 6 7 7 6 5 10 Economies (3)* Time (days) 277 284 161 88 159 140 161 162 Germany (17) Cost (% of income per 178.0 192.3 431.7 65.3 2,256.4 542.1 205.2 293.8 Japan (0.0) capita) Registering Property 97 158 3 18 9 19 54 17 Georgia (1) (rank) Procedures (number) 8 10 2 4 4 5 6 4 4 Economies (1)* Time (days) 45.0 70.0 4.0 23.0 6.0 6.0 35.0 22.0 New Zealand (1.0)* Cost (% of property 1.9 3.7 0.0 0.1 0.3 0.9 0.4 0.1 5 Economies (0.0)* value) Getting Credit (rank) 13 24 109 86 13 13 3 109 Malaysia (1)* Strength of legal rights 9 9 3 4 10 9 9 3 10 Economies (10)* index (0-10) Depth of credit 5 4 5 5 4 5 6 5 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 60.3 0.0 0.0 0.0 0.0 0.0 Portugal (100.0)* (% of adults) Private bureau 28.3 23.3 0.0 45.6 32.1 4.5 82.8 59.2 22 Economies (100.0)* coverage (% of adults) Protecting Investors 128 127 98 22 22 80 52 115 New Zealand (1) (rank) Extent of disclosure 5 5 7 7 7 7 7 6 10 Economies (10)* Doing Business 2014 Ukraine 12 Kyrgyz Republic DB2014 Best performer globally Kazakhstan DB2014 Russian Federation Moldova DB2014 Ukraine DB2014 Ukraine DB2013 Belarus DB2014 Poland DB2014 Indicator DB2014 DB2014 index (0-10) Extent of director 2 2 0 6 5 3 2 2 Cambodia (10) liability index (0-10) Ease of shareholder 6 6 8 7 8 6 9 6 3 Economies (10)* suits index (0-10) Strength of investor 4.3 4.3 5.0 6.7 6.7 5.3 6.0 4.7 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 164 168 133 18 127 95 113 56 (1) Payments (number per Hong Kong SAR, 28 28 10 7 51 31 18 7 year) China (3)* United Arab Emirates Time (hours per year) 390 491 319 188 210 181 286 177 (12) Trading Across Borders 148 148 149 186 182 150 49 157 Singapore (1) (rank) Documents to export 6 6 9 10 9 7 5 9 Ireland (2)* (number) Time to export (days) 29 30 15 81 63 32 17 22 5 Economies (6)* Cost to export (US$ per 1,930 1,865 1,510 4,885 4,360 1,545 1,050 2,615 Malaysia (450) container) Documents to import 8 8 10 12 11 8 4 10 Ireland (2)* (number) Time to import (days) 28 33 30 69 75 35 14 21 Singapore (4) Cost to import (US$ per 2,505 2,455 2,315 4,865 5,150 1,870 1,025 2,810 Singapore (440) container) Enforcing Contracts 45 45 13 27 70 23 55 10 Luxembourg (1) (rank) Doing Business 2014 Ukraine 13 Kyrgyz Republic DB2014 Best performer globally Kazakhstan DB2014 Russian Federation Moldova DB2014 Ukraine DB2014 Ukraine DB2013 Belarus DB2014 Poland DB2014 Indicator DB2014 DB2014 Time (days) 378 378 275 370 260 337 685 270 Singapore (150) Cost (% of claim) 43.8 43.8 23.4 22.0 37.0 28.6 19.0 13.4 Bhutan (0.1) Procedures (number) 30 30 29 37 38 31 33 36 Singapore (21)* Resolving Insolvency 162 157 74 54 132 91 37 55 Japan (1) (rank) Time (years) 2.9 2.9 3.0 1.5 4.0 2.8 3.0 2.0 Ireland (0.4) Cost (% of estate) 42 42 22 15 15 9 15 9 Norway (1) Outcome (0 as piecemeal sale and 1 as 0 0 1 0 0 0 1 0 going concern) Recovery rate (cents on 8.2 8.7 36.9 43.2 21.7 32.8 54.8 42.8 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * 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 2014 Ukraine 14 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 Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. 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:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Ukraine 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ukraine? days, costs 1.3% of income per capita and requires According to data collected by Doing Business, starting paid-in minimum capital of 0.0% of income per capita a business there requires 6 procedures, takes 21.0 (figure 2.1). Figure 2.1 What it takes to start a business in Ukraine 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 2014 Ukraine 16 STARTING A BUSINESS Globally, Ukraine stands at 47 in the ranking of 189 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Ukraine to start a business. Figure 2.2 How Ukraine and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Ukraine 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Ukraine is keeping up—and where it is minimum capital required to start a business (figure falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Ukraine 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ukraine 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Ukraine (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Ukraine made starting a business easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. Ukraine eased business start-up by substantially reducing the DB2011 minimum capital requirement. Ukraine made starting a business easier by eliminating the DB2012 requirement to obtain approval for a new corporate seal. Ukraine made starting a business easier by eliminating the minimum capital requirement for company incorporation as DB2013 well as the requirement to have incorporation documents notarized. Ukraine made starting a business easier by eliminating the DB2014 requirement for registration with the statistics authority and by eliminating the cost for value added tax 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 2014 Ukraine 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Ukraine is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Kiev firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Tovarystvo z Obmezhenoyu professionals and the study of laws, regulations and Vidpovidalnistyu - Limited Liability Company publicly available information on business entry in Paid in Minimum Capital Requirement: None that economy. Following is a detailed summary of those procedures, along with the associated time Start-up Capital: 10 times GNI per capita and cost. These procedures are 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). Summary of procedures for starting a business in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Pay registration fee at the bank Under Law of Ukraine “On State Registration of Legal Entities and Individual Entrepreneurs” № 755-IV dated May 15, 2003 (effective from 1 day UHA 170 1 May 15, 2003) (http://zakon4.rada.gov.ua/laws/show/755-15state), state registration fee is 170 UAH Register at the Registration Office Currently, the LLC founders to enforce its registration with the state must submit to the Companies Registrar the following documents (s.24(1) of the Act of Ukraine "On State Registration of Legal Entities and Individual Entrepreneurs"): - application form (the format of the application form is standard and is approved with the Order of the Ministry of Justice of Ukraine dated 14 October 2011 No.3178/5); - original (copy or notarized copy) of the founders' decision on establishment of the LLC; 5 days free of charge 2 - 2 (two) copies of the LLC company charter executed by the founders; must not be filed in case the LLC will be established based on the model charter; in case the documents are filed in e-version (e- registration of the LLC), one copy must be filed; - document, which confirms payment of the LLC registration fee (bank receipt); in case the documents are filed in e-version (e-registration of the LLC), the e-confirmation certified with e-signature must be provided; - document evidencing the individual beneficiary owners of the LLC, in case the formal founders of the LLC are legal entities. Doing Business 2014 Ukraine 21 Time to No. Procedure Cost to complete complete Although, requirement to accompany the registration application with an instrument (e.g. lease or sale-and-purchase agreement) confirming company's entitlement to occupy the office premises where its management is to be located (registered address) was abolished, in practice, the Registration Office may still demand that such document be provided for verification. Register VAT at the State Tax Authority and obtain a VAT number As defined in the Tax Code of Ukraine No.2755-VI dated on December 02, 2012, if the total amount of transactions with delivery of goods or/and services, including the use of local or global computer network, charged (paid) during last 12 calendar months, totally exceeds UAH 300,000 (excluding VAT), such company is obliged to register as VAT taxpayer, except single tax payer company. Actually, Art. 182 of the 10 days free of charge 3 above mentioned Tax Code also provides option for voluntarily VAT taxpayer registration. If a company, doesn't registered as VAT taxpayer, imports on the custom territory of Ukraine in taxable amounts, such company will have pay VAT during customs clearance operations without registration as VAT taxpayer. Prepare a seal On 11 January 2011 the Ministry of Internal Affairs of Ukraine approved the Order No.17, which came into effect from 21 February 2011. This Order introduced the amendments to the procedure of making an LLC seal. The legislation, which was previously in effect, established an UAH 190-250, 4 obligation for the LLC to provide a seal-making company with a Permit 2 days depending on the for Making a Company Seal in order to get the seal produced. Such complexity of a seal Permits were issued by the local internal affairs departments at the location of the LLC registered office. The Order eliminated this requirement that substantially simplified the procedure. Open a permanent bank account In case a limited liability company did not open a bank account before state registration