92152 Doing Business 2015 Ukraine Economy Profile 2015 Ukraine Doing Business 2015 Ukraine 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Ukraine 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 42 Getting credit .............................................................................................................................. 51 Protecting minority investors ................................................................................................... 58 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 71 Enforcing contracts .................................................................................................................... 76 Resolving insolvency .................................................................................................................. 83 Labor market regulation ........................................................................................................... 88 Distance to frontier and ease of doing business ranking ...................................................... 94 Resources on the Doing Business website .............................................................................. 97 Doing Business 2015 Ukraine 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Ukraine. To allow useful comparison, it also information on ordering Doing Business 2015, are provides data for other selected economies (comparator available on the Doing Business website at economies) for each indicator. The data in this report are http://www.doingbusiness.org. current as of June Doing Business 2015 Ukraine 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Ukraine 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: Europe & Central Asia based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 45,489,600 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,960 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 96 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 112* distance to the best performance in each Doing Business Change in rank: 16 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 61.5 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 59.2 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 2.3 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Ukraine THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Ukraine THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Ukraine and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Ukraine 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Ukraine (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Ukraine (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Ukraine 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Ukraine come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Ukraine 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Ukraine Kyrgyz Republic DB2015 Best performer globally Kazakhstan DB2015 Russian Federation Moldova DB2015 Ukraine DB2015 Ukraine DB2014 Belarus DB2015 Poland DB2015 Indicator DB2015 DB2015 Starting a Business 76 69 40 55 9 35 85 34 New Zealand (1) (rank) Starting a Business (DTF 87.35 87.34 91.88 90.19 96.35 92.16 85.79 92.17 New Zealand (99.96) Score) Procedures (number) 6.0 6.0 5.0 6.0 2.0 5.0 4.0 4.4 New Zealand (1.0)* Time (days) 21.0 21.0 9.0 10.0 8.0 6.0 30.0 11.2 New Zealand (0.5) Cost (% of income per 1.2 1.3 0.8 0.5 2.4 4.6 12.9 1.2 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 12.3 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 70 68 51 154 42 175 137 156 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 75.29 75.26 78.20 58.39 78.80 48.11 62.97 56.70 China (95.53) (DTF Score) Doing Business 2015 Ukraine 12 Kyrgyz Republic DB2015 Best performer globally Kazakhstan DB2015 Russian Federation Moldova DB2015 Ukraine DB2015 Ukraine DB2014 Belarus DB2015 Poland DB2015 Indicator DB2015 DB2015 Hong Kong SAR, Procedures (number) 8.0 8.0 14.0 25.0 10.0 27.0 19.0 19.8 China (5.0) Time (days) 64.0 64.0 114.0 156.0 141.0 247.0 212.0 238.4 Singapore (26.0) Cost (% of warehouse 10.2 10.3 0.8 1.5 2.1 0.8 0.3 1.9 Qatar (0.0)* value) Getting Electricity 185 182 148 97 168 149 64 143 Korea, Rep. (1) (rank) Getting Electricity (DTF 32.65 32.60 59.90 72.96 49.64 59.72 79.19 60.89 Korea, Rep. (99.83) Score) Procedures (number) 10.0 10.0 7.0 6.0 7.0 7.0 3.0 5.6 12 Economies (3.0)* Time (days) 277.0 277.0 131.0 88.0 159.0 118.0 161.0 179.1 Korea, Rep. (18.0)* Cost (% of income per 165.5 178.0 364.1 56.6 1,872.2 865.1 20.8 321.0 Japan (0.0) capita) Registering Property 59 88 3 14 6 22 39 12 Georgia (1) (rank) Registering Property 74.82 68.21 96.67 89.83 93.25 86.10 80.30 91.27 Georgia (99.88) (DTF Score) Procedures (number) 7.0 8.0 2.0 4.0 3.0 5.0 6.0 3.0 4 Economies (1.0)* Time (days) 27.0 45.0 4.0 11.0 5.0 5.5 33.0 19.0 3 Economies (1.0)* Cost (% of property 2.0 2.4 0.0 0.1 0.3 0.9 0.3 0.1 4 Economies (0.0)* value) Getting Credit (rank) 17 14 104 71 36 23 17 61 New Zealand (1) Getting Credit (DTF 75.00 75.00 40.00 50.00 65.00 70.00 75.00 55.00 New Zealand (100) Score) Strength of legal rights 8 8 2 3 8 8 7 4 3 Economies (12)* index (0-12) Doing Business 2015 Ukraine 13 Kyrgyz Republic DB2015 Best performer globally Kazakhstan DB2015 Russian Federation Moldova DB2015 Ukraine DB2015 Ukraine DB2014 Belarus DB2015 Poland DB2015 Indicator DB2015 DB2015 Depth of credit 7 7 6 7 5 6 8 7 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 64.5 0.0 0.0 0.0 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 48.0 28.3 0.0 51.7 38.2 8.8 84.3 64.6 23 Economies (100.0)* (% of adults) Protecting Minority 109 107 94 25 35 56 35 100 New Zealand (1) Investors (rank) Protecting Minority 48.33 48.33 51.67 65.83 62.50 58.33 62.50 50.