of a limited liability company, it must open the account after registration. Pursuant to Regulation 492 of the National bank of Ukraine, the following documents are required for opening the current bank account: bank’s charge or no 5 1 day charge (1) application on opening of the current account; (2) notarized copy of the registered charter; (3) bank signature specimen card certified by a notary. Pursuant to the Law of Ukraine "On Banks and Banking Activity", the banks must identify natural persons who are direct or indirect owners of Doing Business 2014 Ukraine 22 Time to No. Procedure Cost to complete complete the material participatory interest in the Ukrainian limited liability company and banks authorized additionally to require copies of documents or information necessary for identification of natural persons. Notify the District Tax Inspectorate of the opening of the permanent bank account In case a limited liability company did not open a bank account prior to the state registration of a limited liability company, the bank, Pursuant to the Tax Code, must notify the tax inspection about the account opening within 3 business days after the account opening. Within three business days after receiving a notification from the bank, the tax inspection must notify the bank on registration of the account or about 2 days no charge 6 refusal to register the account. In practice, notification of the tax inspection by bank and receiving answer from the tax inspection takes 1-2 business days. A limited liability company may use its account for outflow operations only after the bank receives notification from the tax inspection on registration of the respective account. * 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 2014 Ukraine 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 PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Ukraine 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 10 procedures, takes 73.0 days build a warehouse in Ukraine? According to data and costs 607.1% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Ukraine 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 2014 Ukraine 25 DEALING WITH CONSTRUCTION PERMITS Globally, Ukraine stands at 41 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Ukraine to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Ukraine and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Ukraine 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Ukraine is keeping up—and deal with construction permits (figure 3.3) help show where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Ukraine 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Ukraine 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Ukraine (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Ukraine made dealing with construction permits easier—or not? By Doing Business report year DB year Reform All new construction projects are now obliged to pay an infrastructure tax which increases the overall cost by UAH DB2009 212,865.7. Administrative backlog caused by delayed signing of First Deputy Head of Kiev City increase time by 33 days. DB2010 No reform as measured by Doing Business. Ukraine made dealing with construction permits easier by DB2011 implementing national and local regulations that streamlined procedures. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Ukraine made dealing with construction permits easier by introducing a risk-based approval system, eliminating DB2014 requirements for certain approvals and technical conditions and simplifying the process for registering real estate ownership rights. 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 2014 Ukraine 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Ukraine are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Kiev information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility UAH 9,582,356 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Ukraine —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain urban planning specifications and requirements for land plot development from the Main Department of Architecture and Urban Planning of the Kiev City State Administration The urban planning conditions and limitations are part of initial data required for development of design documentation. To obtain urban development specifications and requirements, applicant (BuildCo or the design company) submits to the Main Department of Architecture and Urban Planning of the Kyiv City State Administration the documents provided by the Urban Planning Activities Law, Order of Ministry of Regional Development dated July 07, 2011, № 109 “On approval of the provision of urban planning conditions and restrictions land development, their structure and content”, and the Resolution of Cabinet of Ministers of Ukraine of December 07, 2005 № 1176. Such documents include: 9 days no charge 1 1) application; 2) Copy of land title or land use document; 3) Situational plan of land plot; 4) excerpt from topographic plan (1:2000); 5) Certificate from urban planning cadastre (if available); 6) Cadastral plan of the land plot; 7) Photographs of the land plot including surrounding area; 8) Urban planning statement with technical and economic parameters of the object. The city planning conditions and restrictions set out requirements with respect to the planning and architectural solutions of the project based on the effective construction standards and regulations and the local urban planning documentation. These should not interfere with the engineering and architectural solutions of the project, unless only Doing Business 2014 Ukraine 30 Time to No. Procedure Cost to complete complete required by the need to protect the existing architectural, historical or cultural environment. The form of the city planning conditions and restrictions has been approved by the Order of Ministry of Regional Development dated July 07, 2011, № 109. The documents are checked for compliance with construction standards and regulations and the local urban planning documentation within 7 business days upon registration of the application. . In case of the positive outcome of such compliance check, the city planning conditions and restrictions are issued to the developer (BuildCo) within the mentioned 7-days period. If, however, the outcome is negative, e.g., because BuildCo’s construction intent is not in line with the urban planning documentation, the issuance of the urban planning conditions and limitations is denied. The written refusal is sent within the same 7- days period. If the developer's intention to construct the property does not comply with the city planning documentation, it can initiate the proceeding for the amendment of such documentation by filing a respective application with the Main Department of the City-Planning, Architecture and Urban Environment Design of the Kiev City State Administration which decides on the matter within 2 weeks in coordination with the relevant bodies (land resources, environmental and cultural protection authorities, sanitary and epidemiological stations) and submits its respective proposals to the Kiev City Council for the final approval. The implementation of the relevant practice of issuing city planning conditions and restrictions to developers has already started in Kiev. Upon obtaining of the city planning conditions and restrictions, the developer should apply for the technical conditions. These include the data on engineering and utility servicing of the to-be constructed property (the warehouse), including the sources of supply, connection points as well as the basic engineering parameters of the property. The city planning conditions and restrictions as well as the technical conditions are valid until completion of construction. The change of the owner (BuildCo) does not affect the validity of the city planning conditions and limitations and of the technical terms and conditions. Upon receipt of the technical terms and conditions, the BuildCo and the design company jointly prepare a design specification which is the third part of the initial data. The design specifications should comply with the city planning conditions and limitations and the technical terms and conditions. The design specifications refine the benchmark for design, with account for the specific features of the project. The design specification is approved by the owner (Build Co) and serves as the basis for the design company to prepare the design documentation. In accordance with Art. 29 of the Law of Urban Development, the benchmark data still includes: • Urban development conditions and restrictions • Technical conditions • Design assignment Doing Business 2014 Ukraine 31 Time to No. Procedure Cost to complete complete * Request and obtain technical terms and conditions from the water and sewage authority The application must include the plan, information on the expected volume of water and sewerage system use, and basic characteristics of the building. An unofficial fee estimated to UAH 2,895.00 might be paid by BuildCo. 