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 4.0 4.0 5.0 6.7 6.7 6.3 6.0 5.0 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.7 5.7 5.3 6.5 5.8 5.3 6.5 5.2 France (7.8)* 10) Strength of minority investor protection 4.8 4.8 5.2 6.6 6.3 5.8 6.3 5.1 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 108 157 60 17 136 70 87 49 (1)* Paying Taxes (DTF United Arab Emirates 70.33 54.68 78.29 90.04 63.15 76.57 73.51 80.63 Score) (99.44)* Payments (number per Hong Kong SAR, 5.0 28.0 7.0 6.0 52.0 21.0 18.0 7.0 year) China (3.0)* Time (hours per year) 350.0 390.0 183.0 188.0 210.0 185.0 286.0 168.0 Luxembourg (55.0) Trading Across Borders 154 153 145 185 183 152 41 155 Singapore (1) (rank) Trading Across Borders 53.96 53.44 59.09 7.87 9.70 54.97 81.80 53.58 Singapore (96.47) Doing Business 2015 Ukraine 14 Kyrgyz Republic DB2015 Best performer globally Kazakhstan DB2015 Russian Federation Moldova DB2015 Ukraine DB2015 Ukraine DB2014 Belarus DB2015 Poland DB2015 Indicator DB2015 DB2015 (DTF Score) Documents to export 8 8 8 10 9 9 5 9 Ireland (2)* (number) Time to export (days) 29.0 29.0 15.0 79.0 63.0 23.0 15.0 21.1 5 Economies (6.0)* Cost to export (US$ per 1,880.0 1,930.0 1,460.0 5,285.0 4,760.0 1,510.0 1,050.0 2,400.5 Timor-Leste (410.0) container) Cost to export (deflated 1,880.0 1,956.4 1,460.0 5,285.0 4,760.0 1,510.0 1,050.0 2,400.5 US$ per container) Documents to import 9 9 10 12 11 11 4 10 Ireland (2)* (number) Time to import (days) 28.0 28.0 30.0 67.0 73.0 27.0 14.0 19.4 Singapore (4.0) Cost to import (US$ per 2,455.0 2,505.0 2,265.0 5,265.0 6,000.0 1,870.0 1,025.0 2,594.5 Singapore (440.0) container) Cost to import (deflated 2,455.0 2,539.2 2,265.0 5,265.0 6,000.0 1,870.0 1,025.0 2,594.5 US$ per container) Enforcing Contracts 43 44 7 30 56 42 52 14 Singapore (1) (rank) Enforcing Contracts 66.25 66.25 78.70 69.33 64.63 66.68 64.83 75.85 Singapore (89.54) (DTF Score) Time (days) 378.0 378.0 275.0 370.0 260.0 567.0 685.0 267.0 Singapore (150.0) Cost (% of claim) 46.3 46.3 23.4 22.0 37.0 28.6 19.4 14.9 Iceland (9.0) Procedures (number) 30.0 30.0 29.0 36.0 38.0 31.0 33.0 35.0 Singapore (21.0)* Resolving Insolvency 142 141 68 63 157 58 32 65 Finland (1) (rank) Resolving Insolvency 31.17 30.98 48.18 51.45 24.38 53.32 69.73 49.69 Finland (93.85) (DTF Score) Doing Business 2015 Ukraine 15 Kyrgyz Republic DB2015 Best performer globally Kazakhstan DB2015 Russian Federation Moldova DB2015 Ukraine DB2015 Ukraine DB2014 Belarus DB2015 Poland DB2015 Indicator DB2015 DB2015 Time (years) 2.9 3.0 1.5 4.0 2.8 3.0 2.0 Ireland (0.4) Cost (% of estate) 42.0 42.0 22.0 15.0 15.0 15.0 15.0 9.0 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 0 0 1 0 0 0 1 0 going concern) Recovery rate (cents on 8.6 8.2 37.3 43.3 19.2 29.4 57.0 43.0 Japan (92.9) the dollar) Strength of insolvency 8.5 8.5 9.0 9.0 4.5 12.0 12.5 8.5 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Ukraine 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Ukraine 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Ukraine? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 6.0 procedures, takes 21.0 days, average of the 2 largest business cities. See the chapter costs 1.2% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the 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 2015 Ukraine 18 STARTING A BUSINESS Globally, Ukraine stands at 76 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Ukraine to The rankings for comparator economies and the regional 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 2015 Ukraine 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Ukraine (table 2.1)? Table 2.1 How has Ukraine made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform 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 2015 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 Legal form: Tovarystvo z Obmezhenoyu firm. These are identified by Doing Business through Vidpovidalnistyu - Limited Liability Company collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid in minimum capital requirement: UAH 0 information on business entry in that economy. City: Kiev Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita 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). Table 2.2 Summary of time, cost and procedures for starting a business in Ukraine - 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 May 15, 2003) (http://zakon4.rada.gov.ua/laws/show/755-15state), state 1 day UHA 170 1 registration fee is 170 UAH Agency: Bank 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); included in the 2 - original (copy or notarized copy) of the founders' decision on 5 days previous procedure establishment of the LLC; - 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; Doing Business 2015 Ukraine 21 Time to No. Procedure Cost to complete complete - document evidencing the individual beneficiary owners of the LLC, in case the formal founders of the LLC are legal entities. 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. Agency: State Registrar 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 above mentioned Tax Code also provides option for voluntarily VAT 10 days free of charge 3 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. Agency: District Tax Office Prepare a seal The use of a company seal is not mandated by law but the seal is widely use in practice. UAH 190-250, 4 2 days depending on the complexity of a seal Agency: Sealmaker Open a permanent bank account According to the regulation № 212 of the National bank of Ukraine ""On Alteration to some regulation acts of the National bank of Ukraine"" dated June 06, 2013, the list of required documents for 5 opening of the bank account for the Legal Entity is as follows: 1 day no charge a) bank signature specimen card certified by a notary is replaced by card with samples of signature and imprint of seal; b) the copy of extract from Unified State registrar of Entities and Entrepreneurs needs to be presented (http://zakon4.rada.gov.ua/laws/show/z1121-13). Doing Business 2015 Ukraine 22 Time to No. Procedure Cost to complete complete Agency: Bank 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 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. 6 A limited liability company may use its account for outflow operations 2 days no charge only after the bank receives notification from the tax inspection on registration of the respective account. According to the Tax Code Amendments and the Notification Order, the bank shall notify the Ministry of Duties and Revenues of Ukraine via Internet about the account opening within 1 business day. After receiving the electronic notification through the Internet portal, a local tax authority within 1 business day shall notify the bank about registration of the account/refusal to register the account (if applicable). Agency: District Tax Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 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 excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Ukraine 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build economy, except for 11 economies for which the data a warehouse in Ukraine? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 8.0 procedures, takes 64.0 days and costs 10.2% and ease of doing business ranking at the end of this of the warehouse value (figure 3.1). Most indicator sets profile for more details. refer to a case scenario in the largest business city of an 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 2015 Ukraine 25 DEALING WITH CONSTRUCTION PERMITS Globally, Ukraine stands at 70 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Ukraine to legally build a warehouse. Figure 3.2 How Ukraine and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Ukraine 26 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Ukraine (table 3.1)? Table 3.1 How has Ukraine made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine made dealing with construction permits easier by DB2011 implementing national and local regulations that streamlined procedures. 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 2015 Ukraine 27 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 Estimated cost of information collected from experts in construction UAH 1,632,940 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Kiev service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Ukraine - Time to No. Procedure Cost to complete complete Request and obtain urban planning specifications and requirements for land plot development To obtain urban development specifications and requirements, BuildCo submits the documents (to the Main Department of Architecture and Urban Planning of the Kyiv City State Administration) provided by the Law on Urban Planning, Order Ministry of Regional Development dated July 07, 2011. № 109 "On approval of the provision of urban conditions and restrictions land development, their structure and content" and the Cabinet of Ministers of Ukraine of December 07, 2005 № 1176. The architectural and technical objectives/conditions are part of the input data needed for designing the project. Resolution 489 of the Cabinet of Ministers "On Approval of the Procedure for Issuance of the Benchmark Data for the Designing of Town Planning Objects"dated May 20, 2009 develops provisions of Law 1 of Ukraine No. 509-VI dated September 16, 2008. Under Regulation No. 9 days no charge 489, the benchmark data include: • City planning conditions • Technical conditions • Design assignment The city planning conditions and restrictions are based on the respective city development rules (Rules of Development of Kiev City). These should not interfere with the engineering and architectural solutions of the project, unless only 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 same Regulation No. 489. In order to obtain the city planning conditions and restrictions, BuildCo should submit to the Main Department of the City-Planning, Architecture and Urban Environment Design of the Kiev City State Administration the application together with the notarized copies of its foundation documents and of the documents confirming its land title as well as pre-design documents, if Doing Business 2015 Ukraine 28 Time to No. Procedure Cost to complete complete any. The documents are checked for compliance with the city development rules (Rules of Development of Kiev City) within 10 days upon receipt of the documents. In case of the positive outcome of such a compliance check, the city planning conditions and restrictions are issued to the developer (BuildCo) within 2 weeks. If, however, the outcome is negative, the respective conclusion and recommendations on elimination on noncompliance is issued within a one-month term. 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, but for the term not less than 2 and not longer than 5 years and they can be extended at the request of the developer. The design assignment should comply with the city planning conditions and terms and refine the benchmark for design, with account for the specific features of the project. The design assignment is developed and approved by the developer and is provided to the general designer for the project. Agency: Chief Department of Town-Planning, Architecture and Urban Environment Design of the Kiev City State Administration * Request and obtain technical terms and conditions from 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. A fee estimated to UAH 2,895.00 might be paid by BuildCo. The 2 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 June 27, 2008 as further amended. Agency: Kyivvodokanal Joint Stock Company Doing Business 2015 Ukraine 29 Time to No. Procedure Cost to complete complete * Request and obtain technical terms and conditions from the State Service of Ukraine for Emergency Situations According to the Decree of the Ministry of Defense of Ukraine from November 14, 2013 № 771 "On approval of rules on providing technical conditions on fire and technological security for engineering provisions of construction projects" the technical conditions for fire and 19 days no charge 3 technological safety are provided by the State Service of Ukraine for Emergency Situations and its territorial bodies free of charge within 15 working days from the date of receipt of the application. Agency: State Service of Ukraine for Emergency Situations * 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 operation will be approved only after paying the obligatory share of 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 16, 2008, No. 509-VI, there is a new order on paying the contribution to 4 the city social and engineering-transport infrastructure. This amends 1 day UAH 163,294 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 building permit obtaining • 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, Doing Business 2015 Ukraine 30 Time to No. Procedure Cost to complete complete 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 * s * 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 = kz * I i, wherein kz - 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), however, coefficient 2 would be most likely for the areas where warehouses are built. Inflation index since 2009 (according to the State Statistics Committee) is 132. 