2 The calculation of such fees is based on estimated labor expenditures in 21 days UAH 2,895 accordance with the Rules on using the central sewage and water supply systems as approved by Order of Ministry of Housing and Communal Services of Ukraine No. 190, from Jun 27th 2008 as further amended. * Request and obtain technical terms and conditions from the fixed telephone line provider The application must include the plan, information on the expected level of telephone service, and basic characteristics of the building. 3 14 days UAH 700 Regulation 489 does not include any official fee. An unofficial fee estimated to UAH 697.00 might be paid by BuildCo. A new regulation with a fee schedule might be passed in the coming future. * Request and obtain technical terms and conditions from the State Service of Ukraine for Emergency Situations 4 14 days no charge Project drawings are verified against the fire safety requirements. * Contribution to the city social and engineering-transport infrastructure As of January 27, 2007 according the Resolution of the Cabinet of Ministers of Ukraine, No. 40 which updates the Decree of Kiev City Council from February 27, 2003 "On shared participation (shares) of investors (Building Owners) creation of city social and engineering- transport infrastructure in Kiev City", the building which is set into 5 operation will be approved only after paying the obligatory share of 1 day UAH 179,712 participation fees of investor into development of social, civil, engineering and traffic infrastructure of the city of Kyiv. The amount of such contribution is defined by the Chief Department of Economics and Investments of the Kyiv Municipal State Administration in certificate on approval on the stage of elaborating the project documentation. According to Law of Ukraine "On Alteration of Some Legislative Acts of Ukraine Regarding Assistance of the Construction", dated September Doing Business 2014 Ukraine 32 Time to No. Procedure Cost to complete complete 16, 2008, No. 509-VI, there is a new order on paying the contribution to the city social and engineering-transport infrastructure. This amends the relevant Law of Ukraine “On the Planification and Building-up of the Territories", dated April 20, 2000, No. 1699-III. Under this amendment the following main features are introduced: • BuildCo should sign agreement with local municipal council (the Kyiv City Administration), where the terms of paying contribution to the city social and engineering-transport infrastructure (hereinafter -- "contribution payment") is to be stipulated; such agreement should be signed before the building permit is obtained • BuildCo should pay contribution payment after finishing the warehouse construction, but not later than one month after it • Contribution payment should not exceed 10% of warehouse construction budget (4% for residential buildings), excluding expenses related to obtaining the land plot for construction, installation building utility facilities and transport communications • If technical terms and conditions establish need for building new utility facilities outside of the land plot, the amount of contribution payment should be decreased by the cost of such expenses • Contribution payment should not be charged for rendering services, performing of works or transferring of any assets for benefits of local authorities The Decision of Kyiv City Council, dated December 302012 No.573/5385 stipulates special conditions for calculating contribution payment in paragraph 6.1: B o b = n j x s x k, where B ob - the amount of share participation developer (investor) for the construction project in the j-industry and national economic complex of the city; nj - standard amount of share participation developers (investors) in the creation of social, engineering and transport infrastructure of the city of Kiev with the assessment of the socio-economic value of construction projects for the city in the j-industry and national economic complex, their function; s - the total area of the object for which the contribution rate is determined; k - summarizing the correction factor. Generalizing the correction factor (k) is calculated for the following formula: from k = k x I i, wherein k of - zonal coefficient; I i - an index that takes into account inflation since 01.01.2009 before the month in which the calculation is carried out. It should be noted that the standard unit of investor participation in the construction of a warehouse in the tables in Appendix 16 is not defined. This structure can be regarded as "other non-residential premises" in the table. 2, for which the norm is 45.6 USD. per 1 m. m total area, or "other production areas" in the table. 3, for which the standard 54.4 USD. per 1 m. of the total area. Zonal coefficient depending on the area of construction as shown in Table 4 will be from 1 to 2.5 (areas where, in practice, are built warehouses). Inflation rate according to the State Statistics Committee: 2009 - 112.3 Doing Business 2014 Ukraine 33 Time to No. Procedure Cost to complete complete for 2010 - 109.1 for 2011 - 104.6 for 2012 - 99.6 4 months in 2013 - 100 The overall index of inflation - 127.6 The amount of share participation in the construction of a warehouse area of 1,300.6 square meters will be: B ob = 54,4 * 1300,6 * 1,27 * 2 = 179711.7. Submit declaration of the beginning of construction works The Law on Urban Development defines 3 types of permissive documents, which allow to start up the construction works depending on the category of complexity of the construction object, as follows: (1) notification submitted to State Inspection of Architectural and Building Control on commencement of construction works by the developer of the non-complex property being constructed pursuant to construction passport (private residential building with area not exceeding 300 sq.m. and not more than 2 floors, etc.); or (2) declaration on commencement of construction works that is registered by State Inspection of Architectural and Building Control in respect of objects of I-III categories of complexity; or (3) permit for execution of construction works that is issued by State Inspection of Architectural and Building Control in respect of the objects of IV-V categories of complexity. 6 14 days no charge BuildCo warehouse will not be attributed to IV or V categories of complexity. In view of the above, BuildCo can start the construction works upon the registration of declaration on commencement of the construction works with the respective State Inspection of Architectural and Building Control. According to the Resolution of the Cabinet of Ministers of Ukraine "On Some Issues of Preparatory and Building Works" as of 13 April 2011, No. 466, the registration of the declaration on beginning of the building works should be conducted within 5 working days as of the date of filing of such declaration by developer. The issuance of the permit for building works should be conducted within 10 working days as of the date of registration of the relevant developer's application. All permissive documents allowing conduction of construction works shall remain valid until completion of construction. Request and connect to water and sewage services 7 The Agency is Kyivvodokanal Joint Stock Company. 4 days UAH 700 The exact total price and other terms for connection the warehouse to Doing Business 2014 Ukraine 34 Time to No. Procedure Cost to complete complete water and sewage services should be stipulated in the agreement between the BuildCo as the customer and Kyivvodokanal Joint Stock Company as the supplier on the basis of project documentation elaborated for the purpose of connection. Therefore the cost provided above should be deemed as an average and approximate. * Request and connect to phone services The Ukrainian State Telecommunications Corporation (Ukrtelecom) is the monopolistic organization in this sphere, but not the only one. The other licensed enterprises can provide the communicational services. 