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 * 1.32 * 2 = 186,787. However, since this amount exceeds the 10% of the construction value, the contribution would be limited to 10% of the warehouse value. Agency: Kiev City Administration Doing Business 2015 Ukraine 31 Time to No. Procedure Cost to complete complete Submit declaration of the beginning of construction works The procedure is regulated by the Law of Ukraine "On regulation of urban development" of March 12, 2011. BuildCo must notify the State Inspection of Architecture and Construction Control in Kiev about the start of construction works before it is allowed to conduct any construction activities. According to Article 36 of the Law, applicant shall obtain the right to perform construction work on objects related to I - III categories of complexity (including warehouse, which falls under the category II building), after the registration of the declaration of the beginning of construction work. 5 7 days no charge In accordance with the Cabinet of Ministers of Ukraine "Some questions of preparatory and construction works" № 466 dated April 13, 2011, the declaration must be registered at the Inspectorate of State Architectural and Construction Control in Kiev within 5 working days from the date of submission. If inspection is not registered within the prescribed period, the applicant on the basis of "tacit consent" acquires the right to perform construction work on the 11th working day from the date when the declaration had to be registered or returned. Agency: State Inspection of Architecture and Construction Control in Kiev Request and connect to water and sewage services The exact total price and other terms for connection the warehouse to 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 6 elaborated for the purpose of connection. Therefore the cost provided 4 days UAH 700 above should be deemed as an average approximate cost. Agency: Kyivvodokanal Joint Stock Company Prepare and submit declaration of readiness to operate the constructed warehouse to the State Inspection of Architectural and Building Control The procedure for obtaining permission to start the operation of a newly constructed building is regulated by the Resolution of the Cabinet of Ministers of Ukraine dated April 13, 2011 № 461 on "The acceptance of the completed construction projects" and the Law of Ukraine "On regulation of urban development." The case study 7 warehouse will be assigned to category II or III of complexity. According 14 days no charge to the above regulations, and laws, the acceptance for operation of building within categories I-III is carried out by the registration at the State Inspection of Architecture and Construction Control and its territorial bodies. The builder has to file a declaration of readiness to put the newly constructed building into operation. Registration of the declaration of readiness is done free of charge within 10 working days from the date of application. The date of acceptance of a building in the I-III categories of complexity is the date of registration of the declaration of readiness. Doing Business 2015 Ukraine 32 Time to No. Procedure Cost to complete complete Agency: State Inspectorate 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 1, 2013, the procedure for property registration was changed due to amendments to the Law “On State 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. 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. 8 18 days UAH 239 Upon performance of the state 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 the 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 the ownership certificate. Agency: Registration Service of the Chief Department of Justice in the City of Kyiv * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Ukraine 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Ukraine 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Ukraine? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 10.0 which the data are a population-weighted average of the procedures, takes 277.0 days and costs 165.5% of 2 largest business cities. See the chapter on distance to income per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in 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 2015 Ukraine 35 GETTING ELECTRICITY Globally, Ukraine stands at 185 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Ukraine to connect The rankings for comparator economies and the regional 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 2015 Ukraine 36 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Ukraine practices and internal wiring installations. In an effort to (table 4.1)? Table 4.1 How has Ukraine made getting electricity easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine made getting electricity easier by streamlining the DB2014 process for obtaining a new connection. Source: Doing Business database. Doing Business 2015 Ukraine 37 GETTING ELECTRICITY What are the details? The indicators reported here for Ukraine are based on a OBTAINING AN ELECTRICITY CONNECTION set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: JSC Kievenergo identified by Doing Business. Data are collected from the distribution utility, then completed and verified by City: Kiev electricity regulatory agencies and independent professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Ukraine - 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 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 1 of reconstruction works - participation of the subscriber in the given 15 calendar days UAH 0 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 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. Agency: Kievenergo Doing Business 2015 Ukraine 38 Time to No. Procedure Cost to complete complete 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 Architectural Planning Organization. At this point the customer should have an operation permit for the warehouse or Main Plan with the Landscape Allocation Plan. The approvals are obtained by the project design firm. 2 If a substation is required before the project design is submitted for 45 calendar days UAH 11,474.44 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. 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 Architectural Planning Organization. At this point the customer should 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”). Doing Business 2015 Ukraine 39 Time to No. Procedure Cost to complete complete 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. Agency: Project design firm Obtain an excavation permit at the Head Directorate for Control of Maintenance of Kiev. Electrical contractor obtains the permit. 3 3 calendar days UAH 250 Agency: Head Directorate for Control of Maintenance of Kiev Await completion of the external connection works 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 The installed 10 and 0.4 kV cable lines have to be transferred to the city 40 calendar days UAH 41,977 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). Agency: Private electrical contractor Doing Business 2015 Ukraine 40 Time to No. Procedure Cost to complete complete Await and obtain an inspection by the Acceptance Committee (приемочная комиссия Государственного Архитектурно- Строительного Контроля) of the Inspectorate of the State Architecture and Construction control The Committee consists of different members from government construction organizations. Kievenergo can be one of the members. The Committee checks the external installation and internal wiring. They 11 calendar days UAH 0 5 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. Agency: Acceptance Committee Await and obtain an external inspection carried out by Kievenergo Energosbyt Kievenergo supply checks the meters. 