8 The terms and conditions for connection the warehouse to phone 4 days UAH 120 services should be stipulated in agreement between the BuildCo as the customer and Ukrtelecom as the supplier. The fee is UAH 120.00. (http://www.ukrtelecom.ua/services/business/cityphone/tariff). Prepare and submit declaration of readiness to operate of the constructed warehouse to the State Inspection of Architectural and Building Control In accordance with Art. 39 of the Law of Ukraine "On Regulation of the City-Planning Activities" the commissioning of completed building projects belonging to categories I-III is carried out by registering the declaration of readiness with the State Inspection of Architectural and Building Control at no charge. The procedure for the commissioning of completed construction projects and the form to be used are defined by the Declaration of Cabinet of Ministers of Ukraine of March 13th 14 days no charge 9 2011 № 461. This Declaration defines the full list of documents that must be attached during submission. Ten working days after submission, the State Inspection of Architectural and Building Control verify that all necessary documents have been attached and record the declaration. Inspection of projects in belonging to categories I-III is not required by law. The date of acceptance of the facility is the date of registration of the declaration. Register the warehouse with the Registration Service of the Chief Department of Justice in the City of Kyiv The issuance of the ownership certificate and the registration of ownership rights are done with the same authority, during one single procedure. Effective January 1st 2013, the procedure for property 10 registration was changed due to amendments to the Law “On State 18 days UAH 239 Registration of Property Rights to Real Estate and Their Encumbrances” as of July 1st 2004 No. 1952-VI. By this reform, the registration of ownership rights to real estate is conducted according to the “Procedure on State Registration of Property Rights to Real Estate and Their Encumbrances” as approved by the Resolution of the Cabinet of Ministers of Ukraine as of June 22nd 2011, No. 703. Doing Business 2014 Ukraine 35 Time to No. Procedure Cost to complete complete With this reform, the power to conduct the state registration of ownership rights to real estate and issue such title documents to real estate as the ownership certificates has been transferred to the State Registration Service of Ukraine, which is coordinated by the Ministry of Justice of Ukraine. The registration shall be performed within the new State Register of Property Rights to Real Estate. Upon performance of the sate registration of ownership rights to warehouse, the BuildCo shall obtain: (1) the certificate confirming ownership rights to real property, and (2) extract from the State Register of Property Rights to Real Estate, both issued by Registration Service of the Chief Department of Justice in the city of Kyiv. The term for state registration of the BuildCo’s ownership rights to warehouse shall not exceed 14 business days as from the date of filing application by BuildCo. In accordance with the amendments to the Decree of the Cabinet Ministers of Ukraine No. 7-93 as of 21 January 1993 "On State Duty", the state duty to be paid by BuildCo for state registration equals to 7 tax-exempt minimum incomes, which amounts to UAH 119. In addition, BuildCo must pay UAH 120 for Ownership Certificate. * 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 2014 Ukraine 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a 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 Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Ukraine 37 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 277 days and costs 178.0% of connection in Ukraine? According to data collected by income per capita (figure 4.1). Doing Business, getting electricity there requires 10 Figure 4.1 What it takes to obtain an electricity connection in Ukraine 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 2014 Ukraine 38 GETTING ELECTRICITY Globally, Ukraine stands at 172 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Ukraine to connect a warehouse to electricity. Figure 4.2 How Ukraine and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Ukraine 39 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Ukraine Best performer in Best performer Indicator Ukraine DB2014 Ukraine DB2013 Europe & Central globally DB2014 Asia DB2014 Rank 172 170 San Marino (10) Iceland (1) Procedures (number) 10 11 San Marino (3) 10 Economies* (3) Time (days) 277 284 San Marino (45) Germany (17) Cost (% of income per capita) 178.0 192.3 Lithuania (48.1) Japan (0.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Ukraine 40 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Ukraine (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Ukraine made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Ukraine made getting electricity easier by streamlining the DB2014 process for obtaining a new connection. Source: Doing Business database. Doing Business 2014 Ukraine 41 GETTING ELECTRICITY What are the details? The indicators reported here for Ukraine are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Kiev utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: JSC Kievenergo verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for connection to Kievenergo and await technical conditions and conclude supply contract The customer submits to Kievenergo an application for an electricity connection. Attached to the application the customer has to submit a number of documents: a letter with a company seal requesting the connection, bank details of the applicant, company statute, registration certificate from the tax authorities, registration certificate of the company, certificate stating that the company is included in the national company registry, document stating the appointment of the CEO, property ownership certificate and location plan of the property to be 15 calendar days UAH 1,442.0 1 connected. After reviewing the application Kievenergo issues technical conditions. The technical conditions concern only the external connection. In general they may include instructions for construction of a new substation; lining of high-voltage and low-voltage cables; in a case of reconstruction works - participation of the subscriber in the given actions. | The application for technical conditions is submitted to the Department of Development (департамент перспективного развития) at Kievenergo which is then internally passed on to the Regional Office in the particular area of Kiev where the warehouse is located and the regional office determines the point of connection. Technicians in the Doing Business 2014 Ukraine 42 Time to No. Procedure Cost to complete complete Regional offices know the network and the substations in their area very well and usually do not need to visit the site for preparation of technical conditions. At this point the connection contract is concluded which outlines the responsibilities between the customer and the utility. | Await completion and approval of the external connection design by a private electrical design company Once the technical conditions are issued the customer hires a licensed project design company to prepare the electrical project design of the external connection. As part of the project design the company prepares a topogeodesic plan (топогеодезическую съемку М 1:500). The topogeodosic plan is prepared to determine the technical aspects of running cable through the landscape. At the same time the project design firm develops a project on the protection against corrosion of 10 kV cables if installation of a substation is required. These plans are developed simultaneously with the general electrical project design of the external connection. While the project is being developed the approval of the location of the substation connection to the network and/or the route of the cable 10 kV and 0.4 kV has to be obtained from Kievenergo and from the Main 2 Architectural Planning Organization. At this point the customer should 45 calendar days UAH 11,474.4 have an operation permit for the warehouse or Main Plan with the Landscape Allocation Plan. The approvals are obtained by the project design firm. If a substation is required before the project design is submitted for approval to Kievenergo it will have to be approved at the State Energy Inspectorate (Energonadzor/“Dergenergonaglyadu”). Considering the load (140 kW) when receiving an approval of the project of external connection from Kievenergo it is required to attach the project of the internal wiring of the warehouse which at this point should be approved as part of the general architectural design of the warehouse. Obtain an excavation permit at the Head Directorate for Control of Maintenance of Kiev. 3 Electrical contractor obtains the permit. 3 calendar days UAH 250.0 Doing Business 2014 Ukraine 43 Time to No. Procedure Cost to complete complete Await completion of the external connection works by a private electrical contractor Once the external connection design is ready and approved the external connection works can be carried out by a company which has licenses for external electrical connection works, for installing, testing and preparing substations 10/0.4 kV, for running 10 and 0.4 kV cable and which also has a certificate from an electrotechnical laboratory to take electrical measurements and to test high voltage equipment. If the customer hires a qualified electrical contractor he will have all of the above licenses. In addition, the customer or the electrical contractor should have on their team an employee who has special certificate (level 5) for dealing with high voltage equipment. 4 40 calendar days UAH 39,750.0 The installed 10 and 0.4 kV cable lines have to be transferred to the city as “Underground Communication” and the electrical contractor has to obtain technical certificates for the lines. First the electrical contractor has to visit the Main Architectural Planning Organization then Regional Cable Lines and then finally submit the whole package of documents to the Department of Development at Kievenergo and receive there the technical certificate. After the external connection works are finished electrical measurements have to be taken, and the cable lines, transformer and other electrical equipment including internal wiring have to be tested by the electrical contractor. After the testing the electrical contractor prepares a package of technical documents (more than 20 different documents). Await and obtain an inspection by the Acceptance Committee (приемочная комиссия Государственного Архитектурно Строительного Контроля) of the Inspectorate of the State Archictecture and Construction control The Committee consists of different members from government construction organizations. Kievenergo can be one of the members. The 11 calendar days no charge 5 Committee checks the external installation and internal wiring. They accept the installation for operation (прием в эксплуатацию) and issue an Act for the final operation. The inspection is related to the operation of the whole building but the Committee checks the electrical part as well. Await and obtain an external inspection carried out by Kievenergo Energosbyt 6 5 calendar days UAH 435.0 Kievenergo supply checks the meters. Doing Business 2014 Ukraine 44 Time to No. Procedure Cost to complete complete Await and obtain an external inspection carried out by the State Inspectorate for Protection of Workers The State Inspectorate for Protection of Workers inspects the completed 7 external connection works. Someone from the applicant’s party has to be 5 calendar days UAH 350.0 present. Conclude a supply contract with Kievenergo (Energosbyt) and a contract for maintenance of the installed substation To receive all the approvals required for energization (see next procedures) the customer has to first conclude a supply contract with Kievenergo (Energosbyt). The supply contract can be concluded only after all the inspections above are completed. 20 calendar days no charge 8 The documents for the supply contract can be sent by mail. It is required to submit a number of documents regarding internal wiring including a Technical Report of the tests of the internal wiring which should be completed after the internal wiring was finished by an electrician. Await issuance of various approvals from various departments of Kievenergo required for energization Once the supply contract is concluded the electrical contractor obtains from Kievenergo a package of documents which includes a form 9 specifying all the electrical parameters of the substation, its plan, 150 calendar days no charge approvals from the Inspectorates and a form which has to be signed in 14 to 15 various departments of Kievenergo to obtain a permission to turn the substation on and connect it to the 10 kV line. Submit a request to Kievenergo for a power turn on and electricity starts flowing Once the form is signed at all the department of Kievenergo the customer submits all the approvals and forms to the dispatcher 10 department of Kievenergo. The dispatcher department processes the 3 calendar days UAH 350.0 order which permits it to turn off the 10 kV cable line, do the testing of the high voltage cable and finally turn on the electricity for the substation. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Ukraine 45 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 immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Ukraine 46 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 45.0 days and costs 1.9% of the Ukraine? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Ukraine 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 2014 Ukraine 47 REGISTERING PROPERTY Globally, Ukraine stands at 97 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 Ukraine to transfer property. Figure 5.2 How Ukraine and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Ukraine 48 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Ukraine is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Ukraine 49 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Ukraine 50 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Ukraine (table 5.1)? Table 5.1 How has Ukraine made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Ukraine made property transfers faster by introducing an DB2013 effective time limit for processing transfer applications at the land cadastre in Kiev. Ukraine made transferring property easier by streamlining DB2014 procedures and revamping the property registration system. 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 2014 Ukraine 51 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 City: Kiev lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: UAH 1,518,419 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Ukraine—and the time and cost Time to No. Procedure Cost to complete complete Obtain the technical documentation from the Kiev Chief Administration on Land Ownership The buyer requests to develop the technical documentation (the development of such documentation is required by the applicable law in order to complete the registration of a title under the name of the new owner) and executes an agreement to prepare such documentation with 1 a separate division (enterprise) of the Kiev Chief Administration on Land 14 calendar days UAH 6,000 Ownership. It takes approximately 10-14 days to develop the documentation in such a case. The preparation of technical documentation will include the cadastral survey, the cadastral survey of adjacent property, and land area calculation. Evaluation of the price of the land The document on evaluation of the price of land can be provided either by the local divisions of the State Centre of the Land Cadastre, or by the legal entities that are licensed by the State Centre of the Land Cadastre for providing such services. In Kiev, such service would cost around 300 14 calendar days UAH 1000 2 UAH (around 60 USD) and take minimum 2 weeks. The procedure of evaluation of the price of land is quite complex, it includes land inspection, market research, etc. Evaluation of the price of land is required before the notarization of the agreement. Doing Business 2014 Ukraine 52 Time to No. Procedure Cost to complete complete Obtain the extract from the State Center of the Land Cadastre The extract from State Land Cadastre contains full information about the land plot (owner, location, use restrictions, encumbrances etc). The notary may not attest the agreement without such extract. The procedure is governed by Article 38 of the Registration Law and Paragraphs 162 - 186 of the CMU Resolution No 1051. While the CMU Resolution No 1051 allows the notary to obtain the extract electronically, this option is not available for technical reasons. The seller shall submit following documents in order to 3 obtain the extract: 14 calendar days UAH 53 - application in accordance with established form; - document confirming payment of fee for issuance of the extract; - document confirming powers of the person to request and obtain the extract. In addition to above-mentioned documents, the seller shall present original document confirming ownership rights to the land plot (e.g. the state act of ownership rights) and personal identification document. The extract is valid for 3 months. Notary registers ownership rights for a seller in the new State Register of Property Rights to Immovable Property From January 01, 2013, a new State Register of Property Rights to Immovable Property (“Register of Property Rights”) has been launched. Unlike to the State Land Cadastre, which automatically absorbed information about all existing land plots from the (no longer active) State Register of Lands, the Register of Property Rights does not contain information about the ownership rights on immovable property which have been registered before January 01, 2013. For this reason, prior to execution of the Property sale and purchase agreement, the seller has to register Less than a day 4 ownership rights to the Property in the new Register of Property Rights. (online UAH 1700 procedure) The registration of seller's ownership rights to the property is performed by the notary attesting the sale and purchase agreement. The seller shall provide to the notary: - ownership documents to the Property; - application in accordance with established form; - documents confirming payment of registration fees. The notary: (1) checks the seller’s ownership documents; (2) records seller's ownership rights in the Register of Property Rights; and (3) issues an extract from the Register of Property Rights confirming seller’s ownership rights to the property. Doing Business 2014 Ukraine 53 Time to No. Procedure Cost to complete complete Obtain the extract from the State Register of Encumbrances over movable property Less than a day The notary will verify through this procedure that the tax authorities do (online UAH 34 5 not have any security interest over the real property. Since January 2013, procedure) the notaries can obtain this information online. * Check for encumbrances at the State Registry of Property Rights on Immovable Property The notary searches the former State Register of Ownership Rights to Immovable Property, State Register of Mortgages, State Register of Immovable Property Alienation Bans and State Register of Encumbrances over Movable Property. Less than a day From January 01, 2013, three state registers containing information (online about encumbrances on immovable property – (1) State Register of procedure; 6 Mortgages; (2) State Register