5 calendar days UAH 0 6 Agency: Kievenergo Energosbyt 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 external connection works. Someone from the applicant’s party has to be 7 present. 5 calendar days UAH 350 Agency: State Inspectorate for Protection of Workers 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 20 calendar days UAH 0 8 Kievenergo (Energosbyt). The supply contract can be concluded only after all the inspections above are completed. 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 Doing Business 2015 Ukraine 41 Time to No. Procedure Cost to complete complete Technical Report of the tests of the internal wiring which should be completed after the internal wiring was finished by an electrician. Agency: Energosbyt (Kievenergo) * 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 specifying all the electrical parameters of the substation, its plan, 9 approvals from the Inspectorates and a form which has to be signed in 150 calendar days UAH 0 14 to 15 various departments of Kievenergo to obtain a permission to turn the substation on and connect it to the 10 kV line. Agency: Kievenergo 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 department of Kievenergo. The dispatcher department processes the 10 order which permits it to turn off the 10 kV cable line, do the testing of 3 calendar days UAH 0 the high voltage cable and finally turn on the electricity for the substation. Agency: Kievenergo * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Ukraine 42 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Ukraine 43 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Ukraine? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 7.0 procedures, takes which the data are a population-weighted average of the 27.0 days and costs 2.0% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in 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 2015 Ukraine 44 REGISTERING PROPERTY Globally, Ukraine stands at 59 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 2015 Ukraine 45 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Ukraine (table 5.1)? Table 5.1 How has Ukraine made registering property easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform 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 2015 Ukraine 46 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: UAH 1,632,940 notaries and property registries. These procedures are those that apply to a transaction matching the City: Kiev standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Ukraine Time to No. Procedure Cost to complete complete 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 UAH (around 60 USD) and take minimum 2 weeks. The procedure of evaluation of the price of land is quite complex, it includes land 14 days UAH 1,000 1 inspection, market research, etc. Evaluation of the price of land is required before the notarization of the agreement. Agency: Center of State Land Cadastre Obtain an 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 UAH 53 2 Law and Paragraphs 162 - 186 of the CMU Resolution No 1051. While 10 days 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 the following documents to obtain the extract: - application in accordance with established form; Doing Business 2015 Ukraine 47 Time to No. Procedure Cost to complete complete - 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 the above documents, the Seller shall present original document confirming ownership rights to the land plot (e.g. a state act of ownership rights) and personal identification document. The extract is valid for 3 months." Agency: Chief Department of the State Agency of Land Resources in the City of Kyiv Notary registers ownership rights for 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 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 to immovable property which have been registered before January Less than a day 01, 2013. For this reason, prior to execution of the Property sale and (online UAH 1700 3 purchase agreement, the Seller has to register procedure) ownership rights to the Property in the new Register of Property Rights. 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. Doing Business 2015 Ukraine 48 Time to No. Procedure Cost to complete complete 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. " Agency: Notary Obtain extract from the State Register of Encumbrances over movable property The notary will verify through this procedure that the tax authorities have not registered a security interest over the real property. Since January Less than a day 2013, the notaries can obtain this information online. (online UAH 34 4 procedure) Agency: Notary Check for encumbrances at the State Registry of Property Rights on Immovable Property "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. From January 01, 2013, three state registers containing information about encumbrances on immovable property – (1) State Register of Mortgages; (2) State Register of Immovable Property Alienation Bans; Less than a days and (3) State Register of Encumbrances over Movable Property (in (online; respect of tax liens) – are inactive. These registers serve only as a source UAH 136 5 simultaneous of information for the notary who transfers the relevant encumbrances with procedures 6 from these registers to the Register of Property Rights upon first-time & 7) 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. This procedure takes one day and is performed on the same day on which the Property sale and purchase agreement is executed, prior to the execution of the agreement." Agency: Notary Doing Business 2015 Ukraine 49 Time to No. Procedure Cost to complete complete * Preparation and notarization of the sale agreement (land and building) by the notary 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 standard proforma. State Duty (fee) is paid to the notary and equals 1% of the transactional value of the building. The buyer of the building will also pay a special assessment in the amount of 1% of building’s transactional value to