of Immovable Property Alienation Bans; UAH 136 simulteneous and (3) State Register of Encumbrances over Movable Property (in with procedures 7 respect of tax liens) – are inactive. These registers serve only as a source & 8) of information for the notary who transfers the relevant encumbrances from these registers to the Register of Property Rights upon first-time registration of ownership rights to immovable property in the Register of Property Rights (Procedure 4). Therefore, to verify encumbrances on the property ownership rights to which have been registered in the Register of Property Rights, the notary will search only in this register. * Prepare and notarize the sale agreement (land and building) The sale purchase agreement of the building is notarized by a private or public notary. Notary’s fees are agreed among parties. There could be one single agreement underpinning both sale of building and sale of land or be two separate agreements: the sale of building (warehouse) and the sale of land parcel. Parties can prepare the sale agreements by themselves before notarization, but usually the notary prefers to use his 1% of transaction standard proforma. State Duty (fee) is paid to the notary and equals 1% value of the land of the transactional value of the building. The buyer of the building will 1 day (state duty) + 1% also pay a special assessment in the amount of 1% of building’s (simulteneous 7 of transaction transactional value to the State Pension Fund. The buyer can make the with procedures 6 value of the land payment to the State Pension Fund prior to the notarization of building & 8) (state duty) + UAH sale agreement or provide the notary with the money to make such payment. The documentation shall include: 3,000 Notary fees (1) the title document to the building, (2) the extract from the State Registry of Proprietary Rights and their Encumbrances, (3) the expert evaluation report on building (required by most notaries; may be ordered on commercial basis at a licensed valuation entity; in the case study situation will cost aprx. UAH 2500 and obtained within 2 Doing Business 2014 Ukraine 54 Time to No. Procedure Cost to complete complete business days), (4) the copy of the Seller's statutory documents + tax certificate (form 4- OPP), (5) the extract from the Unified State Register of Legal Entities for the Seller, (6) the copy of the Buyer' statutory documents + tax certificate (form 4- OPP), (7) the extract from the Unified State Register of Legal Entities for the Buyer, (8) the owners' decision to sell the building, (9) the power of attorney or the owner's decision to represent the Seller, (10) the power of attorney or the owner's decision to represent the Buyer, (11) the copy of the Representatives' passports and a tax ID codes. On- site inspection is not performed. The notary certifies agreement, makes inscription on the State Certificate on Land Ownership as to the transference of title over parcel of land to new owner, registers information as to the transaction in the Unified State Registry of Transactions and issues an extract from this registry on above mentioned transaction. * Notary registers Buyer's ownership rights on a property at the Register of Property Rights From January 01, 2013, the registration of ownership rights to immovable property (other than newly constructed building/newly alloted land plot in some other cases) is performed by notaries attesing the sale and purchase agreement (Articles 3.5, 9 of the Law of Ukraine “On State Registration of Property Rights to Immovable Property and Their Encumbrances”). Less than a day (online Following notarial attestation of the Property sale and purchase procedure; 8 agreement, the notary shall register Buyer’s ownership rights to the UAH 1,700 simulteneous Property in the Register of Property Rights. The procedure of registration with procedures 6 is governed by Articles 15-24 of the Law of Ukraine “On State & 8) Registration of Property Rights to Immovable Property and Their Encumbrances” No 1952-IV of July 01, 2004, as restated and amended, and the Resolution of Cabinet of Ministers of Ukraine No 703 dated June 22, 2011, as amended (“CMU Resolution No 703”). The registration is performed by the notary based on the Buyer’s application (in accordance with established form) and the Property sale and purchase agreement. Upon registration of Buyer’s ownership rights to the Property, the notary issues an extract from the Register of Property Rights for the Buyer. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2014 Ukraine 55 Source: Doing Business database. Doing Business 2014 Ukraine 56 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 lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Ukraine 57 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Ukraine stands at 13 in the ranking of 189 collateral and bankruptcy laws in Ukraine facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 9 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Ukraine support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Ukraine and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Ukraine 58 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Ukraine support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Ukraine over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 24 13 Strength of legal rights 5 9 9 9 9 9 9 9 9 9 index (0-10) Depth of credit 0 0 0 0 3 3 4 4 4 5 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 0.0 0.0 3.0 3.0 10.1 17.0 23.3 28.3 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ukraine 59 GETTING CREDIT One way to put an economy’s score on the getting shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Ukraine in 2013 and Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 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. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Ukraine 60 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Ukraine (table 6.2)? Table 6.2 How has Ukraine made getting credit easier—or not? By Doing Business report year DB year Reform Ukraine created a new private credit bureau. Banks can now DB2009 obtain credit information from potential borrowers to evaluate their creditworthiness. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Ukraine improved access to credit information by beginning to DB2014 collect data on firms from financial institutions. 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 2014 Ukraine 61 GETTING CREDIT What are the details? The getting credit indicators reported here for Ukraine The data on the legal rights of borrowers and lenders are based on detailed information collected in that are gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as collected through a survey of a credit registry and/or well as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, credit information index, a score of 1 is assigned for a score of 1 is assigned for each of 8 aspects related to each of 6 features of the credit registry or credit legal rights in collateral law and 2 aspects in bureau (see summary of scoring below). bankruptcy law. Summary of scoring for the getting credit indicators in Ukraine Europe & Central OECD high income Indicator Ukraine Asia average average Strength of legal rights index (0-10) 9 7 7 Depth of credit information index (0-6) 5 5 5 Public registry coverage (% of adults) 0.0 33.9 42.9 Private bureau coverage (% of adults) 28.3 48.2 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional a verages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 9 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes 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, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Ukraine 62 Strength of legal rights index (0–10) Index score: 9 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured No creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 5 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 100,000 0 Number of individuals 9,000,000 0 Source: Doing Business database. Doing Business 2014 Ukraine 63 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to eviden ce before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Ukraine 64 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Ukraine? The economy has a score of 4.3 on measure all aspects related to the protection of the strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Ukraine stands at 128 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Ukraine and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Ukraine 65 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Ukraine protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Ukraine over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 127 128 Extent of disclosure 1 1 1 1 5 5 5 5 5 index (0-10) Extent of director 3 3 3 3 2 2 2 2 2 liability index (0-10) Ease of shareholder 6 6 6 6 6 6 6 6 6 suits index (0-10) Strength of investor protection index (0- 3.3 3.3 3.3 3.3 4.3 4.3 4.3 4.3 4.3 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ukraine 66 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Ukraine in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Ukraine 67 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Ukraine 68 PROTECTING INVESTORS The scores recorded over time for Ukraine on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Ukraine 69 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Ukraine (table 7.2)? Table 7.2 How has Ukraine strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Ukraine enhanced the protection of investors by adopting a new law on Joint Stock Companies that regulates approval of transactions between interested parties, increases disclosure DB2010 requirements in the annual report, and makes it easier to sue directors in cases of prejudicial transactions between interested parties. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Ukraine 70 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Ukraine are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Ukraine. Summary of scoring for the protecting investors indicators in Ukraine Europe & Central OECD high income Indicator Ukraine Asia average average Extent of disclosure index (0-10) 5 6 7 Extent of director liability index (0-10) 2 5 5 Ease of shareholder suits index (0-10) 6 6 7 Strength of investor protection index (0-10) 4.3 5.7 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 5 What corporate body provides legally sufficient Board of directors and Mr. James is 2 approval for the transaction? not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published 1 Disclosure on the transaction only periodic filings (annual reports) is required? Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 2 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller transaction causes 0 Not liable to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Ukraine 71 Score Score description Whether a court can void the transaction upon a Not possible or only in case of Seller's 0 successful claim by a shareholder plaintiff? fraud or bad faith Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 0 No the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 6 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 0 No lower than that of criminal cases? Strength of investor protection index (0-10) 4.3 Source: Doing Business database. Doing Business 2014 Ukraine 72 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based 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 at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on 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 25.5%. Doing Business 2014 Ukraine 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Ukraine stands at 164 in the ranking of 189 taxes in Ukraine—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 28 tax payments a year, rankings for comparator economies and the regional spend 390 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 54.9% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Ukraine. details). Figure 8.1 How Ukraine and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Ukraine 74 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Ukraine is keeping up—and required to prepare and file taxes (figure 8.2) help where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Ukraine 75 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Ukraine 76 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Ukraine (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Ukraine made paying taxes easier—or not? By Doing Business report year DB year Reform Several social security tax rates were adjusted s follows: pension fund (from 33.2% to 31.8%), social security fund (from 1.5% to DB2009 2.9%) and social insurance for accidents at work (2.18% to 2.29%). DB2010 No reform as measured by Doing Business. Ukraine eased tax compliance by introducing and continually DB2011 enhancing an electronic filing system for value added tax. Ukraine made paying taxes easier and less costly for firms by DB2012 revising and unifying tax legislation, reducing corporate income tax rates and unifying social security contributions. Ukraine made paying taxes easier by implementing electronic DB2013 filing and payment for medium-size and large enterprises. Ukraine made paying taxes easier for companies by simplifying DB2014 tax returns and further improving its electronic filing system. 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 2014 Ukraine 77 PAYING TAXES What are the details? The indicators reported here for Ukraine are based LOCATION OF STANDARDIZED COMPANY on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see the City: Kiev section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Ukraine Europe & Central OECD high income Indicator Ukraine Asia average average Payments (number per year) 28 26 12 Time (hours per year) 390 246 175 Profit tax (%) 11.2 9.0 16.1 Labor tax and contributions (%) 43.1 22.6 23.1 Other taxes (%) 0.7 7.0 2.0 Total tax rate (% profit) 54.9 38.7 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. 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 gross Unified Social Contribution 24 140 38.19% 43.1 salaries taxable Corporate income tax 1 online filing 100 21% 11.2 profit various Land tax 1 online filing 0 land area 0.7 rates Doing Business 2014 Ukraine 78 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 weight of various contamina small Environmental taxes 1 online filing 0 0 rates nts amount discharged value not Value added tax (VAT) 1 online filing 150 20% 0 added included Totals 28 390 54.9 Source: Doing Business database. Doing Business 2014 Ukraine 79 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 Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in 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 Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Ukraine 80 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Ukraine? Globally, Ukraine stands at 148 in the ranking of 189 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 29 days and costs $1930. Importing and the regional average ranking provide other useful the same container of goods requires 8 documents, information for assessing how easy it is for a business takes 28 days and costs $2505 (see the summary of in Ukraine to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Ukraine and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Ukraine 81 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where globally on the documents, time or cost required to Ukraine is keeping up—and where it is falling behind. export or import (figure 9.2) help show what is Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Ukraine 82 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Ukraine 83 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ukraine 84 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 tools to facilitate trade—including single windows, Business recorded in Ukraine (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Ukraine made trading across borders easier—or not? By Doing Business report year DB year Reform Due to port infrastructure and services improvements, the DB2009 import time decreased. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Ukraine made trading across borders more difficult by DB2012 introducing additional inspections for customs clearance of imports. DB2013 No reform as measured by Doing Business. Ukraine made trading across borders easier by releasing DB2014 customs declarations more quickly and reducing the number of physical inspections. 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 2014 Ukraine 85 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ukraine are based LOCATION OF STANDARDIZED COMPANY on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Kiev the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Ukraine Europe & Central OECD high income Indicator Ukraine Asia average average Documents to export (number) 6 7 4 Time to export (days) 29 25 11 Cost to export (US$ per container) 1,930 2,109 1,070 Documents to import (number) 8 8 4 Time to import (days) 28 26 10 Cost to import (US$ per container) 2,505 2,339 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 22 250 Customs clearance and technical control 1 300 Ports and terminal handling 3 430 Inland transportation and handling 3 950 Totals 29 1,930 Procedures to import Time (days) Cost (US$) Documents preparation 20 555 Doing Business 2014 Ukraine 86 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 2 350 Ports and terminal handling 3 600 Inland transportation and handling 3 1,000 Totals 28 2,505 Documents to export Documents to import Bill of lading Bill of Lading Certificate of Origin Certificate of origin Commercial invoice Commercial invoice Customs export declaration Customs import declaration Packing list Declaration of Conformity Sales-purchase contract Delivery order Source: Doing Business database. Packing list Sales purchase contract Doing Business 2014 Ukraine 87 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 Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The 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.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Ukraine 88 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Ukraine stands at 45 in the ranking of 189 dispute through the courts in Ukraine? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, contract enforcement 10.1). The rankings for comparator economies and the takes 378 days, costs 43.8% of the value of the claim regional average ranking provide other useful and requires 30 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Ukraine. Figure 10.1 How Ukraine and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Ukraine 89 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Ukraine is keeping up—and to enforce a contract through the courts (figure 10.2) where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Ukraine 90 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Ukraine 91 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Ukraine (table 10.1)? Table 10.1 How has Ukraine made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Ukraine amended legislation to streamline commercial dispute DB2012 resolution and increase the efficiency of enforcement procedures. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. 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 2014 Ukraine 92 ENFORCING CONTRACTS What are the details? The indicators reported here for Ukraine are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter City: Kiev on what the indicators cover). These procedures, and the time and cost of completing them, are Claim Value LCU: 56206 identified through study of the codes of civil procedure and other court regulations, as well as Court Name: Kiev Commercial Court through surveys completed by local litigation lawyers (and, in a quarter of the economies The procedures for resolving a commercial lawsuit, and covered by Doing Business, by judges as well). the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Ukraine—and the time and cost Europe & Central OECD high income Indicator Ukraine Asia average average Time (days) 378 441 529 Filing and service 48 Trial and judgment 150 Enforcement of judgment 180 Cost (% of claim) 43.8 25.3 21.0 Attorney cost (% of claim) 25.0 Court cost (% of claim) 7.4 Enforcement Cost (% of claim) 11.4 Procedures (number) 30 37 31 Number of procedures (without bonus points) 31 Specialized commercial courts -1 Total number of procedures (including bonus 30 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Ukraine 93 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 3 assigning a reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random * procedure, automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 4 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either 5 physical or achieved by registering, marking, debiting or separating assets. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 6 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff 7 will be allowed to answer Defendant's defense or answer. Doing Business 2014 Ukraine 94 No. Procedure Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 8 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and 9 transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 10 adjournment to submit written pleadings. 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 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 11 appointing an independent expert. (see assumption 6-b of this case) 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 6-b of this case) * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 12 adjournment to prepare for the oral hearing or trial. Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 13 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 14 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 15 Judgment date: The judge sets a date for delivery of the judgment. 16 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 17 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 18 judgment. 19 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Notification of Defendant of judgment: Plaintiff or court formally notifies the Defendant of the judgment. 20 The appeal period starts to run the day the Defendant is formally notified of the judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 21 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 22 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Doing Business 2014 Ukraine 95 No. Procedure Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented * by a lawyer during the enforcement of judgment phase. Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 23 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for 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. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 25 (private) bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 26 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 27 assets). Valuation or appraisal of attached movable goods: The court or court appointed valuation expert 28 evaluates the attached goods. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 29 opposes aspects of the enforcement process before the judge. 30 Sale through public auction: The Defendant’s movable property is sold at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 31 Plaintiff had advanced previously. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Ukraine 96 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and 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 Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Ukraine 97 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 8.2 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Ukraine? Globally, Ukraine stands at 162 in the ranking of 189 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 2.9 years on average and 11.1). The rankings for comparator economies and the costs 42% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Ukraine. Figure 11.1 How Ukraine and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Ukraine 98 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Ukraine is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Ukraine 99 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Ukraine 100 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Ukraine (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Ukraine made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Ukraine amended its legislation on enforcement, introducing DB2012 more guarantees for secured creditors. DB2013 No reform as measured by Doing Business. Ukraine made resolving insolvency easier by strengthening the rights of secured creditors, introducing new rehabilitation DB2014 procedures and mechanisms, making it easier to invalidate suspect transactions and shortening the statutory periods for several steps of the insolvency process. 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 2014 Ukraine 101 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Ukraine 102 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Ukraine other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Ukraine 103 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Ukraine adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Ukraine make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Ukraine 104 EMPLOYING WORKERS What are the details? The data on employing workers reported here for public officials. Employment laws and regulations as Ukraine are based on a detailed survey of employment well as secondary sources are reviewed to ensure regulations that is completed by local lawyers and accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes No limit. (Except for seasonal works where the duration or a single fixed-term Maximum length of a single fixed-term contract (months) contract may not exceed the duration of a season--6 months at the most.) Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 132.2 Ratio of minimum wage to value added per worker 0.32 Source: Doing Business database. Doing Business 2014 Ukraine 105 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal No increase in production? Maximum working days per week 5.5 Premium for night work (% of hourly pay) in case of continuous 20% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 18.0 Paid annual leave for a worker with 5 years of tenure (in working days) 18.0 Paid annual leave for a worker with 10 years of tenure (in working days) 18.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 18.0 working days) Source: Doing Business database. Doing Business 2014 Ukraine 106 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data 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? Yes Priority rules for redundancies? Yes Priority rules for reemployment? Yes Source: Doing Business database. Doing Business 2014 Ukraine 107 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 8.7 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 8.7 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 4.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Ukraine 108 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Ukraine 109 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Ukraine 110 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Ukraine 111 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Ukraine 112 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Ukraine 114 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Ukraine 115