the State Pension Fund. The buyer can make the 1% of the building payment to the State Pension Fund prior to the notarization of building value (stamp duty) sale agreement or provide the notary with the money to make such + Contribution to payment. The documentation shall include: • BTI Certificate (obtained in 1 day pension fund = 1% Procedure 1) • Ownership documents • Founding documents of the (simultaneous 6 of the transaction company • Decision with respect to the sale of the building (if necessary) with procedures 5 value (contribution • Extract from the State Land Cadastre, • Extracts from the Unified State & 7) to pension fund) + Registry of Legal Persons and Physical Persons - Entrepreneurs (term - 2 days, cost - up to UAH 50, documents - copy of the passport and UAH 3000 notary application, issuing authority - any State District Administration in the fee. City (but it is recommended to obtain it in the administration in which respective legal person was registered)) • Act of evaluation of parcel of land obtained in Procedure 4, powers of attorney (if necessary) • 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 (cost of such extract approximately UAH 100) Agency: Notary * Notary registers Buyer's ownership rights on the property in the Register of Property Rights Less than a day "From January 01, 2013, the registration of ownership rights to (online immovable property (other than newly procedure; 7 constructed building/newly alloted land plot in some other cases) is UAH 1,700 simultaneous performed by notaries attesing the sale with procedures 5 and purchase agreement (Articles 3.5, 9 of the Law of Ukraine “On State & 6) Registration of Property Rights to Immovable Property and Their Encumbrances”). Doing Business 2015 Ukraine 50 Time to No. Procedure Cost to complete complete Following notarial attestation of the Property sale and purchase agreement, the notary shall register Buyer’s ownership rights to the Property in the Register of Property Rights. The procedure of registration is governed by Articles 15-24 of the Law of Ukraine “On State 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. " Agency: Notary * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Ukraine 51 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Ukraine 52 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Ukraine stands at 17 in the ranking of 189 and bankruptcy laws in Ukraine facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 7 on the depth of rankings for comparator economies and the regional credit information index and a score of 8 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in end of this chapter for details). Higher scores indicate Ukraine support lending and borrowing. 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 2015 Ukraine 53 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Ukraine and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Ukraine 54 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Ukraine (table 6.1)? Table 6.1 How has Ukraine made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine improved access to credit information by collecting DB2014 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 2015 Ukraine 55 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 are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or 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, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 8 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 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 for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's Yes name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 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 subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Ukraine 56 Strength of legal rights index (0–12) Index score: 8 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through Yes public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 7 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 200,000 0 Number of individuals 15,200,000 0 Percent of total 48.0 0.0 Doing Business 2015 Ukraine 57 Source: Doing Business database. Doing Business 2015 Ukraine 58 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Ukraine 59 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Ukraine? The economy has a score of 4.8 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Ukraine stands at 109 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Ukraine and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Ukraine 60 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Ukraine in 2014. A summary of scoring for the minority investors indicators into context is to see where protecting minority investors indicators at the end of this the economy stands in the distribution of scores across chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Ukraine 61 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Ukraine 62 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Ukraine 63 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Ukraine 64 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Ukraine (table 7.1)? Table 7.1 How has Ukraine strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine strengthened investor protections through a new joint stock companies law enhancing approval requirements for DB2010 related-party transactions, increasing disclosure requirements in the annual report and making it easier to sue directors in cases where related-party transactions harm the company. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Ukraine 65 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Ukraine are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Ukraine. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Ukraine Answer Score Extent of disclosure index (0-10) 4.0 Which corporate body can provide legally sufficient Shareholders or board of directors 1 approval for the Buyer-Seller transaction? (0-3) including interested parties Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction only 1 (annual reports) required? (0-2) Is immediate disclosure of the transaction to the public No disclosure obligation 0 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 2.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Not liable 0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a No 0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 6.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? No 0 (0-1) Can the plaintiff obtain any documents from the defendant No 3 Doing Business 2015 Ukraine 66 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1 the company? (0-2) Strength of minority investor protection index (0-10) 4.8 Extent of conflict of interest regulation index (0-10) 4.0 Extent of shareholder rights index (0-10.5) 7.0 Can shareholders amend company bylaws or statutes with a Yes 1.5 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes for listed companies 1 on new shares? Must shareholders approve the election and dismissal of the No 0 external auditor? Can shareholders freely trade shares prior to a major No 0 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 3.0 Is the CEO barred from also serving as chair of the board of No 0 directors? Must the board of directors include independent board No 0 members? Must a company have a separate audit committee? No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 shares? Must a potential acquirer make a tender offer to all No 0 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 7.0 Must ownership stakes representing 10% be disclosed? Yes for listed companies 1 Must information about board members’ other directorships as well as basic information on their primary employment Yes 1.5 be disclosed? Must the compensation of individual managers be Yes for listed companies 1 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes for listed companies 1 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Ukraine 67 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 5.7 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Ukraine 68 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Ukraine—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 5.0 tax payments a year, spend this profile for more details. 350.0 hours a year filing, preparing and paying taxes and Globally, Ukraine stands at 108 in the ranking of 189 pay total taxes amounting to 52.9% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Ukraine. Figure 8.1 How Ukraine and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Ukraine 69 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 rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Ukraine payments or offering electronic filing and payment. (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 from DB2010 to DB2015 DB year Reform 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. Ukraine made paying taxes easier for companies by introducing DB2015 an electronic system for filing and paying labor taxes. On the other hand, it increased the environmental tax. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Ukraine 70 PAYING TAXES What are the details? The indicators reported here for Ukraine are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Kiev chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate gross Unified Social Contribution 1 online filing 100 38.19% 43.1 salaries taxable Corporate income tax 1 online filing 100 19% 9.7 profit various land area Land tax 1 online filing 0 0.1 rates and value various ton of Environmental taxes 1 online filing 0 0 rates waste Employee paid - Social gross 0 paid jointly 0 3.6% 0 withheld security contributions salaries value not Value added tax (VAT) 1 online filing 150 20% 0 added included Totals 5.0 350.0 52.9 Source: Doing Business database. Doing Business 2015 Ukraine 71 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Ukraine 72 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Ukraine? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 8 documents, doing business ranking at the end of this profile for more takes 29.0 days and costs $1880.0. Importing the same details. container of goods requires 9 documents, takes 28.0 Globally, Ukraine stands at 154 in the ranking of 189 days and costs $2455.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Ukraine to export and import goods. Figure 9.1 How Ukraine and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Ukraine 73 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Ukraine (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Ukraine made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine made trading across borders more difficult by DB2012 introducing additional inspections for customs clearance of imports. 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 2015 Ukraine 74 TRADING ACROSS BORDERS What are the details? The indicators reported here for Ukraine are based on LOCATION OF STANDARDIZED COMPANY a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: Odessa cover). Information on the required documents and the time and cost to complete export and import is collected from local freight forwarders, shipping lines, City: Kiev customs brokers, port officials and banks. The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Ukraine Stages to export Time (days) Cost (US$) Customs clearance and inspections 1 250 Documents preparation 22 250 Inland transportation and handling 3 950 Ports and terminal handling 3 430 Totals 29 1,880 Stages to import Time (days) Cost (US$) Customs clearance and inspections 2 300 Documents preparation 20 555 Inland transportation and handling 3 1,000 Ports and terminal handling 3 600 Totals 28 2,455 Doing Business 2015 Ukraine 75 Documents to export Bill of lading Certificate of Origin Commercial invoice Consignment note/ CMR (tovarno-transportnaya nakladnaya) Customs export declaration Loading order (pogruzochnoe poruchenie) Packing list Sales purchase contract Documents to import Bill of Lading Cargo release order (naryad) Certificate of origin Commercial invoice Consignment note/ CMR (tovarno-transportnaya nakladnaya) Customs import declaration Declaration of Conformity Packing list Sales purchase contract Source: Doing Business database. Doing Business 2015 Ukraine 76 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Ukraine 77 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial cities. See the chapter on distance to frontier and ease of dispute through the courts in Ukraine? According to data doing business ranking at the end of this profile for more collected by Doing Business, contract enforcement takes details. 378.0 days, costs 46.3% of the value of the claim and Globally, Ukraine stands at 43 in the ranking of 189 requires 30.0 procedures (see the summary at the end of economies on the ease of enforcing contracts (figure this chapter for details). Most indicator sets refer to a 10.1). The rankings for comparator economies and the case scenario in the largest business city of an economy, regional average ranking provide other useful except for 11 economies for which the data are a benchmarks for assessing the efficiency of contract population-weighted average of the 2 largest business enforcement in Ukraine. Figure 10.1 How Ukraine and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Ukraine 78 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in Ukraine (table 10.1)? Table 10.1 How has Ukraine made enforcing contracts easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Ukraine amended legislation to streamline commercial dispute DB2012 resolution and increase the efficiency of enforcement procedures. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Ukraine 79 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 on what Claim value: UAH 60,737 the indicators cover). These procedures, and the time and cost of completing them, are identified through Court name: Kiev Commercial Court study of the codes of civil procedure and other court regulations, as well as through questionnaires City: Kiev completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Ukraine Europe & Central Indicator Ukraine Asia average Time (days) 378 448 Filing and service 48 Trial and judgment 150 Enforcement of judgment 180 Cost (% of claim) 46.3 25.2 Attorney cost (% of claim) 25.0 Court cost (% of claim) 9.9 Enforcement Cost (% of claim) 11.4 Procedures (number) 30 37 Number of procedures (without bonus points) 31 Specialized commercial courts -1 Total number of procedures (including bonus points) 30 Doing Business 2015 Ukraine 80 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). 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, as required by law or standard practice. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 5 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 6 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 7 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 8 pleading, which may or may not include witness statements or expert (witness) statements. Doing Business 2015 Ukraine 81 No. Procedures Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 9 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Adjournments: Court procedure is delayed because one or both parties request and obtain an 10 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 11 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). * Setting of date(s) for oral hearing or trial: 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 as a matter of common practice. 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. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 19 in favor of Plaintiff (see assumption 6). Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 20 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 21 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 22 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Doing Business 2015 Ukraine 82 No. Procedures Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 23 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 24 judgment. 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. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 26 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. 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 2015 Ukraine 83 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Ukraine 84 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Ukraine characterize the top-performing economies. How scores 3.0 out of 3 points on the commencement of efficient are insolvency proceedings in Ukraine? proceedings index, 4.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 0.5 out of 3 points insolvency takes 2.9 years on average and costs 42.0% of on the reorganization proceedings index, and 1.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Ukraine’s that the company will be sold as piecemeal sale. The total score on the strength of insolvency framework average recovery rate is 8.6 cents on the dollar. Most index is 8.5 out of 16. indicator sets refer to a case scenario in the largest Globally, Ukraine stands at 142 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Ukraine. Figure 11.1 How Ukraine and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Ukraine 85 Source: Doing Business database. Doing Business 2015 Ukraine 86 Figure 11.2 Recovery Rate (0-100) - Ukraine Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Ukraine Source: Doing Business database. Doing Business 2015 Ukraine 87 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 from DB2010 to DB2015 DB year Reform Ukraine amended its legislation on enforcement, introducing DB2012 more guarantees for secured creditors. 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 2015 Ukraine 88 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Ukraine LABOR MARKET REGULATION What are the details? The data reported here for Ukraine are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? 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 applicable to the worker assumed in the case study 147.69 (US$/month) Ratio of minimum wage to value added per worker 0.32 Source: Doing Business database. Doing Business 2015 Ukraine 90 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal No increase in workload? Maximum working days per week 5.5 Premium for night work (% of hourly pay) 20% Premium for work on weekly rest day (% of hourly pay) 100% Major restrictions on night work? No Major restrictions on weekly holiday? Yes 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 2015 Ukraine 91 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 1.0 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 2015 Ukraine 92 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 8.7 Notice period for redundancy dismissal for a worker with 5 years of tenure 8.7 Notice period for redundancy dismissal for a worker with 10 years of tenure 8.7 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 8.7 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 4.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 4.3 Severance pay for redundancy dismissal for a worker with 10 years of tenure 4.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? Yes Health insurance existing for permanent employees? No Availability of courts or court sections specializing in labor disputes? No Source: Doing Business database. Doing Business 2015 Ukraine 93 Doing Business 2015 Ukraine 94 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Ukraine 95 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Ukraine 96 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Ukraine 97 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Ukraine 98